The graduation paradox: Why Bangladesh’s private sector needs a new playbook?

According to the World Bank's latest Ease of Doing Business report (though the report is now discontinued, its metrics remain relevant), Bangladesh ranked 168th out of 190 economies. It takes an average of 19.8 days to start a business here, compared to 8 in India and 1.5 in Singapore. But the real anchors are not at the start; they are in the deep water. Access to finance, the lifeblood of growth, is a tale of two economies. While large conglomerates enjoy favourable terms, SMEs face a credit gap estimated at $2.8 billion by the IFC. Only 23% of small firms have a bank loan or line of credit.

With GDP growth slowing to 3.69% in fiscal year 2024-25, the lowest since the pandemic, the engine of our progress, the private sector, is sputtering. While our macroeconomic indicators show a fragile recovery with GDP growth projected to rebound to 5.5% in FY2026, the engine of this growth, the private sector, is running on fumes. The data is precise: private enterprises already account for over 80% of jobs and more than two-thirds of investment in the economy. Private investment has stagnated at 22-24% of GDP for over a decade, and business credit growth plummeted to just 6.58% by November 2025, well below targets.

To move from a "Ready-Made Garment (RMG) economy" to a diversified middle-income economy, we must dismantle three specific barriers that currently hold our entrepreneurs hostage.

The credit chokehold and banking health

The most alarming data point today isn't our inflation (which eased to 8.29% in late 2025); it is the stagnation in private-sector credit. In late 2025, credit growth dipped to a historic low of 6.23%, while non-performing loans (NPLs) skyrocketed to 35.73%.

When banks are burdened by bad debt, they stop lending to the "missing middle", the SMEs. We cannot build a modern economy if our entrepreneurs are forced to borrow at 14-16% interest rates while competing against global players who have access to capital at 4-5%.

Beyond the "RMG Security Blanket"

For too long, the RMG sector has been our safety net, accounting for over 80% of our exports. However, the "LDC Graduation" means we are about to lose Generalised System of Preferences (GSP) benefits, which could result in an estimated $8 billion in annual export losses. Growth prospects are strongest in agribusiness, light manufacturing, digital services, and green energy. Each sector combines comparative advantage with global demand.

Investment climate

We must prioritise stable, investor-friendly policies. The government's shift toward privatisation since the 1980s has been transformative, but it needs to accelerate. Look at the Public-Private Partnership (PPP) Act of 2015: it has enabled more than 79 projects in the pipeline, attracting substantial infrastructure investment. The Private Sector Development Project, supported by international partners, generated $3.9 billion in private investments, including $2.7 billion in foreign direct investment.

The World Bank's 2025 Country Private Sector Diagnostic highlights that Bangladesh could attract billions in new investment if regulatory bottlenecks are eased. Streamlined licensing, transparent taxation, and predictable policies are not luxuries; they are prerequisites. We are currently seeing a "wait-and-see" approach from foreign investors. While FDI saw a 19% year-on-year growth in FY2025, much of that was reinvested earnings from existing firms rather than new "equity" capital. New investors are nervous about our energy security.

Job creation

Private firms in Bangladesh face a gauntlet of obstacles that stifle innovation and expansion. Labour productivity lags due to outdated training equipment in public institutions, hindering our transition to higher-value industries. A BIDA (Bangladesh Investment Development Authority) study found that a mid-level manager in a manufacturing SME can spend up to 30% of their time on regulatory compliance, not on strategy, quality, or workforce development, but on navigating labyrinthine tax, customs, and licensing procedures. This is a massive, uncalculated tax on productivity. With two million young people entering the labour force annually, private firms must be empowered to absorb this demographic surge.

The energy and logistics tax

Data from the Country Private Sector Diagnostic shows that electricity and gas shortages remain the #1 operational barrier for businesses. We have the factories, and we have the labour, but we lack the reliable "juice" to keep the machines running 24/7.

Furthermore, in Bangladesh, logistics costs are estimated at 14–18 per cent of GDP, compared with a global average of around 10 per cent. The "cost of doing business" is inflated by a logistics nightmare. It takes longer and costs more to move a container from Gazipur to Chattogram than it does to ship it from Chattogram to Europe.

Corruption and competition from the informal sector:

Where unregulated players undercut formal businesses, they further erode confidence. Political instability and regulatory whiplash, including delays in letter-of-credit processing and sudden policy shifts, add layers of uncertainty. These aren't anecdotes; they're backed by enterprise surveys and economic indicators showing our economic freedom score at a middling 54.7, ranking us 122nd globally.

Risks and trade-offs

Without decisive reform, regulatory inertia threatens to undermine the competitiveness of Bangladesh following its graduation from the LDC category. This is compounded by a persistent skills mismatch, where education systems fail to align with private-sector demand, potentially driving up youth unemployment. Furthermore, the country's climate vulnerability remains a critical factor; private investment must prioritise resilience to ensure that frequent floods and cyclones do not erode hard-won economic gains.

Action Plan for 2026

To revitalise the private sector before the graduation bell rings, the government and the private sector must move in lockstep. Firstly, we need full automation of the National Board of Revenue (NBR) and customs. If a business cannot clear a sample through customs because of a four-digit versus eight-digit HS code discrepancy, we are not ready for global competition.

Secondly, the government should decentralise energy and allow the private sector to trade electricity directly. If a factory in a Special Economic Zone (SEZ) can source renewable energy or gas independently, the fiscal burden on the state drops and productivity rises. We must also formalise the informal sector by allowing the 70 per cent of businesses currently operating informally to receive payments through digital wallets. This "Digital Wallet Revolution" will help them gain a digital footprint and unlock a massive new pool of bankable entrepreneurs.

Furthermore, artificial intelligence (AI) and big data can be used to boost productivity. Studies show AI integration improves business operations by optimising supply chains and customer insights. For instance, the adoption of cloud solutions and automation has reshaped sectors such as outsourcing, where Bangladesh is poised to grow in 2025 through cost-effective talent pools.

We must also transition from collateral-based lending to cash-flow-based lending. The Draft SME Policy 2025 is a step in the right direction, particularly its focus on angel funds and crowdfunding. However, without a surgical cleanup of the banking sector's NPLs, these policies remain beautiful documents on paper. Regulatory streamlining is also essential. BIDA's One Stop Service (OSS) must evolve into a true digital portal that integrates NBR, the Registrar of Joint Stock Companies and Firms (RJSC), customs, and utilities into a single digital identity for a business, with clear service-level agreements for approvals.

Finally, we must build for productivity rather than prestige. Infrastructure investment must be ruthlessly evaluated on economic return on investment, not political optics. Improving the efficiency of Chattogram Port is more critical than another underpass in Dhaka. Prioritising reliable, affordable industrial electricity in export processing zones and beyond will do more for manufacturing than a dozen new shopping malls.

To make this happen, we need bold, timely reforms: a nonpartisan parliamentary caucus on private-sector engagement, enhanced revenue mobilisation through digital tax systems, and faster implementation of national development policies.

Bangladesh's private sector has an "indomitable spirit," as the recent FDI bounce-back proves. But spirit alone cannot fight a 14% interest rate or a zero-gas day. If we want 2026 to be a year of celebration rather than a "suicidal" economic shift, we must stop treating the private sector as a tax cow and start treating it as the primary stakeholder in our national survival.

Subail Bin Alam is an Economic Growth Technical Specialist, Email: contact@subail.com

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.