Can Bangladesh’s 8.5% growth ambition hold up to economic reality?

Infograph: TBS

When Finance Minister Amir Khosru Mahmud Chowdhury presented the FY2026–27 budget, the immediate headline was next year's target of 6.5% GDP growth and 7.5% inflation. A lofty goal, surely. But it is a stepping stone towards the government's larger goal of turning Bangladesh into a trillion-dollar economy by 2034.

And so, buried within the medium-term fiscal framework is a vision of Bangladesh reaching 8.5% GDP growth by FY2031, while reducing inflation to 5%, raising total investment to 40% of GDP, increasing foreign direct investment (FDI) to 2.7% of GDP, and lifting the tax-to-GDP ratio to 9.6%. 

Now the real question is: How feasible is this goal?

The investment equation

Historically, sustained high growth in developing economies has been driven primarily by investment. Unsurprisingly, the government's medium-term framework envisages total investment reaching 40% of GDP by FY2031. 

Currently, investment hovers around 27-28% of GDP, whereas private investment is projected at around 21.3% of GDP in FY2027. That implies the need for a significant increase over the next four years.

Assuming an incremental capital-output ratio (ICOR) of around 4.5, an economy typically requires investment equivalent to roughly 38-40% of GDP to sustain growth of around 8.5%.

The government's medium-term framework also seeks to raise the tax-to-GDP ratio from around 6.8% to 9.6% by FY2031. For a country that has long had one of the lowest tax collection rates in Asia, this would represent a significant shift. The FY2027 budget itself targets revenue growth of more than 18%, with NBR taxes accounting for nearly 87% of incremental revenue.

The government itself appears to recognise this reality. In his budget speech, the finance minister acknowledged that investment must rise substantially if Bangladesh is to accelerate growth.

The challenge is that investment has been moving in the opposite direction. Private investment remains weak, banks continue to face liquidity and governance pressures, and energy shortages continue to constrain industrial activity.

Debapriya Bhattacharya, Distinguished Fellow at Centre for Policy Dialogue, told TBS in his immediate budget reaction, "The revenue collection target set in this budget is, frankly, miraculous, surreal, and an elusive target. To reach it, the National Board of Revenue [NBR] would have to increase its collections by nearly 40% in a single year, which is simply not feasible under current conditions. I use the word 'surreal' for these growth projections. There is a clear divorce between the policy framework and the actual financial structure of the budget."

Jyoti Rahman, director of international affairs at the Sydney Policy Analysis Centre, said there are two elements to the economic recovery and acceleration trajectory — cyclical and structural. The economy has been in a cyclical slump for a number of years, buffeted by a series of shocks and policy missteps. 

"Once the macroeconomy is stabilised, i.e., inflation starts to decline and there is a credible pathway for the restoration of health in the banking sector — a cyclical recovery might be expected. This may see both private investment and an overall economic pickup," Rahman added.

However, this will not be enough for growth to accelerate to 8.5% by FY31. For that, structural reforms to the investment environment and capital market, as well as continued prudent macroeconomic management, will be required, he opined.

The FDI equation

To achieve the growth rate, the government wants FDI to reach 2.7% of GDP by FY2031. This may be the most demanding target, as based on projected economic size, it would translate into roughly $17–18 billion in annual inflows.

For perspective, Bangladesh attracted around $1.7 billion in FDI in 2024. Even during its strongest years, annual inflows have struggled to cross the $4 billion mark. This means the country is effectively aiming for a tenfold increase within a few years.

Syed Akhtar Mahmood, former Lead Private Sector Specialist at the World Bank Group, said, "The important reforms for attracting foreign investment would be, first, to ensure policy and regulatory certainty — foreign investors are very discouraged when policies and regulations are changed arbitrarily — and second, to ensure hassle-free access to land and energy. Taking good care of the foreign investors already in the country is also very important, and it is what generates credibility."

For Bangladesh, this means that attracting Vietnam-scale FDI inflows may depend less on marketing and more on whether investors can see tangible improvements in the operating environment.

The question of time

Beyond the raw maths of investment, execution speed is another critical bottleneck. That difficulty of landing reforms on schedule is, for Akhtar Mahmood, the central hazard in compressing the recovery into a single year (2031), a compression some read as driven by political rather than economic logic.

"Governments often underestimate the difficulty of implementing reforms and the likelihood of unexpected bottlenecks emerging," he said.

"Thus, it is important not to set unrealistic timelines but instead to put in place good mechanisms to monitor progress and identify bottlenecks as soon as they emerge, and take corrective action. This task will be facilitated if the government regularly obtains feedback from relevant players inside and outside the government. This way implementation may be slow at the beginning but will speed up later in a way that the 8.5% target becomes feasible."

Stabilisation could well take longer than the given time frame, but stability could also be restored sooner depending on external factors, thinks Jyoti Rahman.

"For example, if the Iran war ends and there is a respite in global commodity prices, it could help with inflation. The Bangladesh Bank may allow the taka to appreciate against the USD instead of accumulating reserves, which could also help with inflation. As we have never seen the taka appreciate against the USD in a significant manner, if it were to happen, there might be a confidence boost to the economy."

More importantly, credible steps to restore the health of the banking sector, such as an independent banking commission and amendments to the Bank Resolution Act, could also boost confidence, he said.

"These could spark the cyclical recovery sooner than previously thought. On the other hand, structural reforms may well prove more difficult to land, and therefore the acceleration trajectory may not be as high as what the government wants."

And that is the heart of the issue. Achieving 8.5% growth will require more than higher spending or heavier borrowing: functioning banks, reliable energy, stronger tax administration, efficient project implementation, and a regulatory environment that can draw in domestic and foreign capital alike. 

Whether Bangladesh reaches the target by 2031 will depend less on the numbers than on how far it can rebuild the institutions meant to support them.