Private investment falls to lowest share of GDP in 14 years

Private investment as a share of Bangladesh's gross domestic product (GDP) has dropped to its lowest level in 14 years during the current fiscal year, raising serious concerns about the country's economic outlook. 

Prolonged political uncertainty, a challenging business environment, and policy instability have discouraged entrepreneurs from making new investments or expanding existing businesses.

According to the Bangladesh Bureau of Statistics' (BBS) provisional GDP estimates for fiscal year 2025–26, private investment accounted for 21.53% of GDP, the lowest ratio recorded since fiscal year 2012–13.

Private Sector Losing Momentum

M. Masrur Reaz, Chairman of Policy Exchange Bangladesh, described the decline in private investment as deeply concerning, highlighting several key reasons:

1. The private sector has long been the primary driver of Bangladesh's economic growth. It has played a vital role in boosting exports and creating domestic employment. The weakening of this proven growth engine is alarming. 

2. Sustained economic growth requires the creation of more productive and decent jobs. However, stagnant private investment is limiting employment opportunities. 

3. Bangladesh needs a more diversified export base to strengthen its integration into the global economy, which requires greater investment. 

4. Major infrastructure projects, such as ports and energy facilities, are increasingly being developed by private-sector investors rather than the government, making robust private investment even more essential. 

Why the Investment-to-GDP Ratio Matters

The investment-to-GDP ratio measures total investment as a percentage of a country's GDP over a given period. It includes both public and private investment. Government investment consists of spending on sectors such as the Annual Development Programme (ADP) and other public projects.

Although investment may increase in absolute terms each year, the investment-to-GDP ratio provides a better indication of the economy's capacity to translate investment into productive output. Investment is essential for expanding production and creating goods and services.

A higher investment-to-GDP ratio generally indicates:

• Greater expansion of productive capacity. 

• Increased potential for new industries, infrastructure, and job creation. 

• A stronger foundation for future economic growth. 

• A more attractive environment for both domestic and foreign investors. 

However, economists note that the quality, productivity, and sectoral allocation of investment are just as important as the overall investment level.

A 14-Year Low

BBS data show that private investment stood at 21.75% of GDP in fiscal year 2012–13 before rising steadily. It reached a record 25% of GDP in fiscal year 2018–19. Since then, the ratio has gradually declined due to the impacts of the COVID-19 pandemic, the Russia-Ukraine war, prolonged political uncertainty, political transitions, and other economic challenges, eventually falling to 21.53% this fiscal year.

Investment Climate Remains Weak

Business leaders and economists say the investment climate has shown little improvement in recent years. They argue that investment made limited progress even under the previous Awami League government.

The interim government later organized a high-profile investment summit in Dhaka to attract domestic and foreign investors through promotional presentations. However, despite expectations of stronger investment during its one-and-a-half-year tenure, the overall investment situation changed little.

Industry stakeholders identify persistent gas and electricity shortages, high taxes, political uncertainty, and elevated lending rates as major factors discouraging private investment.

Government Hopes for a Turnaround

To stimulate investment, the new BNP-led government has proposed a range of tax and tariff incentives in the budget for the next fiscal year. The budget also includes special allocations and additional tax benefits for the creative economy. The Finance Minister has expressed optimism that the country's economy will recover within the next two years.

Source: Prothom Alo