Investors hold back as political uncertainty clouds Bangladesh’s economy: Experts
The slowdown comes at a time when GDP growth has already slipped to 3.87% in FY25
Highlights
- Private investment is losing momentum amid political uncertainty
- GDP growth slipped to 3.87% in FY25, the weakest in years
- Imports of capital machinery slowed and construction sector stalled
- Economists stress financial sector reforms and central bank independence as key to recovery
Private sector investment in Bangladesh continues to lose momentum as political uncertainty dampens confidence and stalls new commitments, said Ashikur Rahman, executive director of the Policy Research Institute (PRI).
Presenting a keynote paper at the Monthly Macroeconomic Insights (MMI) conference, Ashikur Rahman warned that investment decisions are increasingly being postponed until after the political transition.
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The event was co-organised by PRI and Australia's Department of Foreign Affairs and Trade (DFAT), with former Bangladesh Bank governor Mohammed Farashuddin attending as chief guest.
The slowdown comes at a time when GDP growth has already slipped to 3.87% in FY25, weakest in years. Economists argue that while cautious monetary and fiscal policies have preserved stability, a combination of political uncertainty, weak investor sentiment, and institutional bottlenecks is holding back dynamism.
The consequences are evident: private credit growth remains slow, imports of capital machinery have contracted by 12% in July–August, and the construction sector—an engine of jobs and investment—has been stalled.
Energy indicators mirror this slowdown. Average daily electricity generation stood at 14,690 MW in July–August FY26, only 6.1% higher year-on-year but down 1.3% from the previous month. Electricity imports fell by 4.6% over the same period, driven largely by lower supply from Adani Power. Analysts say the stagnation in power demand reflects a subdued industrial climate.
While the external sector has shown resilience, with exports and remittances strengthening foreign exchange reserves to $26 billion in August, sustaining momentum will depend on reviving domestic investment, said Ashikur Rahman.
The World Bank–IMF Debt Sustainability Analysis (August 2025) projects GDP growth could rebound to 5.4% in FY26, but only if productivity, investment, and institutional reforms are accelerated ahead of Bangladesh's LDC graduation.
Speakers at the event said, key part of this reform agenda lies in the financial sector. The proposed merger of five Islamic banks—expected to create the country's largest bank by assets—is seen as a watershed. Yet its success will rest on addressing systemic weaknesses such as insider lending, governance failures, and political interference.
Economists stress that ensuring the independence of economic institutions, particularly the Bangladesh Bank, will be critical to safeguarding financial stability and restoring investor trust.
