Bangladesh is facing one of its most severe investment downturns in recent history, with economists warning that the prolonged slump has created a “motionless economy” marked by falling private credit, persistent inflation, and declining real income. According to Daily Industry reports, the extent of stagnation in investment is unprecedented in many years, with both domestic and foreign entrepreneurs hesitating to make new commitments amid growing uncertainty.
Despite the government’s claims of macroeconomic stability, the ground reality remains grim. The combination of fuel shortages, financial sector distress, high interest rates, unrelenting inflation, slow wage growth, and weak purchasing power has pushed Bangladesh into a prolonged crisis. But analysts say the two most damaging elements-added under the current government-are instability and uncertainty, which have eroded investor confidence to the lowest point in decades.
Inflation Remains the Highest in South Asia: The Bangladesh Bureau of Statistics (BBS) reported an inflation rate of 8.17% in October, the highest in South Asia. For ordinary citizens, however, the inflation burden is much heavier. Rising food prices, stagnant wages, and a weakened taka have combined to shrink real incomes for five consecutive years. Economist Dr. S.M. Nazrul Islam explains, “Bangladesh has been trapped in a cycle of high inflation since the pandemic. The persistent erosion of purchasing power has pushed many households back into poverty.”
Private surveys cited by Daily Industry reveal that the current poverty rate may be close to 28%, far above the government’s estimate of 18.7% in 2022. “The tragic reality is that people have been living under economic pressure since COVID-19,” said economic analyst and former government adviser Dr. Shamsul Alam. “For five years, we have seen high inflation and low wage growth destroy real incomes. Poverty has increased sharply as a result.”
Years of Stagnation: A Breakdown of the Crisis: Bangladesh’s economic problems did not emerge overnight. After the shock of COVID-19 in 2020, the country struggled to stabilize due to: Supply chain disruptions, rising global commodity prices, Surging import bills, Energy shortages, Currency depreciation.
However, after the Ukraine-Russia war, most countries tackled inflation by tightening monetary policy, reducing money supply, and allowing interest rates to rise. Many nations saw inflation ease within 12-18 months. Bangladesh, in contrast, expanded money supply during this period.
“The previous government pursued an expansionary policy at the worst possible time,” said financial sector expert Dr. Moinul Huq. “Instead of tightening, they increased the money supply, which worsened inflation and destabilized the currency.”
Only after the interim government appointed a new Bangladesh Bank governor did policy begin shifting toward a more orthodox approach. The central bank has since raised the policy interest rate multiple times.
While inflation has started declining marginally, experts warn that the improvement is slow and incomplete.
Private Investment Hits a Two-Decade Low: The most alarming sign of economic stagnation is the steep decline in private sector credit growth. When the interim government took office, private sector credit growth stood at 9.86%. Today, it has fallen dramatically to 6.29%, the lowest in more than 20 years. At the same time, government borrowing has skyrocketed. Public sector credit growth has jumped from 11.61% last year to 27.22% now. These numbers reveal a troubling picture: The government is borrowing heavily from banks to finance its budget deficit. Crowding out is occurring-leaving less liquidity for private businesses. Investors lack the confidence to borrow, invest, or expand operations.
“This is a textbook example of an investment collapse,” said BIDS research fellow Dr. Arif Hossain. “Private credit growth below 7% shows the economy is not generating new enterprise or expansion.”
Daily Industry reports further note that the previous government had also borrowed record amounts to cover deficits. In June 2023, public borrowing hit around 35%, the highest ever. The current interim government now holds the second-highest record.
Why Entrepreneurs Are Not Investing: Business leaders say the reasons behind the investment slump are wide-ranging: Fuel and electricity shortages, Corruption and extortion, Unpredictable law-and-order conditions, Bureaucratic delays, Exchange rate instability, High cost of doing business, However, the most decisive blow has come from instability and uncertainty, according to industry insiders.
“Entrepreneurs can handle inflation or a temporary fuel shortage,” said Dhaka Chamber of Commerce and Industry (DCCI) Director Shahidul Hasan. “But they cannot operate when the future is uncertain and policies are unpredictable. This is why investment has come to a standstill.” Frequent changes in regulations, delays in payment of government dues, and lack of clarity on tax structures have further discouraged investors.
Banking Sector Weakness Deepens the Crisis: A fragile banking sector is adding fuel to the fire. High default loans, liquidity shortages, exchange rate losses, and poor governance have severely weakened banks.
“Banks are struggling on multiple fronts,” said financial analyst and ex-banker Syed Abdul Matin. “With rising non-performing loans and dollar shortages, they cannot support private investment even if demand increases.”
The IMF has repeatedly warned Bangladesh about the risks of financial sector instability, urging the government to improve supervision and transparency.
Interest Rate Debate: IMF vs. Business Leaders: Interest rates have climbed in recent months, following the central bank’s tightening measures. While many analysts say high interest rates reflect economic realities, small and medium entrepreneurs argue that borrowing costs have become prohibitive.
In a recent meeting of the Monetary and Exchange Rate Coordination Council, advisers from the ministries of finance, planning, and commerce recommended lowering interest rates to support small businesses.
However, the International Monetary Fund (IMF) strongly opposes reducing rates prematurely. The IMF argues that inflation must fall significantly before monetary policy can be eased.
Economist Dr. Saima Haque Bidisha supports this view: “Bangladesh cannot afford an early rate cut. Inflation is still high. Lowering rates now would weaken the currency further and increase pressure on foreign reserves.”
The Twin Problems: Instability and Uncertainty: According to Daily Industry’s assessment, the two most damaging forces added under the current government are:
Instability, Uncertainty, These factors have created widespread loss of confidence, affecting both domestic and foreign investors.
“The economy is now running without momentum,” said Professor Mustafizur Rahman of CPD. “There is no new investment, no new jobs, and therefore no significant economic growth.” GDP growth has already fallen, and many experts fear the trend will continue unless urgent reforms are introduced.
Declining Purchasing Power and Rising Poverty: As inflation persists and wages stagnate, real incomes have plummeted. This has increased poverty across the country.
Daily Industry notes that: Real incomes have fallen for five years straight, Poverty has risen to around 28% (private surveys), Urban middle-class households are struggling to maintain living standards, “The decline in purchasing power is the biggest blow to the economy,” said Dhaka University economist Dr. Selim Raihan. “Without demand, investment cannot return.”
What Needs to Be Done? Expert Recommendations: Experts outline several urgent steps to revive investment: Stabilize the macroeconomic environment, Restore confidence in the financial sector, Ensure transparency in banking operations, Address liquidity shortages,
Fix the energy crisis: Provide uninterrupted electricity: Introduce a transparent fuel pricing mechanism. Reduce corruption and bureaucratic delays: Strengthen enforcement, Improve service delivery. Restore political and regulatory stability, Provide clear, predictable policies, and Reduce policy reversals. Support small and medium enterprises, Expand credit guarantee schemes, Improve access to low-cost financing.
Maintain realistic interest rate policy: Avoid premature rate cuts, Focus on controlling inflation.
The Road Ahead: Bangladesh stands at a critical economic juncture. The investment slump, fueled by instability and uncertainty, has dragged the economy into stagnation. With rising inflation, shrinking real incomes, and declining private credit growth, the country faces one of its toughest periods in decades. Unless confidence is restored, structural reforms implemented, and clear policies adopted, Bangladesh risks falling further into an economic quagmire that could take years to recover from. The message from economists, business leaders, and Daily Industry’s analysis is clear: without stability and credible reforms, investment will not return-and without investment, economic recovery is impossible.
