[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Increase in VAT, move to gas price hike suicidal for economy: DCCI

Dhaka Chamber of Commerce and Industry president Taskeen Ahmed on Saturday said that increasing value added tax on more than hundred products, the rise in corporate tax for certain industries and...

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Increase in VAT, move to gas price hike suicidal for economy: DCCI
Staff Correspondent 12 January, 2025, 00:41

Dhaka Chamber of Commerce and Industry president Taskeen Ahmed on Saturday said that increasing value added tax on more than hundred products, the rise in corporate tax for certain industries and the plan to more than double the gas prices for industrial use would be suicidal for the economy.

At a press conference held at DCCI auditorium in the capital, he said that the country was facing significant economic challenges, including limited foreign exchange reserves, rising import costs, high energy prices, growing inflation, increased interest rates and limited access to credit.

‘Amidst global geo-political turmoil and the current challenges of the international and local economies, increasing VAT, rising tax on few industries and the initiative of increasing price of gas more than twice in the industry are catastrophic decisions for our business, trade and investment as well as for the overall economy,’ the DCCI president said.

He said that Bangladesh was on the right track for LDC graduation, but progress faced setbacks due to the Covid-19 pandemic, the Russia-Ukraine war, Middle East unrest, local political instability, geopolitical challenges and financial market instability.

‘Determining our preparedness in the current situation requires detailed discussions among public, private, and other stakeholders. If necessary, the government may consider deferring the graduation, taking into account the overall economy of the country and based on a collective national decision,’ DCCI president said.

If Bangladesh graduates in 2026, the government would need to ensure comprehensive cooperation with the private sector to help it overcome its challenges, the business leader mentioned.

Taskeen said that the country’s private sector had faced numerous challenges due to global geopolitical instability and its effects on both the international and local economies.

These included declining foreign exchange reserves, rising import costs, high energy prices, elevated inflation, increased interest rates, high tariff rates, rising VAT rates, and above all, a deteriorating law and order situation, he said.

This year the Dhaka Chamber will focus more on reducing interest rates, controlling inflation and keeping the foreign exchange rate stable, the business leader said.

He emphasised the need to expedite the flow of low-cost finance to the CMSME sector, highlighting it as the largest employment-generating sector in Bangladesh.

About the reform initiatives taken by the interim government, Taskeen expressed the expectation of the private sector that the government would complete the reform activities as per their set target soon.

He said that completing hundred economic zones by the year 2030 with all facilities was not an easy task.

‘Rather, if the government is able to ensure all required infrastructure and other facilities in the five economic zones, then domestic and foreign investors will be more optimistic and there will be a possibility of expanding investment activities,’ DCCI president said.

Regarding the continuation of the policy, he said that entrepreneurs had been encouraged to invest based on the assurance of a long-term supportive tax structure.

However, he cautioned that sudden decisions to increase taxes or duties midway would negatively impact entrepreneurs, which was highly undesirable.

Such measures could hinder both local and foreign investment, ultimately harming the economy, Taskeen said.

The DCCI president mentioned that Bangladesh’s tax-GDP ratio was very low, and the number of taxpayers in the country remained below expectations.

To address the budget deficit and ease economic pressure, he recommended that the government implement austerity measures in public spending.

Taskeen urged the government to avoid unnecessary projects and strengthen monitoring of the Annual Development Programme to ensure projects are completed on time.

DCCI senior vice-president Razeev H Chowdhury and vice-president Md Salem Sulaiman and members of the board of directors were also present on the occasion.​

 

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NBR's puzzling move and IMF loan strings

The move of the National Board of Revenue (NBR) to raise value-added tax (VAT) and supplementary duty (SD) on nearly 100 goods and services has evoked both surprise and anguish. Surprise, because the hike that has come halfway through the current financial year has all the potential to fuel inflat

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NBR's puzzling move and IMF loan strings
Shamsul Huq Zahid
Published :
Jan 12, 2025 00:19
Updated :
Jan 12, 2025 00:19

The move of the National Board of Revenue (NBR) to raise value-added tax (VAT) and supplementary duty (SD) on nearly 100 goods and services has evoked both surprise and anguish.

Surprise, because the hike that has come halfway through the current financial year has all the potential to fuel inflation, which hovered between 10 per cent and 11.5 per cent in the preceding months. Though essential food items have been spared, the latest tax increase -- in many cases, the increase is nearly 200 per cent -- covering a number of food and non-food items will surely impact the overall price situation.

A case in point is the hike in VAT rate on medicines. NBR says the hike is negligible but, in reality, patients will have to pay more than what the Board estimates. Taxmen are aware of this arithmetic. People have been hard hit by an unabated rise in the prices of medicines for a long time, as the government is found to be reluctant to take up the price issues with pharmaceutical companies, for reasons best known to it.

What is most surprising is that the latest tax hike effectively dilutes the serious efforts of the central bank to rein in inflation. It, with a few exceptions, has stopped printing high-powered money that fuels inflation. Besides, it has hiked the policy rates several times, as part of its contractionary monetary policy.

Two key institutions of the government -- the Bangladesh Bank and the NBR, it seems, are not in sync and operating in opposing directions, as far as the task of reining in soaring inflation is concerned.

The central bank has been partially successful in stabilizing the country's reserves situation, thanks to increased exports and remittance earnings in recent months. Its efforts to contain inflation have not met with success up to the desired level.

The food inflation last month dropped a little, mainly because of the increased supply of vegetables and fish. Despite a notable fall in the prices of the two food items during the current month, it is hard to make any prediction about the price situation in the coming months, as the country's main staple -rice -- is becoming costlier even during the peak harvesting season. The men in authority blame the so-called syndicates or millers for the price rise but they do little to stop the malpractice. Such a failure pains the poor consumers. So, the nominal decline in food prices could be short-lived because of the possible supply crunch and the increase in VAT and SD.

The last week's hike in tax rates has aroused deep anguish among consumers, particularly those who belong to the lower to middle classes and poorer sections of society. These people are truly hard-hit. In fact, they are skipping or have cut down on food items the prices of which have gone beyond their reach. Also, many of them have put on hold their travel and leisure plans for the time being.

In such a situation, one question might be agitating the minds of many why has the interim government taken such an unpopular move of raising taxes right at this moment when people are unhappy with the price situation? The skyrocketing prices of most essentials had been one of the key reasons that had prompted low-income and poor people to take to the streets alongside the students. They expected some price relief under the non-political interim government. Unfortunately, their hope has been largely dashed, primarily due to the failure of the authorities concerned. The latter are clueless about the price increase. The reason/s they cite in their public statements, however, are not different from the honchos of the immediate past regime.

The latest NBR decision coupled with the proposal placed by Petrobangla to raise gas prices has also stirred up deep resentment among the businesses who feel that the move would further push up their cost of production and reduce the ability of the local exporters to compete in the international market. The economy has been stagnant for a considerable time. This is evident from the continuous slide in the private sector credit growth. Last week's tax measures are likely to intensify the crisis.

What, it seems, has prompted the NBR to go for such an unpopular move to raise VAT and SD on many items in the middle of the fiscal year is the compliance issue. The Board will have to collect a sum of Tk.120 billion in taxes over the amount to be mopped up normally by June 30 next, to meet the target set under the IMF's US$ 4.7 billion loan facilities approved earlier for Bangladesh. The NBR has been facing a serious shortfall in revenue earnings this fiscal. During the first five months of the fiscal year 2024-25, the deficit vis-à-vis the revenue target amounted to more than Tk. 420 billion. The revenue shortfall is feared to be bigger at the end of the year. So, it is very difficult to justify the NBR's move to collect an additional amount of Tk.120 billion by raising VAT and SD on a large number of goods and services. These are indirect taxes that are passed on to the consumers. The NBR should have mobilized more revenues, particularly through direct taxation, by raising its efficiency level.

Many see the IMF as an institution that maintains double standards. They complain that the Bretton Woods institution extends bailouts in crisis time to countries but causes enormous suffering to their poor consumers in return. At the policymakers' level, the multilateral lender is seen as a saviour, but some others have reservations about its role. The bailout often falls through.​

 

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US top remittance source in Nov, Dhaka top recipient

The biggest source of all the remittance received by Bangladesh last November was the US, according to the latest report of Bangladesh Bank (BB)..Moreover, Dhaka secured the lion’s share of the foreign currencies..Bangladeshi migrants sent home $2,199.99 million in November. Of it, $

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US top remittance source in Nov, Dhaka top recipient

Our study showed that it is possible for a factory to reach a high level of social compliance and at the same time be fully competitive by using audits to improve conditions for both workers and the business.

The biggest source of all the remittance received by Bangladesh last November was the US, according to the latest report of Bangladesh Bank (BB).

Moreover, Dhaka secured the lion's share of the foreign currencies.

Bangladeshi migrants sent home $2,199.99 million in November. Of it, $511.96 million came from the US and $684.58 million was sent to Dhaka district.

Chattogram and Sylhet divisions followed suit, receiving $603.9 million and $199.6 million respectively.

The BB report stated that remittance inflows in that month witnessed a year-on-year growth of 14 percent.

"In the current political and economic landscape, marked by inflationary pressures, exchange rate fluctuations, and rising import costs, remittances have provided much-needed relief," said the BB in its monthly report on remittance inflows.

The foreign currencies bolstered foreign currency reserves and supported millions of households across the country, it said.

Remittance inflow surged 23 percent year-on-year to nearly $27 billion in 2024, the highest on record.

"The steady flow of remittances has been a stabilising factor, contributing to poverty reduction, improved living standards, and regional development," said the report.

"In the context of the ongoing economic recovery post-pandemic, coupled with political transitions, remittances are even more critical in sustaining economic growth, ensuring liquidity in the banking sector, and reducing reliance on external borrowing," it added.

The BB reported that during the first five months of fiscal year 2024-25, which began last July, remittance inflows grew 26.44 percent year-on-year to $11,137 million.

The United Arab Emirates (UAE) was the largest source of remittance during this period, followed by the US.

Saudi Arabia, which employs over 2 million Bangladeshi migrant workers, was the third-largest source of remittance.

Other notable contributors included Malaysia, the United Kingdom, Kuwait, and Italy.

Among the banks, Islami Bank Bangladesh collected the highest amount of remittance in November 2024.

Agrani Bank and Janata Bank also performed well, reflecting their extensive networks and efficient remittance services.

The BB emphasised that workers' remittance plays a pivotal role in Bangladesh's economy, serving as one of the largest sources of foreign exchange.

Approximately 13 million Bangladeshi nationals are working in various parts of the world.

"Inward remittances from Bangladeshi expatriates are very significant for the nation... Expatriates' remittances are one of the largest sources of foreign currency," the BB noted.

The BB suggested targeted strategies to support the migrant workforce, enhance the economic benefits of remittances, improve the financial inclusion of recipients, and address the needs of migrant workers abroad.​

 

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Why is Bangladesh failing to draw in foreign investment?

When a wealthy person in Bangladesh thinks about investing his surplus wealth, does he consider buying land, keeping it in a high-interest fixed deposit, or investing it in industries? Similarly, when a wealthy person, or company, in Dubai, Singapore, Mumbai, Kuala Lumpur, London, Paris or New...

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Why is Bangladesh failing to draw in foreign investment?

The way to increase foreign direct investment in Bangladesh is to create a skilled workforce and decrease political unrest. The main factor in attracting foreign investment in Bangladesh is cheap labour. But now cheap labour alone is not enough to being in significant investment.

Mamun Rashid Contributor image
Updated: 14 Jan 2025, 19: 07


When a wealthy person in Bangladesh thinks about investing his surplus wealth, does he consider buying land, keeping it in a high-interest fixed deposit, or investing it in industries? Similarly, when a wealthy person, or company, in Dubai, Singapore, Mumbai, Kuala Lumpur, London, Paris or New York wants to make a new investment choice, what factors does he take into consideration?

From over 35 years of investment opportunities at home and abroad or management experience, I feel that businesspersons, rather than perusing the newspapers, give most importance to the experience of persons or companies that are already in business. Then comes the matter of capital or prospects of investment, the strength of the financial sector and ease of availing bank loans, getting skilled workers or managers, communication or transport infrastructure, the facilities to transfer profits overseas and the scope to keep corruption at bay. Also taken into consideration is the purchasing capacity of the consumers and the consumer expenditure trends.

From my university days I have been hearing about the need for creating new business establishments to bring diversity to the economy and expand employment. Investment, that is, foreign investment, is an important catalyst in this regard. When foreign investment is made in a country, that means it must have an investment-friendly environment and business is profitable there. But in the case of foreign investment, post-independence Bangladesh has not seen significant success. While it is said that Bangladesh is an attractive destination for investment, the matter of investment environment is restricted to discussions alone.

While all sorts of policies have been devised to attract foreign investors, there is no continuity to this. Bangladesh time and again fails to win the trust of being fit for investment. And the delays and discordance in services that are required to hold on to investment, have not been dispelled in the last three decades. Other than a couple of companies, the country has not achieved any significant success in foreign investment.

Given its per capital income, increase in consumer expenditure and an increased growth of the middle class, Bangladesh can become an attractive or prospective market for foreign investment. The reason for not being able to attract large investments is internal. The factors working behind this sparse investment are lack of discipline in the financial sector, lack of stability in the investment policies, that is, frequent changes in the investment policies, lack of capacity of the agencies responsible for investment, and bureaucratic complications.

Also, there is still no visible impact of the initiatives that have been taken up to attract foreign investment. Foreign Direct Investment (FDI) has played an important role in the economic transformation of developing countries. In the post-eighties period, FDI had contribution in the economic expansion of countries like Vietnam, China, Mexico and India. In particular, FDI plays a role as a catalyst in generating employment in the manufacturing sector, technology transfer and keeping the foreign exchange reserves stable.

Many years have passed since our independence, but it still has not been possible to create an investment-friendly environment here. If we want to attract foreign investment, we have to clear up the existing problems. If investment is to be attracted, first and foremost branding of the country is essential.

In order to build up an investment-friendly culture, a stable and corruption-free environment for business must first be created. Investment security and the scope for businesspersons' licensing rights must be ensured. Above all, the government too must continuously make sincere efforts to attract investors.

In post-independence Bangladesh, alongside local investment, foreign investment has played an important role in the country's socioeconomic, economic and infrastructural development. Economic theory maintains that if local investment increases, foreign investment increases. This is because foreign investment comes through the local investors. That is why, if foreign investment is to be increased, local investment must be increased. Irregularities and corruption must be halted in the financial sector. All lack of coordination and bureaucratic complications faced by the foreign investors must be eliminated.

If Bangladesh receives foreign investment like Malaysia, Thailand and Vietnam, then undoubtedly the country's socioeconomic condition will improve.

The way to increase foreign direct investment in Bangladesh is to create a skilled workforce and decrease political unrest. The main factor in attracting foreign investment in Bangladesh is cheap labour. But now cheap labour alone is not enough to being in significant investment. There must be all-out efforts to create a trained workforce alongside development of information technology. At the same time, land for establishing industrial units along with the development of infrastructure and communication systems is essential. Industries that draw in large capital must be paid due attention. This is extremely important in a densely populated country like ours.

Investments from Japan, South Korea and other countries in Malaysia's electrical and electronics industries are behind the economic development of Malaysia. The multinational companies of Japan, South Korea and Taiwan invested hugely in Malaysia. Up until 1991-99, over 80 per cent of investments in Malaysia's electronics industry was foreign investment.

Due to Japanese investment, Malaysia's industrial sector flourished in 1980 and it aimed at graduating to a self-reliant industrially developed country by 2020. Many industries emerged though joint investment of local and foreign companies. Skilled workforce, abundance of natural resources, comparatively low wages, higher standard of living, digital communications systems, the government's foreign investment police, etc, helped in attracting foreign investment and achieving economic growth and development in Malaysia.

It was the same for Thailand and Vietnam. If Bangladesh receives foreign investment like Malaysia, Thailand and Vietnam, then undoubtedly the country's socioeconomic condition will improve. A country's image features prominently in attracting multinationals. A clean and aesthetic environment, wide roads, good treatment of foreign nationals, political environment, law and order, the capacity to maintain communications and connectivity, natural environment, abundance of resources, skilled and trained or trainable workforce, less bureaucratic complications, etc, attract foreign investment and project a positive image of a country to foreign investors, which helps in increasing investment.

In today's world, the importance of foreign investment in any country's economic development is limitless. While there is scope for foreign investment in Bangladesh, foreign investors have certain qualms concerning the investment environment here. These mainly concern corruption and bureaucratic complications. Various reports of the World Bank, IFC in particular, point to these bottlenecks to investment in Bangladesh, predominantly corruption and bureaucratic complications. Other issues are tax, tariff concessions and repatriation of returns. It is unfortunate but true that progress in this area is insignificant. Then there is a lack of skilled workforce, infrastructural weakness and difficultly to avail land.

If we want to attract investment in competition with other countries, we must immediately move away from expensive investment conferences and trade fairs abroad, update our existing polices, and improve our education standard. Our regulatory bodies need to move away from the 'licence-boss' attitude and become business-friendly and step up use of technology.

Attention must be paid to ensure companies can get good returns on their investment, that they can easily repatriate their returns and get justice in legal lawsuits. And there should be no discrimination among local and foreign companies.

* Mamun Rashid is an economic analyst.​

 

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Viewing the defaulted loan saga through a micro lens

There’s a connection between non-payment of debt at micro and macro level.

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Viewing the defaulted loan saga through a micro lens

FILE ILLUSTRATION: BIPLOB CHAKROBORTY

Over the years, the volume of non-performing loans (NPLs) in Bangladesh has increased so significantly that it has become a major reason for Bangladesh's economic woes. According to the recent data of Bangladesh Bank, NPLs rose to a record Tk 284,977 crore in September 2024, surpassing the earlier record of Tk 211,391 crore just three months prior, making up around 17 percent of the total outstanding loans.

The increasing trend of NPLs can be attributed to several factors, including poor governance, inadequate business and industry analysis, political influence, and the borrowers' inability to repay debt due to internal economic conditions, all of which are widely recognised even to a layman. Instead, let's look into whether the defaulted loan culture has evolved into an institutionalised practice at the micro level that ultimately translates into a higher NPL ratio at the aggregate level.

A brief introduction to institutional economics is needed to delve further into this discussion. Institutional economics encompasses a broad idea of institutions beyond what we typically understand. Rather, it deals with formal and informal institutions; officially recognised rules and written laws and regulations formulated by the government, organisations and other formal entities fall under formal institutions, and socially constructed rules and norms, customs and traditions, and unwritten ethical standards are viewed as informal institutions. Briefly, institutional economics explores how laws, regulations, social norms, customs and organisations shape and influence economic behaviour and outcomes.

In light of this framework, a link can be established between informal institutions at the micro level and the prevalence of NPLs at the macro level, questioning whether the practice of defaulted loans has become ingrained deeply enough to be considered an institution.

In the context of Bangladesh's economy, if we look around, the retail-level demand and supply are largely met through informal mechanisms, with most transactions occurring outside of established formal institutions, without any receipt. This serves in the interest of both consumers and sellers, who often benefit from the leverage provided by asymmetric information. As a result, the lack of evidence of transactions heightens the potential for both consumers and sellers to engage in deceptive practices.

For instance, in the absence of formal institutions, a sense of trust often develops between customers and sellers in grocery stores and road-side tea stalls. This trust enables smoother transactions, allowing consumers to acquire their desired products without paying the full amount upfront while giving sellers confidence in securing a sale, thereby reducing risks for both sides. At first glance, this may appear to be a positive phenomenon, as trust fosters regular transactions that contribute to economic growth. However, on the flip side, the lack of evidence for these transactions, such as receipts or written documentation, creates a chance for consumers to avoid repaying the money after fully maximising the utility from the product they have consumed. At micro level transactions, the story of defaulting starts simply from here.

Although specific data on this type of mismatch in micro-level transactions is unavailable, the above-mentioned scenario is one that almost anyone can relate to through their day-to-day experiences. Another common example, frequently featured in the media, is students with political ties who fail to make timely payments at their universities' cafeteria and other shops on the campuses. One report from last year cited how a student with political affiliation was suspended for allegedly attacking the cafeteria owner at a residential hall in Dhaka University for requesting the payment of dues amounting to Tk 2,650.

The habit of not paying back the promised amount after receiving a service has become so deep-rooted at the micro level that people no longer think much of it. It suggests that the reluctance to make payments has already become a norm, to the point where it can be considered an institution, according to institutional economics. Just as political influence on campus is used to avoid paying debts, and trust is overlooked when it comes to settling dues at the micro level, political influence prevents good governance from acting as a safeguard against the rising amount of defaulted loans at the macro level. Is it merely a coincidence that the dynamics observed at the micro level are mirrored at the macro level?

This is the question policymakers must explore to determine if defaulting on loans has already become an institutionalised practice. The similarity between avoiding payment at the micro and macro levels should not be overlooked. If loan-defaulting has indeed become institutionalised, addressing NPLs requires a whole new approach, confronting the core issue. In order to do that, mismatches in smaller-scale transactions should not be ignored. Last but not the least, taking steps to foster an ambience of goodwill in the micro sphere could create an institution capable of deterring the practice of loan default and NPLs in the macro sphere.

Tahsin Sahriar is assistant director (research) at the Bangladesh Bank.​

 

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Inflation biggest concern for Bangladesh: WEF

Inflation has been identified as the biggest risk to Bangladesh in 2025, according to a World Economic Forum (WEF) report released on Wednesday.

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Inflation biggest concern for Bangladesh: WEF

Bangladesh has long been grappling with stubbornly high inflation, as the 12-month average inflation rose to 10.34 percent in 2024 from 9.48 percent a year earlier. Photo: Prabir Das

Inflation has been identified as the biggest risk to Bangladesh in 2025, according to a World Economic Forum (WEF) report released on Wednesday.

In its Global Risks Report 2025, the WEF, an independent international organisation, stated that extreme weather events — such as floods and heatwaves — and pollution are two other significant risks to the economy of South Asia.

Bangladesh is one of the 10 countries where pollution has been identified as one of the top three risks, according to the report.

Particularly in densely populated countries such as Bangladesh and India, pollution has become one of the most critical challenges to tackle, the report said.

"A pollution conscious green transition is needed," it added.

The WEF's latest report also noted that unemployment and economic downturn are two remaining challenges for Bangladesh, which has been grappling with stubbornly high inflation, devaluation of its currency, falling foreign exchange reserves, and slowing investment and business growth.

The 12-month average inflation in Bangladesh rose to 10.34 percent in 2024 from 9.48 percent a year earlier.

In 2022, annual average inflation was 7.7 percent, according to the Bangladesh Bureau of Statistics (BBS).

The Centre for Policy Dialogue (CPD), a prominent think-tank in Bangladesh, contributed to the findings of WEF's report.

The Global Risks Report 2025 highlights an increasingly fractured global landscape, where escalating geopolitical, environmental, societal, and technological challenges threaten stability and progress.

The WEF report incorporates insights from over 900 experts worldwide.

"As we enter 2025, the global outlook is increasingly fractured across geopolitical, environmental, societal, economic and technological domains," it said.

"Over the last year, we have witnessed the expansion and escalation of conflicts, a multitude of extreme weather events amplified by climate change, widespread societal and political polarisation, and continued technological advancements accelerating the spread of false or misleading information."

"Optimism is limited as the danger of miscalculation or misjudgment by political and military actors is high. We seem to be living in one of the most divided times since the Cold War," the report added.

The latest Global Risks Report stated that more than half of respondents—52 percent—anticipate an unsettled global outlook over the next two years, a proportion similar to last year.

Another 31 percent expect turbulence, and 5 percent foresee a stormy outlook.

"Combining these three categories of responses shows a four-percentage-point increase from last year, indicating a heightened pessimistic outlook for the world through 2027," it said.

Compared to this two-year outlook, the landscape deteriorates over the 10-year timeframe, with 62 percent of respondents expecting stormy or turbulent times, it added.

"This long-term outlook has remained similar to last year's survey results in its level of negativity, reflecting respondents' skepticism that current societal mechanisms and governing institutions are capable of navigating and mending the fragility generated by the risks we face today."​

 

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Bangladesh economy to grow 4.1% in FY25: World Bank report

Bangladesh’s economy may grow 4.1 percent in FY25, the WB said in its latest Global Economic Prospects released Thursday

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Bangladesh economy to grow 4.1% in FY25: World Bank report

The World Bank (WB) has kept its forecast for Bangladesh's economic growth almost unchanged for the current fiscal year (FY) 2024-25, citing subdued investment and industrial activity amid heightened political uncertainty.

Bangladesh's economy may grow 4.1 percent in FY25, the WB said in its latest Global Economic Prospects released Thursday.

The growth projection is slightly higher than its October forecast of 4 percent for FY25.

Growth is projected to pick up to 5.4 percent in FY26, assuming broad political stability, successful reforms in the financial sector, an improved business climate, and increased trade, the WB report said.

"Easing inflation is expected to boost private consumption," said the multilateral lender.

The WB's latest forecast is also higher than the 3.8 percent growth projection made by the International Monetary Fund (IMF) in December last year, which cited output losses caused by the July uprising, floods, and tighter policies.

As per the predictions of the two multilateral agencies, Bangladesh's Gross Domestic Product (GDP) growth in FY25 would be the lowest since FY20, when the Covid-19 pandemic wreaked havoc on the globe.

Earlier this month, the Bangladesh Bureau of Statistics (BBS) said GDP growth was 1.81 percent in the July-September quarter of FY25.

The first-quarter growth was the lowest since the second quarter of FY21, when the pandemic continued to cripple the economy.

In the first quarter of FY24, GDP grew 6.04 percent.

The WB said inflation in Bangladesh has remained persistently high, and monetary policy has been tightened further.

The 12-month average inflation in Bangladesh rose to 10.34 percent in 2024, up from 9.48 percent a year earlier.

In 2022, the annual average inflation was 7.7 percent, according to the BBS.

In December, the IMF kept its projection of inflation in Bangladesh elevated for the current fiscal year, ending on June 30, 2025.

The WB said political turmoil in mid-2024 dampened economic activity and worsened investor confidence.

It said growth in FY24 is estimated to have slowed to 5 percent, a downward revision of 0.6 percentage points from previous projections.

"Supply constraints, including energy shortages and import restrictions, weakened industrial activity and led to increased price pressures."

"High inflation reduced the purchasing power of households, slowing services growth."

The WB also cautioned about the risk of social unrest in countries, including Bangladesh, where youth unemployment has risen since the pre-pandemic decade.

It said elevated social unrest could weigh on productivity and investor confidence in South Asia.

"In addition, the incidence of political violence has increased in some countries in the region," it added.

More frequent or more severe weather events could reduce food production, drive up food price inflation, and raise living costs, the WB report added.

The Washington-based multilateral agency said slower-than-projected growth in major trading partners and the resulting weaker demand could dampen activity, particularly in countries with strong economic ties to Europe and the USA, including Bangladesh, Pakistan, and Sri Lanka.

"For example, countries in Europe account for about half of total goods exports in Bangladesh."​