Multiple factors ‘weaken BD's macroeconomic stability’

Factors like subdued investment, inflationary pressure, financial sector vulnerabilities and political impasse have weakened Bangladesh's macroeconomic stability despite having decades of rapid expansion, economists and private sector entrepreneurs have said.

They also highlighted several key challenges facing the economy, including a lower tax-to-GDP ratio, stagnant private investment, fiscal pressures from the power sector, structural barriers to employment, and the potential loss of trade preferences as the country prepares to graduate from Least Developed Country (LDC) status.

The observations came at an engagement session titled "AmCham Insights: Economic and Investment Outlook," organized by the American Chamber of Commerce in Bangladesh (AmCham) at a Dhaka hotel on Thursday.

Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD) and Shah Mohammad Mahboob, Executive Member of Bangladesh Investment Development Authority (BIDA), presented separate keynotes at the event.

Syed Ershad Ahmed, President of AmCham Bangladesh, Sultana Yasmin, Joint Secretary, Ministry of Industries, and representatives from the private sector, economists, and government officials spoke on the occasion.

Syed Ershad Ahmed said Bangladesh is undergoing a transitional phase marked by key reforms, including improved logistics infrastructure management, the separation of the National Board of Revenue into two distinct functions, and strengthened banking governance.

Those measures reflect the government's intention to create a more resilient and investment-friendly economy, he said, stressing on a sustained investors' confidence through ensuring energy security, curbing corruption, and maintaining long-term policy consistency to attract greater investment.

Delivering her keynote paper titled "Economic Outlook of Bangladesh: Current Trends and Future Prospects," Dr Fahmida Khatun said GDP growth fell below 4.0 per cent in the last fiscal year, down from 4.2 per cent in the previous year.

She highlighted that key economic indicators, including the ratio of private investment to GDP, revenue mobilisation, tax-to-GDP ratio, and the implementation rate of the Annual Development Programme (ADP), also showed declining trends.

Despite such challenges, rising remittances and exports have given some relief amid persistent inflation and stagnant wage growth, she added.

Dr Fahmida said the tax- GDP ratio dropped to 6.0 per cent in FY25 --the lowest in South Asia, reflecting persistent difficulties with domestic resource mobilisation.

The prevailing sluggish private investment trend, which remained below 25 per cent of GDP in recent years and fell to 22.48 per cent in FY25, threatens the country's industrial growth, job creation, and long-term development goals, she said.

She also said the power and energy sector exerts significant fiscal pressure due to higher generation costs and excessive capacity payments, which receive the largest share of the government subsidies.

Structural barriers to job creation still persist with higher youth and female unemployment rates, widening skills mismatches, and elevated unemployment among tertiary-educated individuals, she added.

The potential preference erosion ahead of Bangladesh's graduation from LDC status could significantly undermine competitiveness, as duty-free and quota-free market access currently covers 70 per cent of the country's exports, she said.

Highlighting rising financial vulnerabilities, with NPLs over 20 per cent, the highest in Asia-and private investment at a five-year low, she called for urgent reforms in fiscal management, energy governance, and banking sector oversight to restore confidence and stability.

Dr. Fahmida underscored the need for policy stability, export diversification, and inclusive employment creation to sustain growth and resilience beyond LDC graduation.

Shah Mohammad Mahboob presented another paper on the investment outlook of Bangladesh, highlighting the country's macroeconomic resilience and reform-driven climate.

He said inflation dropped from the double digit level to single digit, there was a 12.5 per cent stock market rally, foreign exchange reserves were rising and the FDI more than doubled year-on-year--boosted by successful U.S. tariff negotiation and growing interest from China and South Korea.

He also emphasised the need for structural reforms in banking, tax policy, and asset recovery as vital for investor confidence and sustained growth, and outlined BIDA's recent initiatives, such as co-locating agency officials, holding monthly coordination meetings with NBR, and deploying relationship management teams to strengthen the investment ecosystem.

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