Businesses Look to Government’s 3R Strategy to Boost Investment

Business leaders are optimistic that the government’s 3R strategy could revive private investment and generate employment, but they stress that its success will depend on effective budget execution, banking sector reforms, easier access to finance and reliable gas and electricity supplies.

The optimism comes amid a sharp rise in excess bank liquidity, which reached Tk4,41,954 crore in August, while private sector credit growth remained sluggish at 4.75%.

According to Bangladesh Bank data, excess liquidity increased by Tk20,994 crore from Tk4,20,960 crore at the end of July. Total bank deposits stood at Tk21,32,521 crore, marking year-on-year growth of 11.96%, while outstanding loans reached Tk26,03,214 crore. Private sector credit growth was 4.47% in June and 4.62% in July.

Despite the availability of substantial funds in the banking system, entrepreneurs remain reluctant to establish new industries or expand existing factories. Business uncertainty, energy shortages, rising production costs and weak demand have continued to weigh on investment decisions.

Meanwhile, banks have channelled a significant portion of their surplus funds into government treasury bills and bonds, which offer relatively secure returns. At the end of August, scheduled banks held Tk7,81,214 crore in liquid assets, of which Tk6,40,756 crore, or around 82%, was invested in approved securities.

The government’s 3R strategy

The government introduced its three-phase strategy—Recovery and Stabilisation, Restoration, and Reconstruction for Acceleration—in the national budget for the 2026–27 fiscal year (FY27). Implementation began in July.

The first phase aims to restore economic recovery and macroeconomic stability within a year. The second focuses on strengthening the economy’s foundations over the next one to three years, while the third seeks to accelerate growth through reconstruction over a five-year period.

By FY31, the government aims to increase economic growth to 8.5%, reduce inflation to 5%, raise total investment to 40% of gross domestic product (GDP) and increase foreign direct investment (FDI) to 2.7% of GDP.

The strategy places particular emphasis on reviving private investment, reforming the banking and financial sectors, improving revenue administration, diversifying exports and boosting investment in energy and infrastructure.

However, business leaders and economists caution that policy announcements alone will not be sufficient to restore investment momentum. They emphasise the need for effective budget implementation, consistent policies, transparency in taxation, lower operating costs and measures to rebuild investor confidence.

In May, Bangladesh Bank established a Tk62,000 crore incentive fund to encourage private sector lending. It also reduced the policy rate by 50 basis points to 9.50% in an effort to lower borrowing costs. However, neither measure has yet generated a significant increase in credit demand.

Business leaders flag major obstacles

Anwar-ul Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries (BCI), said high lending rates, shorter loan repayment periods and inadequate working capital were undermining the competitiveness of Bangladeshi businesses compared with their counterparts in China, India and Vietnam.

“Bank lending rates in Bangladesh currently stand at around 14–16%, increasing production costs for industries. Meanwhile, the period of delay in loan instalment payments before a loan faces classification as default has been reduced from six months to three months, putting additional pressure on businesses already struggling with financial difficulties,” he told the Daily Sun.

He also pointed to the depreciation of the taka against the US dollar, which has increased import expenses without a corresponding rise in businesses’ working capital.

“A company had working capital of Tk50 crore when the dollar was valued at Tk84. Although the dollar now costs Tk122, the company’s working capital remains unchanged at Tk50 crore. As a result, businesses can import less raw material with the same amount of money, disrupting production and operations and putting many companies under pressure to repay their loans,” he said.

Parvez called for more realistic loan repayment periods and classification rules, increased working capital financing and lower borrowing costs. He stressed that the central bank’s incentive fund, initiatives to reduce lending costs and investment-friendly policies must be implemented effectively.

He also urged the government to reduce industrial production costs, ensure uninterrupted gas and electricity supplies, and simplify access to finance. Such measures, he said, would help restore business confidence, encourage fresh investment, support industrial expansion and create employment.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), also expressed cautious optimism about the strategy.

He said the 3R framework, investment incentives and planned reforms in the banking and financial sectors could help revive private investment if implemented effectively. These initiatives could restore business confidence, encourage entrepreneurs to expand existing industries and attract new domestic and foreign investment.

Economists call for structural reforms

Mustafa K Mujeri, former lead economist of Bangladesh Bank, said addressing weaknesses in the banking sector and improving access to credit were essential to directing excess liquidity towards productive economic activities.

“Removing weaknesses in the banking sector, easing access to credit, ensuring tax policy stability, facilitating refunds of advance taxes, improving borrowing costs and repayment terms, and resolving energy supply constraints could help channel excess bank funds into productive sectors,” he said.

He added that these measures could encourage the establishment of new industries, facilitate factory expansion, boost exports and generate employment.

“Otherwise, reviving investment momentum would remain difficult despite the substantial amount of excess liquidity in the banking system,” he said.

Arief Hossain Khan, executive director and spokesperson of Bangladesh Bank, said the central bank had undertaken several initiatives to increase private sector credit and that implementation was already under way. He expressed hope that credit demand would recover soon.

Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB) and managing director of Mutual Trust Bank, said maintaining banking sector stability through interest rates or investments in government securities alone was insufficient. He stressed the need for appropriate government measures to address the sector’s underlying challenges.

He observed that banks had generated profits from foreign exchange transactions and government securities in recent years, while their traditional lending and deposit-taking businesses had suffered a significant setback.

The decline in net interest income, he said, was an alarming signal for the banking sector as a whole.