Investing in investment: Expectations for the newly elected government

While economists prefer various metrics to assess the health of an economy, as a regular observer of the national landscape, I feel the level of investment is the single most important indicator of Bangladesh's progress toward sustainable development.

It is needless to say that in an emerging economy like ours, blessed with a massive labour force, investment is the primary engine of job creation. But its impact goes deeper, particularly in a country like ours. Rooted in the Harrod-Domar logic that capital accumulation is the primary driver of growth, it is clear that domestic investment serves as the fundamental bedrock of national industrialisation and local entrepreneurial growth, while foreign investment acts as the catalyst for workforce skill development, the vehicle for technology transfer, and the fuel for innovativeness. Most importantly, without a strong surge in investment, our aspirations of achieving a sustainable, inclusive, and truly upper-middle-income nation will remain out of reach

It is no secret that all the investment figures have deteriorated significantly during the tenure of the interim government. Private investment as a share of GDP has slipped to 22.9%, a record low in recent years. The year-on-year growth rate of private sector credit has declined consistently during the tenure of the interim government, currently hovering around 6%, down from its previous levels of over 10%, indicating a slowdown in the flow of finance to businesses for new investment and expansion. 

Although figures on FDI inflows suggest a positive trend in the completed fiscal year, a closer examination of the components reveals a more nuanced picture. The increase in inflows was driven primarily by reinvested earnings and intra-company loans, indicating that existing foreign firms continued to finance their operations and manage liquidity internally. By contrast, equity capital declined, implying limited entry of new foreign investors and a weakening pipeline of greenfield or expansion projects 

Understandably, the inherent "short-term" nature of an interim setup and the fragility of the administration following the July uprising are the primary drivers of this slump. However, intellectual honesty requires us to look further back. The investment landscape was disappointing long before the recent political upheaval. The previous political regime, despite achieving higher economic growth, failed to bring investment that could generate enough quality jobs, particularly for the youth. This "jobless growth" created a deep-seated economic frustration that played a key role in fueling the discontent that eventually led to the regime's downfall.

There is a common belief that a credible national election will automatically fix the investment climate. While an election will certainly reduce political ambiguity, it cannot, by itself, dismantle the structural barriers that have historically plagued Bangladesh. The real progress in investment will depend on how the next democratically elected government navigates its first few years in power. For that, there must be several priority areas for the incoming administration.  

For decades, Bangladesh has been held back by systemic corruption, bureaucratic red tape, infrastructure gaps, and persistent instability. While both the current and previous administrations have taken initiatives to address these issues, the approach of the interim government deserves a specific mention. Although its efforts were not on an adequate scale, unlike its predecessors, this administration has attempted to address these bottlenecks structurally by reforming institutions and legal frameworks while prioritising investment promotion. Therefore, the most critical task for the upcoming government will be to complete these unfinished structural reforms without diluting their original intent. Furthermore, the government must move away from purely political appointments. It is essential that key institutions, such as the BIDA, BEPZA, and BEZA, operate under experienced, private sector-friendly and professional leadership. Restoring investor confidence will require the NBR, the MoC, and capital market authorities to be steered by leadership that prioritises transparency and institutional reform over political expediency

Furthermore, the next administration must promote digitisation in every aspect of governance to eliminate the human interface that so often breeds corruption. Parallel to this, the Anti-Corruption Commission (ACC) must be fundamentally strengthened, not just in name, but through expanded human resources, genuine prosecutorial autonomy, and financial independence.

On the macroeconomic front, as the economy shows signs of recovery, the government must gradually ease business-related constraints by focusing on stabilisation of the exchange rate and lowering interest rates to reduce the cost of finance. 

Energy security remains another massive hurdle. Similar to the previous regime, the interruption of gas supplies to industries remains a major constraint throughout the period of the interim government. While importing LNG is a necessary short-term fix, the new government must prioritise domestic gas exploration to provide a sustainable, long-term solution for our industrial sector.

Tax reform must also be viewed through the lens of "tax justice." This involves creating a progressive tax burden on businesses while lowering the overall effective tax rate to remain regionally competitive. Tax exemptions based solely on political considerations must be avoided; instead, key potential sectors should be identified through a transparent, merit-based framework that offers incentives aligned with national economic goals

Finally, none of these technical or structural changes will yield success if political stability falters in the post-election period. Historically, elections in Bangladesh have often been associated with violence and administrative paralysis. The next government must ensure that stability is maintained not through force, but by ensuring accountability, allowing space for open criticism, and upholding the rule of law. Only then will investors, both domestic and foreign, feel confident enough to invest in Bangladesh.

Tamim Ahmed, Senior Research Associate, Centre for Policy Dialogue (CPD), can be reached at tamim@cpd.org.bd.