Bangladesh has entered the new fiscal year amid a deepening Middle East conflict with a budget that promises an economic recovery through stability, investment and employment, while expecting GDP growth of 6.5%, up from the government's provisional estimate of 4.1% in the immediate past fiscal year.
But in the very beginning of FY2026-27, the Asian Development Bank has now come up with an alarming assessment. It estimates Bangladesh's economy grew by 3.7% in the last fiscal year and projected the FY27 growth could be 4.5%, lower than its earlier forecast of 4.7%.
In its July outlook released on Wednesday, the ADB attributed the downgrade for FY26 to weak exports, subdued private investment and supply-side constraints, even as resilient domestic demand provides some support.
The key factors behind the global lender's weaker growth projection for FY27 – energy supply constraints and banking sector's vulnerability – are also widely recognised at the policy level as major barriers to investment required to drive a higher growth.
The finance minister in his budget speech highlighted how the US-Israel war on Iran pushed global oil, gas and fertiliser prices up, raising Bangladesh's subsidy burden, putting additional pressure on foreign exchange reserves and posing fresh risks to remittance inflows from key source countries.
Fresh data also point to a weakening economy. The latest Purchasing Managers' Index (PMI) for June, released jointly by Metropolitan Chamber of Commerce and Industry and research firm Policy Exchange Bangladesh, showed the pace of economic expansion slowed with manufacturing and construction sectors slipping back into contraction. Many firms in the survey reported rising operation costs and shrinking profit margins due to financial constraints and higher energy prices.
Higher borrowing costs have also begun to weigh on business profits. Multinational home appliance maker Singer Bangladesh plunged into a net loss, resulting in its shares downgraded to junk Z category.
The ADB's July outlook was not specific to Bangladesh. It reduced growth forecasts for South Asia to 6% for 2026 and 6.7% for the next year, weighed down by higher oil prices, rising freight costs and uncertainty over remittances stemming from the Middle East war.
The Middle East conflict has led to prolonged disruption to energy and supply chains, raising production costs and dampening economic activity, it says in its "A fragile outlook as energy market disruptions persist".
What holds the momentum back
As the new fiscal year has just set in with higher growth and lower inflation targets, the outlook for Bangladesh's economy has already become less optimistic with low growth and high inflation.
The ADB's lower projection leaves the government's FY27 GDP growth target looking far harder to reach, as energy supply constraints and weaknesses in the banking sector persist, frustrating the hope of economic momentum after two difficult years for businesses.
The downward revision reflects two structural weaknesses that continue to undermine investment and industrial activity.
The data also support ADB concerns.
Bangladesh experienced a gloomy year of merchandise exports in FY26, with export growth remaining negative for nine of the fiscal year's 12 months. As a result, merchandise export earnings slipped 0.58% to $48 billion from $48.3 billion in FY25, the Export Promotion Bureau data showed.
Meanwhile, private sector credit growth has remained below 5% despite slight improvement in May, according to the Bangladesh Bank.
With the Middle East crisis taking a turn for the worse, global oil prices are expected to remain volatile and supply chains uncertain in the near future, casting a shadow over Bangladesh's economic growth prospects and remittance inflows, which have been a key pillar of the country's external balance over the past two years.
Inflation to remain high
The ADB revised its FY27 inflation forecast for Bangladesh upward to 8.8%, from 8.5% projected in April, warning that second-round effects from fuel and electricity costs are expected to linger.
The outlook comes as the country continues to grapple with elevated inflation.
Although average inflation eased to 8.68% in FY26 from 10.03% in FY25, it remained well above historical norms, following averages of 9.73% in FY24 and 9.02% in FY23.
Meanwhile, inflation forecasts across South Asia have been revised up to 5.7% for 2026 and 4.8% for 2027.
Upward revisions reflect higher global energy prices from the Middle East conflict feeding through to fuel, transport, and food costs across the sub-region, said the ADB.
momentum / Budget FY27
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