The World Bank has revised down its projection for Bangladesh’s economic growth, forecasting GDP to expand by a modest 3.3% in the 2024–25 fiscal year, significantly lower than previous estimates released in October 2023 and January 2024.
This adjustment, published yesterday in the South Asia Development Update, attributes the downgrade primarily to ongoing political uncertainty in the country.
The report warns that political instability, coupled with a weakening financial sector, is likely to stifle economic momentum.
Investment may be deterred as businesses remain wary of future governance outcomes.
The World Bank recalled earlier disruptions to economic activity during mass uprisings in July and August 2024, followed by political upheaval in the same year.
High inflation, currency devaluation, and rising fuel costs have placed a heavy burden on consumers, further dampening domestic demand.
Although export earnings and remittance inflows have shown signs of recovery, they remain insufficient to drive a robust economic rebound.
According to the report, the average inflation rate so far this fiscal year stands at 9.3%, peaking at 11.7% in July 2024. This erosion of purchasing power has led to a contraction in household consumption and internal demand.
While the central bank has raised interest rates in an effort to curb inflation, the transmission of these measures into the broader financial system has been weak.
The fragility of the banking sector—particularly the high volume of non-performing loans in state-owned banks—has undermined economic stability. The situation has compelled the government to provide emergency liquidity to several banks.
The World Bank also cited delays in transitioning from a fixed to a fully market-based exchange rate regime as a major drag on recovery, eroding investor confidence and global credibility. Weaknesses in financial governance are deterring much-needed investment.
The report further observed that despite relatively high tax rates across South Asia, revenue collection remains dismally low.
Between 2019 and 2023, average government revenue in the region stood at just 18% of GDP, compared to 24% in other developing regions. In Bangladesh, the ratio is notably lower, posing a serious barrier to resolving fiscal vulnerabilities.
Nevertheless, the World Bank acknowledged some positive developments, including rising export income and an increase in remittances through formal channels.
This shift is attributed to a narrowing gap between official and informal foreign exchange rates, reducing the appeal of the hundi system.
Notably, two months before its ouster in August 2024, the then-Awami League government projected a GDP growth rate of 6.75% in the national budget.
The interim administration led by Dr Muhammad Yunus has since revised the target downward to 5.5%.
The International Monetary Fund, in its World Economic Outlook released on Tuesday, estimated the growth rate to be 3.76% for the current fiscal year.
Franciska Ohnsorge, chief economist for the World Bank’s South Asia Region, underscored the structural problem of low revenue collection.
“Despite comparatively high tax rates, revenue mobilisation remains weak across South Asia,” she noted.
“This not only increases the burden on compliant taxpayers but also deprives governments of the resources needed to meet citizens’ basic needs.”
