The World Bank has warned that the escalating Middle East conflict, triggered by the US-Israel war on Iran, will push an additional 1.2 million Bangladeshis below the poverty line and derail the country’s fragile economic recovery.

The World Bank has sharply revised its outlook for Bangladesh, projecting that the ongoing Middle East conflict will drive an extra 1.2 million people into poverty while slashing the country’s economic growth forecast for the current fiscal year.

In its latest Bangladesh Development Update released on Wednesday, the multilateral lender highlighted how external shocks from the US-Israel war on Iran are compounding domestic vulnerabilities such as high inflation, weak job creation and strained public finances.

Poverty Projections Worsen Amid Global Turmoil

Bangladesh’s national poverty rate is now expected to have climbed for the third straight year, rising from 18.7 per cent in 2022 to 21.4 per cent in 2025. Before the Middle East conflict intensified, the World Bank had anticipated that 1.7 million people would escape poverty this year. That figure has now been slashed to just 500,000.

At the international poverty line of $3 a day, an additional 1.4 million people are estimated to have slipped into poverty between 2022 and 2025 due to stagnant labour incomes and persistent inflation that eroded the benefits of whatever growth occurred.

“A recovery projected for 2026 is now at risk – the Middle East conflict is expected to push an additional 1.2 million people below the poverty line, offsetting much of the projected improvement,” the report stated.

The fresh poverty shock threatens to reverse hard-won gains made by millions of low-income households, particularly in rural areas and among daily-wage earners whose purchasing power has already been squeezed by years of elevated prices for food and essentials.

Economic Fallout Hits Remittances, Exports and Energy Costs

The conflict is transmitting pain through multiple channels. Higher global energy prices, disrupted shipping routes and heightened uncertainty are raising import costs for fuel and raw materials. Weaker demand in key markets is hurting garment exports, while remittances from Bangladeshi workers in the Middle East are expected to decline as regional instability affects employment and wage flows.

These pressures will widen the current account deficit, fuel further inflation and limit the government’s fiscal space. Energy subsidies are likely to balloon, crowding out spending on social safety nets and infrastructure at a time when they are most needed.

The World Bank noted that poverty and welfare outcomes had already deteriorated significantly between 2022 and 2025 because of limited creation of productive jobs and weak labour income growth. Elevated inflation had further blunted the poverty-reducing impact of economic expansion.

Growth Forecast Slashed to 3.9 Per Cent

Reflecting these headwinds, the World Bank has downgraded Bangladesh’s real GDP growth projection for FY26 to 3.9 per cent from its earlier estimate of 4.6 per cent made in January 2026. The downward revision captures both the direct effects of the Middle East conflict and lingering domestic challenges, including financial-sector weaknesses and subdued private investment.

Inflation, while expected to ease slightly from FY25 levels, will remain stubbornly high because of costlier imports and exchange-rate volatility linked to the regional crisis, the organisation says.

The report paints a picture of an economy caught between external shocks and internal constraints. Constrained policy space and weakened investor confidence have left Bangladesh with fewer tools to cushion the blow.

Urgent Call for Stabilisation and Structural Reforms

The World Bank emphasised that addressing these risks requires an urgent and coherent stabilisation strategy backed by deep structural reforms. Such measures are essential to rebuild fiscal and external buffers, restore market confidence, revive private investment and place the economy on a sustainable growth path.

Without swift action, the lender warned, the combined impact of the Middle East conflict and domestic vulnerabilities could prolong the squeeze on poor and vulnerable households and delay Bangladesh’s progress toward upper-middle-income status.

The findings come at a critical juncture. Bangladesh has been navigating a difficult post-pandemic recovery marked by high inflation, a balance-of-payments crunch and political transitions. The latest external shock from the Middle East has narrowed the window for corrective measures.

Economists say the government must now prioritise prudent fiscal management, energy-price rationalisation and targeted social protection programmes to shield the poorest. At the same time, accelerating reforms in the financial sector and improving the investment climate will be vital to attract fresh capital and create jobs.

The World Bank’s April update serves as a stark reminder that global instability can quickly unravel domestic development gains. For a country of nearly 170 million people where millions still live close to the poverty line, the margin for error has become dangerously thin.

Policymakers, development partners and the private sector will need to work in tandem to mitigate the fallout. The coming months will test Bangladesh’s resilience and its ability to turn crisis into an opportunity for deeper reforms that can deliver inclusive and lasting growth.