Originally posted in The Daily Sun on 15 June 2025
Investor confidence erodes amid stalled reforms, high inflation
Bangladesh’s economic landscape remains deeply strained, with falling investments, rising unemployment
Ten months into the tenure of the Prof Muhammad Yunus-led interim government, Bangladesh’s economic landscape remains deeply strained, with falling investments, rising unemployment and persistent inflation contributing to a climate of uncertainty.
Despite reform attempts and widespread anti-corruption drives, investor confidence continues to erode across sectors, including the capital market and banking.
While remittances, foreign exchange reserves and export earnings have shown some stability, other economic indicators remain downward. The most significant concern is inflation, which has caused stagnation in business and trade, as well as a substantial deficit in government revenue.
Experts said with macroeconomic stability yet to be restored, the interim government faces the daunting task of reviving investment and employment while tackling inflation and restoring public trust.
Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, emphasised consistent macroeconomic policy and the rule of law to attract investment.
“The interim government has initiated reforms, but without economic and political stability, these efforts will have limited impact,” he told the Daily Sun.
Prof Abu Ahmed, an economist and chairman of the Investment Corporation of Bangladesh, underscored the importance of stable monetary policy and lower interest rates. “If Bangladesh Bank revises its monetary policy and the political situation remains calm, we can aim for 5.5% GDP growth,” he said while talking to the Daily Sun.
“If we move towards a meaningful election, there will be hope. But if we head towards a chaotic election, disappointment will follow,” he concluded.
Investment declines, factories shut, jobs lost
The country’s industrial base has suffered significant setbacks. Numerous factories have shut down due to reduced demand, spiralling costs and utility shortages, leading to widespread job losses. Unemployment continues to rise, with new job creation virtually stagnant.
Dr Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), noted, “Entrepreneurs are facing a tough environment. The high interest rates are suppressing investment, and inflation is eroding consumer demand.”
Bank lending rates have been around 15% for a long time. Due to the high interest rates, private-sector borrowing has declined. In the 10 months from July to April, private sector credit growth was only 7.5%, marking six straight months in which private sector borrowing has remained below 8%, which is more than 10% in normal times.
The downtrend began in November 2022 but worsened following the political transition on 5 August 2024.
Low foreign investment response
Foreign direct investment (FDI) is very important among private investments. However, FDI has not been growing for a long time.
According to the Bangladesh Bank, net foreign investment of $860 million came in in the first nine months (July-March) of the current fiscal year 2024-25, which was $1.16 billion in the same period of the last fiscal year. This means that net foreign investment has decreased by 26% during this period.
Experts cite power shortages, high inflation, rising bank loan interest rates and macroeconomic uncertainty as key deterrents to both local and foreign investment.
Inflation stays above 9%
Despite the central bank’s efforts that include three interest-rate hikes under Governor Ahsan H Mansur, inflation remains stubbornly high.
In May 2025, inflation was recorded at 9.05%, only slightly lower than April’s 9.17%. Food inflation hovered at 8.59%, showing little relief for struggling households.
Revenue shortfall deepens fiscal stress
The National Board of Revenue (NBR) collected Tk287,257 crore in the first 10 months (July to April) of the fiscal year 2024-25, falling short of the revised target by Tk71,476 crore. The revenue target at this time was Tk3,58,733 crore.
Though collections were 3.24% higher year-on-year, the shortfall puts additional pressure on the government, which is increasingly borrowing from the banking system, thereby crowding out private investment.
Banking sector under strain
Efforts to stabilise the banking sector, including the dissolution of the boards of 14 weak banks, have so far failed to restore trust. The liquidity crisis persists, with six banks receiving emergency support of Tk22,500 crore. Customers are lining up to withdraw their deposits, but banks are unable to meet the demand fully. The lack of liquidity is further aggravating the business slowdown.
To reconstruct the Islamic banking landscape, Bangladesh Bank has decided to merge five Shariah-based banks to form one large Islamic bank.
However, leading economists have expressed cautious optimism, warning that the success of such a merger depends heavily on the restoration of good governance and accountability, both of which remain elusive in the current financial environment.
Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank, told the Daily Sun that despite being in power for nine months, the interim government has not fully restored good governance in the banking sector.
If banks are the target of political looting and basic reforms in the financial sector are not carried out, it will not work. For this, good governance and accountability must be ensured first, he said.
Capital market slump worsens
According to investor groups, the country’s capital market has lost almost Tk90,000 crore over the past eight months, as key indices plummeted by more than 1,000 points.
Investor sentiment has been shaken by broader economic instability, reduced corporate earnings and growing concerns about liquidity and governance in the financial sector.
No progress on money recovery
The interim government’s most high-profile initiative- recovering $240 billion allegedly laundered abroad under the previous Awami League regime- has stalled. Despite freezing 1,500 accounts worth Tk22,500 crore, no money has yet been repatriated, raising concerns about the seriousness and coordination of the effort.
Frequent transfers of intelligence officers and questionable appointments have been blamed for the lack of progress. Neither the Bangladesh Bank nor the Bangladesh Financial Intelligence Unit (BFIU) has offered any official update.
