Bangladesh is facing a complex economic recovery in the wake of the COVID-19 pandemic, according to a recent report by the World Bank. The Bangladesh Development Update highlights that the country is grappling with high inflation, a balance of payments deficit, and limited job opportunities for its youth, particularly affecting women and educated individuals.
The report reveals that Bangladesh's real GDP growth slowed to 5.2% in FY24 due to weak consumption and exports. It is expected to decelerate further to 4.0% in FY25 before recovering to 5.5% in FY26. Income inequality has also risen, especially in urban areas, as evidenced by an increase in the Gini index from 0.50 to 0.53 between 2010 and 2022.
Abdoulaye Seck, World Bank Country Director for Bangladesh and Bhutan, noted the challenges faced by young people entering the job market: “In recent years, Bangladesh’s growth has not translated into job creation for the large number of youths entering the job market every year. Particularly, the educated youth and women faced difficulty in getting jobs to fulfill their aspirations.” He expressed confidence that with "urgent and bold reforms" focusing on economic governance and business environment improvements, Bangladesh could return to a path of strong inclusive growth.
Inflation averaged 9.7% in FY24 due to high food and energy prices but is anticipated to decrease if supply-side issues stabilize alongside prudent monetary policies. The fiscal deficit slightly moderated to 4.5% of GDP in FY24, with expectations it will remain within government targets.
The current account deficit improved thanks to reduced imports and strong remittances despite disruptions earlier this year. Dhruv Sharma, World Bank Senior Economist and Co-author of the report stated: “Pressure on the external sector is expected to persist in FY25, easing later if global conditions improve and exchange rate flexibility increases.”
Bangladesh Bank's implementation of a crawling peg exchange rate system helped narrow formal-informal exchange rate gaps while addressing banking sector liquidity issues remains a priority.