Job creation 'challenging' as private investment growth target 'unrealistic'

The government aims for a Tk3.44 lakh crore or 29% increase in private sector investments in the upcoming fiscal year compared to the current one to balance the impacts of a planned decline in state investments, following two consecutive stagnant years.

The proposed budget raises the private sector investment target to 27.34% of GDP for FY25, up from an estimated 23.51% in the current fiscal year.

The ambition will require over Tk15.3 lakh crore in private sector investment in a year.

The government's investment target has been lowered to 6.08% of GDP for FY 2024-25, down from a provisional 7.47% for the current fiscal year.

Experts have described the private sector investment target as unrealistic, saying that the biggest impact of falling short of expectations would be felt in the job market.

"The question arises whether entrepreneurs are likely to respond, especially as the business climate worsens amid a contractionary monetary cycle and a stressed financial system," said economist Ahsan H Mansur, executive director of the Policy Research Institute.

He added that the private sector growth target is unrealistic in the present economic context.

"The stressed financial system is unlikely to allow sufficient private sector investments, as the banking system will have little to leave for entrepreneurs to borrow and invest, given the government's high borrowing needs," he said.

Kamran T Rahman, president of the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), said job creation would face challenges due to a falling short of investment expectations.

He added that every year 20-25 lakh youth enter the job market, but the formal sectors accommodate only a part of them.

He noted that adverse exchange rates, weakening of consumers, rising interest rates, and the energy crisis, along with overall business costs, have continuously increased pressure on businesses since the beginning of the Ukraine war. 

"Entrepreneurs have been cautiously observing the situation before making fresh investments, and the pressure has yet to ease," he said, adding, "with a 12%-14% interest rate per year, new investments from the private sector would be under stress."

Investors will, of course, look for signs of improvement in the economic environment before making fresh investments, he noted.

Regarding the job market, Kamran T Rahman, who is also a former president of the Bangladesh Employers' Federation (BEF), said, "At least half of the new workforce is either being exported as unskilled workers abroad or becoming self-employed locally.

"Skills training, along with a strong emphasis on youth skill certification, would help our youth secure better-paid jobs abroad," he said.

However, a recent joint survey by the MCCI and the local think tank Policy Exchange Bangladesh revealed that the business climate in the country has deteriorated to its worst level since 2021.

"This issue must be addressed seriously to stimulate investment and job creation," said Humayun Rashid, president of the International Business Forum of Bangladesh.

According to the Bangladesh Bureau of Statistics, point-to-point GDP growth slowed to 3.78% in the October-December quarter last year. Meanwhile, after moderate improvements for four consecutive quarters, the official unemployment rate surged to 3.51% at the end of March this year.

The long-discussed impediments to expected investments – such as corruption, poor ease of doing business, tax fairness, and energy issues – must be addressed as a high priority to restore investor confidence and bring about the much-needed change to the private investment landscape, said Humayun Rashid.