Government’s First Six Months: Investment Optimism Grows, but Challenges Persist

Investment Hopes Rise as New Government Seeks to Revive Economy

Six months into the BNP-led government, businesses and industrialists are cautiously optimistic that investment will recover. However, high borrowing costs, energy shortages, economic uncertainty and slow implementation of policy support continue to discourage new investment and business expansion.

The government took office following the 13th parliamentary election after 18 months of interim rule, creating renewed expectations among entrepreneurs. Yet the prolonged investment slowdown has persisted, with private-sector credit growth falling to a 33-year low.

A tight monetary policy aimed at controlling high inflation, weak implementation of development projects and disruptions in the energy sector linked to the war in West Asia have further weighed on investment.

To stimulate economic activity, Bangladesh Bank announced a Tk60,000 crore incentive package on May 23. Of the total, Tk41,000 crore will come through refinancing from surplus liquidity held by scheduled banks, while Tk19,000 crore will be provided from the central bank’s own refinancing funds. The package is expected to generate employment for around 2.5 million people.

However, implementation has been slower than expected. Bangladesh Bank has signed agreements with several banks, while arrangements with banks holding excess liquidity are also underway. Officials expect fund disbursement to begin by September.

Economists say the package could help revive closed and distressed businesses, but its success will depend largely on how quickly funds reach viable entrepreneurs.

Former World Bank Dhaka office lead economist Dr Zahid Hussain said it was still too early to make a full assessment of the government’s economic performance. However, he stressed that reviving private investment should be a top priority.

He noted that investment has remained stagnant for years and warned that incentive packages alone would not be enough. Effective implementation, improved banking-sector conditions and reduced business uncertainty would be essential to restore investor confidence.

M Masrur Reaz, chairman of Policy Exchange Bangladesh, said investment had fallen to an extremely low level and called for major reforms. With government revenue likely to remain under pressure, he said greater reliance should be placed on public-private partnerships and private investment, particularly for commercially viable projects.

Private-sector credit growth has reflected the weakness in investment. Bangladesh Bank data showed credit growth stood at just 4.47% at the end of June, the lowest in 33 years.

The tight monetary policy adopted under the previous government was continued by the interim administration led by Muhammad Yunus. The policy rate was eventually raised to 10% under former governor Ahsan H Mansur. Although the move was intended to curb inflation, it severely weakened private-sector borrowing while inflation declined only marginally. Current Governor Mostaqur Rahman has since reduced the policy rate to 9.5%.

Under the Tk60,000 crore incentive programme, Tk20,000 crore has been earmarked for closed industrial and service-sector businesses, Tk5,000 crore for cottage, micro, small and medium enterprises, Tk10,000 crore for agriculture and the rural economy, and Tk3,000 crore for export diversification. Another Tk3,000 crore has been allocated to establish an agricultural hub in northern Bangladesh, which is expected to create around 100,000 jobs.

Despite these measures, businesses have raised concerns over a new requirement that applicants withdraw lawsuits against the government, Bangladesh Bank or banks before receiving policy support.

Dispute Over Lawsuit Withdrawal

Bangladesh Bank introduced an exit policy on June 29 to address non-performing loans, easing some conditions for interest waivers and providing opportunities for special loan rescheduling.

However, a July 29 circular stated that businesses seeking government or Bangladesh Bank incentives would have to withdraw all pending lawsuits, including writ petitions, against the government, the central bank or relevant banks. Applicants must also submit affidavits declaring that they have no pending cases.

The requirement has sparked concern among entrepreneurs, who fear that withdrawing legal cases before receiving promised support could leave them financially exposed.

The Bangladesh Garment Manufacturers and Exporters Association has also objected to the condition. BGMEA President Mahmud Hasan Khan said legal withdrawal and approval of policy support should take place simultaneously, with the withdrawal occurring only after the relevant bank board approves the support.

CPD Research Director Khondaker Golam Moazzem said priority should be given to factories that are still operational but facing financial difficulties, rather than businesses that have remained closed for long periods. Supporting viable factories, he said, could protect jobs and boost exports.

Bangladesh Bank spokesperson and Executive Director Arief Hossain Khan acknowledged that implementation of the incentive package has been relatively slow, although support for agriculture and the rural economy is progressing more smoothly.

He said successful implementation would require cooperation between banks and borrowers, particularly in resolving disputes and reducing non-performing loans.

Mutual Trust Bank Managing Director Syed Mahbubur Rahman said a stable and investment-friendly environment was essential for attracting fresh capital.

With the new government now in office and political conditions gradually stabilising, businesses hope uncertainty will ease, investment will pick up and employment will increase.

The outlook is therefore one of cautious optimism: the government has introduced significant support measures, but their speed, accessibility and effective implementation will determine whether investment finally moves from promise to recovery.