Bangladesh’s capital market is in turmoil, with investor confidence plummeting and foreign direct investment (FDI) reaching historic lows. Despite government interventions, the Dhaka Stock Exchange (DSE) continues to decline, reflecting deeper systemic issues that threaten the country’s economic stability.
Investor Confidence Erodes Amid Market Decline: Over the past nine months, the DSE’s key index has plunged by over 1,000 points, erasing approximately Tk 800 billion in market capitalization. This downturn has led to a significant exodus of investors, with 30,000 closing their Beneficiary Owner (BO) accounts and another 57,000 becoming inactive. The mass withdrawal underscores a profound loss of faith in the market’s integrity and prospects.
Investor sentiment has been further dampened by allegations of nepotism within the Bangladesh Securities and Exchange Commission (BSEC). The appointment of Rashed Maksud, reportedly a close relative of the chief economic adviser, as BSEC Chairman has raised concerns about regulatory impartiality. Critics argue that such appointments compromise the commission’s ability to oversee the market effectively.
Regulatory Failures and Market Manipulation: Economists attribute the market’s decline to regulatory shortcomings and policy missteps.
The BSEC’s failure to curb market manipulation and enforce transparency has allowed unscrupulous practices to flourish. The imposition of floor prices in 2022, intended to stabilize the market, instead led to artificial inflation of stock values, deterring genuine investment.
Economists notes, “The lack of decisive action against market manipulators has eroded trust. Investors are skeptical of the market’s fairness and are withdrawing their funds.”
The situation is exacerbated by the approval of weak companies for listing, often at inflated prices. Many of these firms have since become defunct, leaving investors with worthless shares and further undermining confidence in the market’s governance.
Foreign Investment Plummets Amid Political Uncertainty: Bangladesh’s political landscape has been marked by instability, particularly following the mass protests and subsequent government change in August 2024. This upheaval has unsettled foreign investors, leading to a significant decline in FDI. According to Bangladesh Bank, net FDI inflow stood at $861 million from July to March of the current fiscal year, a 26% drop from the previous year.
Economist M Masrur Reaz highlights the impact of political uncertainty, stating, “Investors are adopting a ‘wait-and-see’ approach due to the lack of clarity on the interim government’s economic policies and the overall stability of the country.”
Compounding the issue are infrastructural deficiencies, such as unreliable energy supplies and congested ports, which hinder operational efficiency and deter investment. Policy inconsistency and bureaucratic inefficiencies further exacerbate the problem, creating an environment of uncertainty that is unattractive to foreign investors.
Economic Indicators Reflect Deepening Crisis: The broader economic indicators paint a grim picture. Inflation remains high, with food inflation at 8.63% and non-food inflation at 9.61% as of April. The local currency has depreciated significantly, increasing the cost of imports and contributing to the inflationary pressure. Foreign exchange reserves have dwindled, and the balance of payments is under strain.
These factors have led to a contraction in industrial activity, with capital machinery imports falling by nearly 29% compared to the previous year. The decline in investment is not limited to foreign sources; domestic investors are also retreating, citing high interest rates and an unfavorable business climate.
Calls for Comprehensive Reforms: Experts and stakeholders are calling for comprehensive reforms to restore confidence and stabilize the economy. Key recommendations include: Strengthening Regulatory Oversight: Enhancing the independence and capacity of the BSEC to enforce market rules and prevent manipulation. Ensuring Policy Consistency: Establishing clear and stable economic policies to provide certainty for investors. Improving Infrastructure: Investing in energy, transport, and port facilities to support industrial activity and attract investment. Enhancing Transparency: Promoting transparency in government and corporate practices to build trust among investors.
Dr. Selim Raihan of the South Asian Network on Economic Modeling emphasizes the need for coordinated efforts, stating, “Restoring macroeconomic stability and ensuring consistent policies are essential for attracting and retaining investment.”
Bangladesh’s economy is at a critical juncture, with its capital market in crisis and investor confidence at an all-time low. Addressing the underlying issues requires decisive action, transparency, and a commitment to reform. Without these measures, the economy risks further deterioration, undermining the country’s development prospects and the well-being of its citizens.
