Bangladesh’s economic growth outlook has been downgraded as political instability and ongoing financial challenges weigh heavily on the country’s prospects.

The World Bank’s latest South Asia Development Update, released on Wednesday, projected that Bangladesh’s growth would slow to 3.3 percent in the financial year 2024-25, down from January forecast of 4.1 per cent.

The outlook for FY26 has also been downgraded, with expected growth revised to 4.9 percent, highlighting the continued risks that threaten the nation’s economic resilience.

Amid growing uncertainty in the global economy, South Asia’s growth projected to slow to 5.8 percent in 2025, a 0.4 percentage point reduction from previous forecasts, before rebounding slightly to 6.1 percent in 2026.

‘Multiple shocks over the past decade have left South Asian countries with limited buffers to withstand an increasingly challenging global environment,’ said Martin Raiser, World Bank Vice President for South Asia. ‘The region needs targeted reforms to address vulnerabilities such as fragile fiscal positions, backward agricultural sectors, and the impact of climate related shocks.’

Although tax rates in South Asia are often above the average in developing economies, most tax revenues are lower.

On average during 2019–23, government revenues in South Asia totaled 18 percent of GDP—below the 24 per cent of GDP average for other developing economies.

Revenue shortfalls are particularly pronounced for consumption taxes but are also sizable for corporate and personal income taxes.

Tax revenues in South Asia are estimated to be 1 to 7 percentage points of GDP below their potential, based on existing tax rates.

Some of this shortfall is explained by the widespread informality and large agricultural sectors in the region.

However, even after taking this into account, sizable tax gaps remain, highlighting the need for improved tax policy and administration.

‘Low revenues are at the root of South Asia’s fiscal fragility and could threaten macroeconomic stability, especially in times of elevated uncertainty,’ said Franziska Ohnsorge, World Bank Chief Economist for South Asia. ‘South Asian tax rates are relatively high, but collection is weak, leaving those who pay taxes with high burdens and governments with insufficient funds to improve basic services.’

India’s growth is projected to decelerate from 6.5 percent in FY24/25 to 6.3 percent in FY25/26, as the benefits of monetary easing and regulatory reforms are expected to be offset by global economic weakness and policy uncertainty.

Sri Lanka is seeing progress in debt restructuring, and the economy is expected to grow by 3.5 percent in 2025, driven by a rebound in investment and external demand, before returning to 3.1 percent growth in 2026.