Foreign investors flag tax complexity, thin listings, insecurity as key hurdles to Bangladesh market

Foreign portfolio investors today (20 January) identified capital gain tax complexities and a limited pool of quality listed companies and a sense of insecurity as major structural barriers holding back Bangladesh's capital market, urging policy reforms, mandatory listings and political stability to unlock long-term growth.

The concerns were raised at a discussion titled "Post-Election 2026 Horizon: Economy, Politics, Capital Market," organised by BRAC EPL Stock Brokerage Limited in Dhaka, where global fund managers, policymakers, bankers and political leaders exchanged views on the future of the economy and financial markets.

Matthias Martinez, a foreign investor from Sweden-based Tundra Fonder, said capital gains tax remains one of the major deterrents for foreign investors in Bangladesh, not because of the rate alone, but due to the administrative complexity involved.

"Capital gains tax creates a significant administrative hurdle for foreign investors," he said, citing Vietnam as an example of a smarter and more investor-friendly approach. "Vietnam deducts tax at the transaction level, which simplifies compliance enormously. Bangladesh needs to think along similar lines."

Martinez also pointed out that Bangladesh suffers from a poor number of investable listed companies compared to its peer economies.

Gordon Fraser from global asset manager BlackRock echoed similar concerns, stressing that easy market access and robust valuation methodologies are essential to attract large institutional funds. "Funds need clarity, liquidity and reliable valuation frameworks. Without these, it is difficult to deploy meaningful capital."

In the keynote presentation, MA Razzaque, chairman of Research and Policy Integration for Development, said Bangladesh's economic trajectory is closely linked to both political and macroeconomic transitions. "The growth prospects for the medium term remain quite strong," he noted, citing International Monetary Fund projections that place Bangladesh's growth at around 6.3% by 2030, provided political transition remains favourable.

Razzaque highlighted the challenges and opportunities arising from Bangladesh's graduation from Least Developed Country status. While the country enjoys strong global competitiveness in the garments sector due to low-cost production, he warned that post-graduation realities would require broader market access and free trade agreements.

"Poor infrastructure, complex regulations, labour rights compliance and environmental standards are not easy challenges to overcome in the short term," he said, adding that Bangladesh must carefully decide whether to delay graduation to better prepare for these structural shifts.

He emphasised that a politically mandated government is crucial to drive difficult reforms, calling the next election "extremely important" for restoring confidence and policy momentum.

Saifuddin Ahmed, commissioner of the Bangladesh Securities and Exchange Commission, said the capital market is designed to provide long-term funding and must focus on quality capital and stronger disclosure standards.

He said reforms are underway in capital issuance, mutual funds and margin rules to ensure transparency and accountability.

"We are also evolving market infrastructure through the redesign of the Dhaka and Chittagong stock exchanges following demutualisation," he added.

Amir Khasru Mahmud Chowdhury, a member of the BNP standing committee, said many of Bangladesh's economic problems stem from a lack of accountability. Expressing hope for a free, fair and transparent election, he said an elected government is essential to restore investor confidence.

"If the capital market becomes fully functional, the government can raise funds domestically instead of relying on external borrowing," he said.

Referring to Bangladesh's IMF loan, which came with stringent conditions, Khasru said, "If the country has a vibrant capital market, the government might not go to the outside for the funds to complete the development projects."

Speakers argued that reform should focus on deregulation rather than further tightening.

Despite these challenges, they maintained that Bangladesh remains relatively well-positioned compared to peer countries, provided reforms are implemented and political legitimacy is restored. "Without an elected government, investors will not gain confidence," one panellist said, adding that accountability is the foundation of market trust.

The discussion also underscored the need for an independent and capable regulator.

Mashrur Arefin, managing director of City Bank and president of the Association of Bankers, Bangladesh, said reforms in the banking sector are ongoing but have sometimes created unintended consequences, such as investor losses from recent bank mergers.