Nearly half of Bangladesh’s poorest households receive no safety-net support while energy and fertiliser subsidies disproportionately benefit higher-income groups, according to the latest World Bank Development Update.
Bangladesh’s hard-won gains against poverty are unravelling. A new World Bank report released this week paints a stark picture of an economy under strain, where substantial public spending on subsidies and social protection is failing to reach those who need it most. As growth stagnates at 3.4 per cent and national poverty climbs for a fourth consecutive year, the multilateral lender is calling for urgent reforms to redirect resources toward the country’s most vulnerable citizens.
The October 2026 Bangladesh Development Update, titled Make Subsidies and Social Protection Work Better for the Poor, reveals that the government spends roughly 3.5 per cent of GDP – equivalent to about US$17.4 billion annually – on energy, fertiliser and social assistance programmes. Yet nearly half of the poorest households remain completely outside the social safety net. Meanwhile, benefits from electricity and fertiliser subsidies flow disproportionately to richer urban consumers and larger landowners.
The findings matter far beyond Bangladesh’s borders. The country of more than 170 million people is a major global supplier of ready-made garments and a significant source of migrant labour. Its economic trajectory influences regional stability in South Asia, global supply chains, and the effectiveness of international development assistance. After decades of steady poverty reduction that lifted tens of millions out of extreme deprivation, the current reversal signals deeper structural weaknesses that demand attention from policymakers, investors and development partners alike.
Poverty Rises as Growth Stalls
Real GDP growth slowed to 3.4 per cent in fiscal year 2025-26, matching the projection for the current fiscal year and well below the decade-long average of around 5.6 per cent. Private investment contracted, private-sector credit growth fell to a 33-year low of 4.5 per cent, and industrial activity – especially manufacturing and construction – suffered from persistent energy shortages and weak business confidence.
The human cost is clear. At the international poverty line of US$3 a day (2021 purchasing-power parity), the poverty rate rose by 1.1 percentage points to 10.1 per cent in FY26, pushing an additional 2.1 million people into poverty. National poverty, measured by the Bangladesh Bureau of Statistics upper poverty line, climbed to an estimated 22.5 per cent, up from 18.7 per cent in 2022. Inequality has also edged higher, with the Gini index estimated at 34.9.
Women have been particularly affected. Female labour-force participation dropped from 42.8 per cent in 2022 to 38.4 per cent in 2024 as many who lost jobs in industry and services exited the workforce entirely. Real wages for low-paid and unskilled workers turned negative again in mid-2026, further eroding household purchasing power amid inflation that, while moderating, remained elevated at an average of 8.7 per cent.
These trends reverse more than a decade of progress. Between 2010 and 2022, Bangladesh lifted roughly 25 million people out of moderate poverty and nine million out of extreme poverty. Today, some 62 million people live just above the poverty line, highly vulnerable to further shocks.
How Subsidies Miss Their Mark
The report’s special focus examines why large-scale public spending is delivering limited protection. Social protection programmes cover only 54.4 per cent of individuals in the poorest quintile, while 31 per cent of households in the richest quintile continue to receive benefits. Average annual transfers are actually higher for the wealthiest recipients (Tk 10,472) than for the poorest (Tk 7,140).
Energy subsidies present the clearest example of misallocation. Because electricity and fuel supports are linked to consumption volume, the richest urban households capture a large share of the benefits. The richest urban quintile alone accounts for nearly half of total electricity subsidy spending, while the poorest quintile receives just over 15 per cent. Although subsidies represent a higher share of income for poorer households, the absolute amounts flowing to better-off consumers dominate the fiscal cost.
Fertiliser subsidies show a similar pattern. The wealthiest 20 per cent of landowners receive roughly half of all fertiliser support, while the bottom 40 per cent of farmers collect only about 15 per cent. Agriculture remains central to livelihoods and food security, yet public spending is heavily skewed toward rice and away from higher-value livestock, fisheries and horticulture that now contribute the majority of agricultural GDP.
These inefficiencies come at a time when fiscal space is shrinking. Domestic revenue remains among the lowest in the world at an estimated 8.3 per cent of GDP. The fiscal deficit widened to 3.9 per cent of GDP in FY26, driven by higher subsidy costs, interest payments, social spending and bank recapitalisation. Development spending contracted sharply, limiting the government’s ability to invest in long-term growth.
Banking Stress and Energy Shortages Compound the Challenge
Beyond subsidies, the report highlights two binding constraints: a fragile banking sector and an energy system under severe strain. Non-performing loans surged to 33.2 per cent in June 2026, while the capital adequacy ratio of the banking system turned negative. State-owned and Islamic banks are particularly weak. Bangladesh Bank has provided substantial uncollateralised liquidity support, yet progress on restructuring remains slow.
Energy shortages have disrupted industrial production, raised costs and forced load-shedding. Domestic gas production has declined while reliance on imported liquefied natural gas has grown, exposing the economy to global price volatility and supply disruptions linked to Middle East conflicts. Factories have operated below capacity or temporarily closed, hitting the garment sector that remains the backbone of export earnings.
These interconnected problems have kept private investment subdued and limited job creation. The World Bank projects growth will remain muted at 3.4 per cent in FY27 before a modest recovery to 3.9 per cent in FY28 – still far below historical averages. National poverty is expected to edge up further to 22.8 per cent in FY27.
A Path Toward Better Targeting
The World Bank argues that Bangladesh’s challenge is not whether to support households during economic stress, but how to do so more effectively and sustainably. It recommends phasing out broad, price-distorting energy and agricultural subsidies in favour of direct, targeted cash transfers to verified poor households.
Key priorities include consolidating fragmented food assistance schemes, fully implementing and expanding the government’s Dynamic Social Registry for evidence-based targeting and continuous enrolment, and shifting to digital payment systems to reduce leakage and eliminate ghost beneficiaries. Analysis suggests that consolidating multiple food subsidies and combining the Family Card with better-targeted cash programmes could lift an additional 2.85 million people out of poverty.
Instruments already exist. The Family Card, Farmers’ Card and Dynamic Social Registry provide building blocks for a more coordinated and responsive system. Coordination across programmes and careful sequencing of reforms will be essential.
These recommendations align with broader advice from international partners. Similar calls for targeted rather than universal subsidies have featured in recent discussions with the International Monetary Fund, reflecting a growing consensus that fiscal resources must be used more precisely in an era of tighter budgets and higher vulnerability.
Implications for Bangladesh and Beyond
For Bangladesh, the stakes are high. The country aims to become a trillion-dollar economy by 2034 and create millions of jobs. Achieving those ambitions will require restoring banking stability, securing reliable energy, mobilising more domestic revenue and ensuring that public spending protects the poorest rather than subsidising the better-off.
Internationally, the report serves as a cautionary case study. Many developing economies rely on untargeted subsidies that are politically popular but economically inefficient and socially regressive. Bangladesh’s experience shows how quickly hard-won development gains can erode when structural weaknesses are left unaddressed and when external shocks – such as energy price spikes from regional conflicts – hit an already fragile system.
Development partners have already stepped up support. Earlier in 2026 the World Bank approved US$1.1 billion in emergency financing to safeguard food security and livelihoods amid global fertiliser and fuel price shocks. Yet financial assistance alone cannot substitute for domestic reform.
The message from the latest Development Update is clear: Bangladesh has the fiscal tools and institutional foundations to protect its most vulnerable citizens more effectively. What is required now is the political will to retarget spending, strengthen delivery systems and confront the deeper constraints holding back investment, jobs and inclusive growth. For a country that once stood as a global example of rapid poverty reduction, the cost of inaction is measured not only in percentage points of GDP, but in the daily struggles of millions of families left without the support they need.
