[🇧🇩] Monitoring Bangladesh's Economy

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Bulging NPLs enough to derail economy

Mir Mostafizur Rahaman
Published :
Jun 17, 2025 00:00
Updated :
Jun 17, 2025 00:00

A sound banking sector is the bedrock of a sound economy. The experience of economies across the world attests to this assertion: without a vibrant, healthy, and functioning banking system, no country can dream of sustainable development, let alone achieve rapid economic growth. In Bangladesh, however, the very pillar that is meant to support the economy stands increasingly weakened by a long-standing and dangerous affliction -- classified loans, also known as non-performing loans (NPLs).

Non-performing loans are the Achilles heel of the country's banking sector. This is not a new problem; it has plagued Bangladesh for decades. Yet the gravity of the crisis has intensified alarmingly in recent years, especially since the previous Awami League-led government came to power. That regime, often accused of favouring certain oligarchic business groups, oversaw a disturbing trend of ballooning bank credit disbursed to politically connected individuals and firms. As these borrowers defaulted on repayment, with little or no punitive action, the culture of willful default took root and grew like an unchecked weed.

Despite efforts by the current interim government to restore discipline in the banking sector, the classified loan problem continues to snowball. The new administration had pledged decisive steps to reduce bad loans, and indeed it undertook several measures aimed at stricter classification rules and enforcement. Yet, the latest figures paint a grim picture: the volume of NPLs has risen significantly, threatening not just the stability of the banking sector but also the broader economy.

According to the latest data, classified loans in Bangladesh's banking industry soared by around Tk 750 billion in just three months -- an astronomical jump that pushed total NPLs to a record Tk 4.20 trillion by the end of March 2025. This now accounts for a staggering 24.13 per cent of all loans -- up from just 11.11 per cent a year earlier. In real terms, nearly one out of every four taka lent by the banks has gone bad.

To put this into perspective, the total outstanding loans across the 61 commercial banks in the country now stand at Tk 17.42 trillion. The Tk 4.20 trillion in classified loans includes substandard, doubtful, and bad/loss categories. Alarmingly, a massive 81.38 per cent -- over Tk 3.41 trillion -- of this amount falls under the "bad loan" category, which means there is little hope of recovery unless extraordinary measures are taken.

The implications are serious. When banks are saddled with high NPLs, their ability to disburse fresh loans gets crippled. As more of their funds are locked up in unrecoverable accounts, their liquidity dries up, forcing them to become extremely conservative in extending new credit. This hits private investment hard. Without access to finance, businesses cannot expand, create jobs, or innovate. Economic stagnation follows. And in a country like Bangladesh, where private sector investment is a key growth driver, this can be disastrous.

Furthermore, banks are legally required to maintain provisioning -- setting aside a portion of their earnings to cover the potential losses from bad loans. As NPLs mount, so does the provisioning requirement, which eats into bank profits and leaves them less capitalised. Weak capitalisation can invite further regulatory scrutiny, damage investor confidence, and eventually force banks into a vicious cycle of distress.

The Bangladesh Bank (BB), the country's central bank, acknowledges the worsening trend. In an effort to impose tighter discipline, the central bank revised the overdue loan classification system, reducing the tenure from nine months to six months. Starting from March 31, 2025, the classification period will be further shortened to three months. While these stricter norms are commendable and necessary, they also mean that the banks must brace for more loans turning classified in the coming quarters unless recovery improves dramatically.

There are structural and historical reasons behind this surge in NPLs. For the last 15 years, during the previous government's rule, a number of business accounts were opened by individuals and entities favoured by the regime. Many of these accounts were based on inflated projections, non-existent cash flows, or political protection. With the change in regime following the July-August 2024 mass uprising, many such businesses have gone into hibernation. Sales turnover has plummeted, and cash flow has dried up. These accounts are now turning toxic, and banks are left to deal with the fallout.

Moreover, some banks have been effectively captured by vested interest groups -- a "vicious circle" of politically connected borrowers and complicit bank directors. These forces have laundered public money with impunity, leaving behind a hollowed-out financial system. Now, with the regulatory environment tightening, the hidden rot is surfacing.

The problem is not just managerial but also philosophical. Many banks in Bangladesh have failed to recognise that banking is a high-risk business -- especially in emerging markets. Lending money is not just a routine function; it requires robust Credit Risk Management (CRM) frameworks, capable loan appraisals, and vigilant monitoring. Unfortunately, in several banks, especially state-owned ones, risk management has been perfunctory or even non-existent. Even the presence of Board Risk Management Committees (BRMCs), a requirement in many jurisdictions, has been symbolic at best.

The way forward requires a multi-pronged approach.

First, banks must urgently intensify their cash-recovery efforts. The current recovery rate is abysmally low and reflects a lack of seriousness. Legal processes to recover defaulted loans need to be streamlined, special tribunals empowered, and willful defaulters publicly named and penalised.

Second, the regulatory role of the Bangladesh Bank must be strengthened. No more political interference in bank appointments -- especially at the board and managing director levels -- should be tolerated. Independent directors must be made truly independent, and audit committees must be empowered to flag irregularities.

Third, policymakers must realise that the banking sector does not operate in isolation. Global factors -- such as ongoing conflicts in the Middle East, fluctuating oil prices, and rising U.S. tariffs -- can all affect trade and investment in Bangladesh. Hence, any national strategy to improve bank performance must be built on macroeconomic foresight and external risk assessment.

Fourth, structural reforms are essential. The government must seriously consider merging weaker banks and recapitalising them, but only after ensuring good governance and accountability. No recapitalisation should be done blindly using taxpayer money without resolving the root causes of inefficiency.

Finally, a broader cultural shift is necessary. The idea that bank loans are grants or political rewards must be shattered. Loan default must carry social stigma and legal consequences. At the same time, good borrowers -- especially SMEs and exporters -- must be incentivised and supported.

Bangladesh's banking sector has reached a critical juncture. The rise in classified loans is not just a financial issue; it is a national crisis. If left unaddressed, it could derail the country's economic ambitions. The interim government must use this window of opportunity to enact meaningful reforms -- reforms that may be difficult but are indispensable. The alternative is continued decay and erosion of public trust in the very institutions that are supposed to safeguard the country's financial health.

As the numbers rise, so must our collective resolve. Bangladesh deserves a banking system that fuels growth -- not one that drowns it.​

 

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Economy on positive growth path

Bangladesh economy has been showing signs of higher growth across its major sectors including manufacturing, agriculture and services. Going by the Purchasing Managers Index (PMI), which is a composite index based on surveys on the responses of the purchasing managers of different companies about v

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Economy on positive growth path

Published :
Jun 17, 2025 23:30
Updated :
Jun 17, 2025 23:30

Bangladesh economy has been showing signs of higher growth across its major sectors including manufacturing, agriculture and services. Going by the Purchasing Managers Index (PMI), which is a composite index based on surveys on the responses of the purchasing managers of different companies about various aspects of their business, including new orders, production, employment, supplier deliveries and inventories, demonstrated a stronger performance of the economy.

In this connection, last May's PMI at 58.9 showed an increase by 6 points compared to what it was in the previous month (April). Evidently, it is a demonstration of reinvigoration seeing that the previous months since February were marked by a slowdown of the economy as indicated by their PMIs. So, the indicators point to an expansionary trend in the major sectors, especially agriculture, manufacturing and services. The agriculture, for example, showed the eighth consecutive month of growth so far as new business initiatives, business activity, employment and input costs were concerned. In particular, the order backlog index, which represents the undelivered portion of orders that a company had received, has returned to an expansionary trend. This is no doubt a positive trend since previous months had been the ones of contraction. Though the higher indices of order backlog indicate growth in business activity, they at the same time are also reflective of the output that is below its maximum potential. That is so because order backlog by definition is indicative of unfulfilled order deliveries. Across a particular sector of an economy, such as the agriculture, it is obviously indicative of a rising demand market. In a similar vein, the manufacturing sector, too, according to the last month (May)'s PMI, demonstrated a positive growth momentum driven by expansionary trend at an accelerated pace for the consecutive ninth month. The breakdown of the indices show that new business initiatives in the manufacturing sector demonstrated a rise. However, the order backlogs index remained contractionary though at a slower rate for ten straight months till May.

The construction sector, on the other hand, was expansionary for the sixth consecutive month, though, since April, the sector's growth remained stagnated. That means construction activities gained momentum with order backlogs demonstrating expansionary trend. But so far as new business initiatives and related employment generation was concerned, it reverted to a contractionary track. According to the PMI readings, the costs of inputs which involve the goods and services such as raw materials, components, energy a well as staff that a company employs to run its production process registered a rise, though at a slower pace. Similarly, the services sector demonstrated a faster growth with expansion into new business ventures with an attendant higher index value of order backlogs suggesting strong demands, moderate growth in employment and a rise in input costs. Overall, in experts' view, the economy exhibited an accelerated rate of growth for the month under review. In particular, Dr Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh (PEB), held that the latest PMI readings implied a faster rate of growth of the overall economy. And that growth took place against the backdrop of, what he pointed out, "export-led manufacturing buoyancy and uptake in agriculture and its supply chain ahead of the Eid festival".

The interim government would do well to take the growth indicators as reflected in last month's PMI into due consideration to devise its economic policies for the next fiscal year. For, that would help the elected government to take office next to build on a positive legacy left by the incumbent interim government. Though PMI is a widely used indicator tracking an economy's general health, there is still room for critically assessing its findings. Especially, the PMI depends on the company executives' responses which are basically subjective and prejudiced by personal bias. Even so, despite limitations, PMI can at least provide a good rule of thumb for the policymakers to take their cue from.​

 

[Saif]

Money-whitening facility unlikely in next fiscal

The much-debated black-money-whitening facility is unlikely in the upcoming fiscal year as the provision incorporated into the Finance Ordinance may finally be dropped amid outcry. The finance ordinance, promulgated on June 2, 2025 to ratify the interim government's maiden budget, has retain

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Money-whitening facility unlikely in next fiscal
Govt mulls over amending finance ordinance

Doulot Akter Mala
Published :
Jun 18, 2025 00:16
Updated :
Jun 18, 2025 00:16

The much-debated black-money-whitening facility is unlikely in the upcoming fiscal year as the provision incorporated into the Finance Ordinance may finally be dropped amid outcry.

The finance ordinance, promulgated on June 2, 2025 to ratify the interim government's maiden budget, has retained the provision allowing black-money whitening through real-estate investment, purchase of land, apartments and construction of residential buildings.

The tax rate has been increased up to five times and scope kept for raising question on source of the declared money by other government agencies excepting taxmen.

According to sources, the advisory council of the government may scrap the provision, incorporated into the Finance Ordinance 2025, in its meeting to be held on June 22.

Sources familiar with the change of heart have said the National Board of Revenue (NBR) is preparing to place the proposal for blocking the money-whitening scope, including the existing one in the outgoing financial year.

An amendment to the finance ordinance will be passed at the meeting separately through gazette as the ordinance was promulgated and issued on June 2.

The NBR may propose some other amendments, too, to the ordinance, including offering VAT exemptions on import of raw materials for compressor manufacturers.

If passed in the council meeting, the scope to whiten black money would end in June 2025.

Although the interim government scrapped some of the money- whitening provision in September last year, the opportunity to get undeclared money legalized through investing in realties was retained.

Hinting at a review of the provision, Finance Adviser Dr Salehuddin Ahmed, at the post-budget press conference, also admitted the measure is not 'commendable'.

However, officials have said the fiscal measure has aimed at bringing informal economy onto tax net.

The opportunity was offered to purchase of apartments, land with the undisclosed money by paying three-to five-time higher taxes.

Transparency International Bangladesh, the Centre for Policy Dialogue, economists and civil-society members deplored the retention of the facility for FY 2025-26.

Dr Fahmida Khatun, Executive Director of the CPD, has said the measure is morally discouraging and discrimination to the honest taxpayers.

"It encourages immoral practices---one is evading taxes and another not showing source of income," she said in the CPD disapproval of for the facility.

The advisers of the interim government too always spoke against such opportunity, Dr Fahmida reminded.

Rather, the government must intensify effort to reform total revenue- mobilisation process, she said.

Automation, restructuring, human capacity skills, regulatory measures "should be focused".

Unless the government overhauls the total revenue system, the country cannot achieve the expected domestic revenue-mobilisation growth, she said.

"First, the government must stop tax evasion and realise proper taxes from eligible taxpayers," she added.

To check automatic generation of undisclosed money on purchase of land property, Dr Fahmida found the necessity to ensure coordination between government's relevant institutions.

Dr Iftekharuzzaman, Executive Director of the Transparency International Bangladesh (TIB), terms the provision unjust and contradictory to the country's constitution.

"We have long been advocating for abolishing the black-money-whitening provision in the law," he has said about the interim government's move.

Citing reform commission's report, he said the report also recommended scrapping the law that encourages corruption.

According the ordinance, the tax rates for whitening black money through real-estate investment vary by location and property size.

A total of 11,839 people whitened about Tk205 billion in the fiscal year 2021 - the highest in the country's history in a single year.

Of the amount, Tk168.3 billion in cash, which was kept in banks or cash as a temporary provision of the National Board of Revenue, was legalised by 7,055 untaxed money-holders.

The rest of the money was invested in land, flats or stocks. The NBR received Tk20.64 billion in revenue from those investments.

Earlier in the 2007-2008 and 2008-2009 fiscal years - encompassing the regime of the military-backed caretaker government - about Tk96.83 billion of black money was whitened.

The government has provided the opportunity to invest money earned from undisclosed sources in various sectors, including the stock market and real estate, to overcome the fragile state of the economy brought about by the pandemic.​

 

[Saif]

Foreign firms' term loans in taka

Companies, whether local or foreign, require a sufficient and smooth inflow of working capital to continue their operations. Restrictions imposed by authorities to regulate capital flow and maintain financial balance can sometimes hinder the growth of business entities. Therefore, it is crucial to

thefinancialexpress.com.bd

Foreign firms' term loans in taka

Published :
Jun 19, 2025 00:03
Updated :
Jun 19, 2025 00:03

Companies, whether local or foreign, require a sufficient and smooth inflow of working capital to continue their operations. Restrictions imposed by authorities to regulate capital flow and maintain financial balance can sometimes hinder the growth of business entities. Therefore, it is crucial to periodically review existing regulations and revise them as necessary to meet the needs of business entities and facilitate investments. The government's move to relax the current rigidity of maintaining a 50:50 debt-equity ratio for foreign companies operating in Bangladesh, providing more room for accessing term loans in local currency, is a step in this direction. A report in the FE, published this week, mentions that the Bangladesh Investment Development Authority (BIDA) is going to request the central bank formally to withdraw the obligation of the debt-equity ratio.

According to the current foreign exchange regulations, any foreign company is allowed to obtain term loans in local currency, specifically in Bangladeshi Taka, provided that it maintains a 50:50 debt-equity ratio. In other words, foreign entities in the manufacturing and services sectors can get loans from the local financial market as long as the entities' total debt does not exceed the 50:50 ratio. Other conditions, like being in operation for at least three years in the country and the use of term loans in local currency for capacity expansion, are also in place. Now, relaxing the debt-equity ratio rigidity by enhancing the ratio of debt or entirely abolishing the restriction will help firms obtain more local financing. At present, foreign-owned or controlled firms are, however, free to access local banks for working capital on the basis of normal bank-customer relationships.

Statistics available from Bangladesh Bank showed that the outstanding amount of industrial term loans in the country stood at Tk 3.74 trillion at the end of last year, whereas financing for working capital stood at Tk 3.30 trillion. The share of term loans and working capital financing in total private credit was recorded at 22.85 per cent and 20.20 per cent, respectively, at the end of December last year. It means that these two types of industrial credits are the major drivers of overall advances to the private sector by the banks. Now, allowing foreign commercial entities to get more term loans in local currency is likely to increase the demand for the loan. It may also spark some competition among banks to attract foreign companies, and as a result, interest rates may decline modestly. Generally, foreign companies are considered more compliant compared to many local commercial entities. Therefore, banks may do more business with those companies to reduce the risk of loan defaults. Currently, the total amount of classified loans stands at Tk 4.20 trillion, equivalent to approximately one-fourth of the country's banking sector's total outstanding loans.

Some cautions are, however, necessary for the potential risks of relaxing the debt-equity ratio for foreign firms. Taking advantage of the relaxation, some firms may abstain from injecting fresh equity in foreign currency, which will not help to enhance FDI. Again, if the debt-equity ratio requirement is fully abolished, analysing the credit risks may be difficult for the banks. Banks will also not take the risk of providing unsecured loans, regardless of how reputable a foreign company is. There are some other issues also. All these need to be taken into consideration before entirely abolishing the 50:50 debt-equity ratio requirement. Instead, it may be relaxed to some extent and observed for the market response in the meantime. The status of the terms of loans so far availed by the existing foreign companies also needs to be reviewed before taking any decision.​

 

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Govt focuses on 4 priorities to ensure business-friendly environment: BIDA chief

Executive Chairman of Bangladesh Investment Development Authority (BIDA) and Bangladesh Economic Zones Authority (BEZA) Chowdhury Ashik Mahmud Bin Harun has said the government is focusing on four priorities to ensure business-friendly environment. "BIDA and BEZA are focusing on four main prioriti

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Govt focuses on 4 priorities to ensure business-friendly environment: BIDA chief

BSS
Published :
Jun 21, 2025 16:34
Updated :
Jun 21, 2025 16:34

Executive Chairman of Bangladesh Investment Development Authority (BIDA) and Bangladesh Economic Zones Authority (BEZA) Chowdhury Ashik Mahmud Bin Harun has said the government is focusing on four priorities to ensure business-friendly environment.

"BIDA and BEZA are focusing on four main priorities: fast-tracking high-impact investment projects, expanding and improving One-Stop Services, solving problems faced by investors, and creating a strong pipeline of major investments," he said.

Ashik Chowdhury said this while talking to BSS in an interview at the Investment Building in the city.

The BIDA chief said the government's goal is to continue the momentum, notwithstanding the fact that this is an interim administration.

"We are putting in significant efforts to ensure that investors do receive comprehensive support and the assurance that their investments in Bangladesh will be secured and profitable," he added.

Responding to a question on 'Bangladesh Investment Summit 2025', Ashik Chowdhury mentioned that it was quite successful for the government against its planed objectives.

"We received a very positive response from international and local investors, development partners, and stakeholders. Many investors showed their strong interest in exploring opportunities in Bangladesh across sectors like renewable energy, information technology, manufacturing, infrastructures, and healthcare," he said.

He stated that this summit clearly demonstrated that the global business community sees Bangladesh as a promising and reliable investment destination.

"It also allowed us to highlight the government's efforts in building an investor-friendly environment and world-class infrastructures. In continuation of this, we were able to generate a pipeline of potential investors. We are highly encouraged by the outcomes and fully committed to converting this strong interest into real, on-the-ground investments," he explained.

The BIDA chief, however, said the government's top priority after the 2025 Bangladesh Investment Summit is to stay in close contact with the potential investors.

"We have built a comprehensive database of the participants and are now engaging with customized support based on their investment lifecycle. We have plans to continue building relationships with these investors throughout their decision-making journey to eventually convert their interest into active investments," he added.

Responding to another question on whether the government would follow up and act on the policy suggestions made by the investors and the various stakeholders in different sessions of the summit, he said, "Of course, yes. Investors, in our opinion, are our partners. Their opinions are highly valuable to us."

During the summit, he said, they carefully recorded all the suggestions made during the sessions.

"The key points highlighted were very similar to our initially identified priority areas: Renewable Energy & Green Growth, Digital Economy & Tech Transformation, Textile & Apparel (Advanced & Sustainable), Healthcare & Pharmaceuticals, and Agro-processing & Food Value Chain. We plan to expedite initiatives to address these areas," he added.

A four-day 'Bangladesh Investment Summit 2025' was held from April 7 to April 10 to showcase the country's evolving investment opportunities and economic reforms.

The summit has yielded initial investment proposals worth Tk 3,100 crore (Tk 31 billion). Several additional investment proposals are currently in the pipeline.

A total of 415 foreign delegates from 50 countries attended the event.​

 

[Saif]

Bangladesh to get $500m from WB to boost governance, financial sector stability

World Bank has approved $500 million loan to help improve trust in Bangladesh’s public institutions through increased accountability and transparency and enhance corporate governance and stability in the financial sector.

en.prothomalo.com

Bangladesh to get $500m from WB to boost governance, financial sector stability

UNB Dhaka
Published: 21 Jun 2025, 22: 53

World Bank has approved $500 million loan to help improve trust in Bangladesh’s public institutions through increased accountability and transparency and enhance corporate governance and stability in the financial sector.

The Strengthening Governance and Institutional Resilience Development Policy Credit supports public and financial sector reforms, which are key for sustained economic growth, according to a press release.

The reforms will also lay the foundations for improved services for vulnerable households.

Bangladesh has one of the lowest revenue-to-GDP ratios among middle-income countries, significantly limiting the government’s ability to deliver quality services to its people, said the press release.

This programme supports reforms aimed at improving domestic revenue mobilisation.

The reforms would make tax administration and policy-making more transparent and efficient aligning with international best practices.

Further, it will support reforms to move to a more strategic, systematic, and transparent approach to managing tax exemptions that will require Parliamentary approval for all exemptions, which would be a significant step away from current ad hoc practices.

The financing will also strengthen corporate governance and risk management frameworks by aligning financial reporting with international standards and increasing transparency.

It will help improve financial sector stability by providing the Bangladesh Bank with a complete range of resolution powers to address vulnerabilities in the banking sector.

A third strand of reforms will improve transparency, accountability and efficiency across the public sector.

By 2027, all government project appraisal documents will be required to be made public. Public procurement system will be required to use electronic government procurement (e-GP), disclose of beneficiary ownership, and remove price caps to foster competition and reduce corruption risks.

To improve financial accountability and transparency in the public sector, the Office of the Comptroller and Auditor General’s auditing capacity will be strengthened.

The independence of the Bangladesh Bureau of Statistics will improve data transparency, leading to better service delivery for citizens.

Finally, cash transfer programs for the poor and vulnerable will be made more effective with the operationalisation of a dynamic social registry.

World Bank Interim Country Director for Bangladesh Gayle Martin said that Improvements in how public finances are managed are important for Bangladesh’s economy to grow sustainably.

“The government is taking ambitious steps to make its institutions more open and answerable, so they can serve the people better,” he said.

He mentioned that this financing will support the government's efforts to strengthen its policies and regulatory framework to build a stronger, more inclusive economy that benefits everyone.

“Through another project that was approved last week, we are supporting the government to implement these reforms.”

World Bank Senior Economist and Task Team Leader for the project Dhruv Sharma said that This Financing is closely aligned with the citizen’s desire for transparency and accountability and will support Bangladesh’s ambitious reform agenda for improving domestic revenue mobilization, financial sector stability and governance, and public sector performance.

“Improving data systems and moving towards improved selection of beneficiaries will ensure that government resources effectively reach poor and vulnerable households, especially during economic shocks and natural disasters.”​

 

[Saif]

From Promise to Prosperity

Foreign direct investment (FDI) has been a cornerstone of economic transformation in many developing countries. It brings not only capital but also global market access, cutting-edge technology, managerial know-how, and integration into international production networks. Countries like Vietnam and

thefinancialexpress.com.bd

From Promise to Prosperity
Getting FDI Right in Bangladesh

M G Quibria
Published :
Jun 24, 2025 00:58
Updated :
Jun 24, 2025 00:59

Foreign direct investment (FDI) has been a cornerstone of economic transformation in many developing countries. It brings not only capital but also global market access, cutting-edge technology, managerial know-how, and integration into international production networks. Countries like Vietnam and Mexico have harnessed FDI to build dynamic industrial bases, diversify exports, and sustain robust growth trajectories. An important feature of the FDI inflow into these two countries has been the type of FDI - the majority being platform FDI, an investment mainly geared to export to third countries. By contrast, Bangladesh's experience has been far more modest. Despite its notable gains, until recent reversals, the country has remained a peripheral player in the global FDI landscape in poverty reduction and macroeconomic stability. This failure is neither accidental nor inevitable. It reflects deep-rooted structural weaknesses, policy inertia, and strategic misalignments.

The numbers alone are stark. Bangladesh has attracted less than $3 billion in annual FDI inflows in recent years, amounting to under 1 per cent of gross domestic product (GDP). This places it well behind its successful peers. Vietnam draws around $20 billion annually, while Mexico receives between $35-40 billion, despite its proximity to the turbulent United States (US) political and trade environment. More troubling than the quantity is the quality of investment. In Bangladesh, although there has been a change in direction, FDI was traditionally channelled into non-tradable sectors such as telecommunications and energy. These sectors, while important, do not catalyze export growth, industrial upgrading, or widespread employment.

In contrast, Vietnam and Mexico have consistently drawn FDI into globally competitive, export-oriented sectors, including electronics, automotive, textiles, and, increasingly, high-tech industries such as semiconductors and aerospace. Some other Asian countries that successfully attract FDI are more import-substituting than export-promoting. India's Production-Linked Incentives (PLI) policy has positively incentivised FDI toward exports, yet its success has been, at best, limited.

Why has Bangladesh lagged so far behind? The answer lies in a combination of institutional, infrastructural, and human capital deficiencies, compounded by policy inconsistency and weak governance. While some reforms have been introduced recently, they remain piecemeal and often poorly implemented.

A key obstacle is the country's weak institutional framework for investment promotion. Although the Bangladesh Investment Development Authority (BIDA) was created to serve as a one-stop shop for investors, it remains burdened by slow, opaque, and often arbitrary administrative processes. Investors report long delays in project approvals, inconsistent regulatory enforcement, and difficulties in obtaining land and utility connections. The country's poor rankings in the now-discontinued World Bank Doing Business Index-particularly in contract enforcement, cross-border trade, and dealing with construction permits-underscore these challenges.

In contrast, Vietnam has taken a proactive, coordinated approach to investment facilitation. Special economic zones (SEZs) there are not mere geographic enclaves but fully integrated industrial ecosystems offering streamlined services, legal clarity, and infrastructure linkages. Mexico, too, provides a more mature investment regime bolstered by a relatively independent judiciary, clear rules for dispute resolution, and a deep network of bilateral investment treaties. These frameworks reduce uncertainty and reassure investors. Despite recent policy documents such as the FDI Heat map 2025 identifying priority sectors, Bangladesh has yet to develop a comprehensive, investor-friendly institutional architecture with teeth.

Infrastructure gaps pose another critical constraint. Bangladesh's logistics network remains underdeveloped, with congested ports, limited container-handling capacity, and unreliable power supplies. Transport connectivity between industrial hubs and ports is weak, raising costs and reducing competitiveness. Although the opening of the Padma Bridge has improved regional connectivity, broader infrastructure bottlenecks persist-hampering not only trade but also the movement of labour and capital.

Vietnam's ports are now among the most efficient in Southeast Asia, and the country's emphasis on physical infrastructure has dramatically reduced logistics costs. Due to its proximity to the United States, Mexico benefits from extensive highway and rail corridors that connect seamlessly with North American value chains. Bangladesh, lacking such locational advantages, must compensate through aggressive investment in transport, logistics, and energy infrastructure. Initiatives such as the Economic Zones (Amendment) Bill 2023 and new G2G industrial parks are promising -but their sluggish execution undermines their potential impact.

Compounding these physical bottlenecks are protectionist trade policies that discourage export-oriented investment. Bangladesh maintains high average tariff rates and a dense web of para-tariffs. While these may protect domestic firms in the short term, they deter foreign firms seeking to use Bangladesh as a base for regional or global exports. Moreover, the country has remained relatively isolated from regional and bilateral trade agreements. It is not a member of any major economic bloc comparable to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or the Regional Comprehensive Economic Partnership (RCEP), which have been instrumental in driving FDI into Vietnam.

Mexico's membership in the USMCA (formerly NAFTA) has provided it with privileged access to the vast U.S. market, a magnet for global investors. For Bangladesh, the challenge is not just negotiating new trade agreements but undertaking the internal reforms-such as customs simplification, reduction of non-tariff barriers, and harmonisation of standards-required to benefit from them.

The country's labour market is another area of concern. Bangladesh often touts its large labour force as an asset, which hides a serious skills deficit. The education system, particularly technical and vocational training, is poorly aligned with labour market demands. Institutions remain underfunded, teachers under-qualified, and curricula outdated. As a result, even in labour-intensive sectors like garments, productivity remains low compared to peers. Foreign investors are often compelled to provide extensive on-the-job training or import higher-end skilled workers -both costly propositions that circumscribe Bangladesh's competitiveness.

Vietnam, by contrast, has made targeted investments in technical education, working closely with the private sector to design training programs. Mexico, too, has fostered a skilled workforce in niche areas such as automotive engineering and aerospace technology. For Bangladesh, the path forward requires a national skills strategy that integrates education, industry, and investment planning. Piecemeal projects will not suffice; a coordinated, adequately resourced push is needed.

Governance also looms large as a deterrent. Investors consistently cite concerns over regulatory unpredictability, legal opacity, and corruption. While Bangladesh has achieved some measure of macroeconomic stability-evident in moderate inflation and a growing GDP-it has not translated into a stable business environment. Political volatility, weak contract enforcement, and perceptions of favouritism erode investor confidence.

Efforts to liberalise the financial sector, such as the Offshore Banking Act of 2024, are steps in the right direction. However, without improvements in regulatory quality, judicial independence, and anti-corruption enforcement, these reforms are unlikely to alter perceptions in a meaningful way. In contrast, Vietnam offers a relatively predictable investment climate, and even Mexico, despite facing security challenges, provides legal protections under a network of international agreements that mitigate investor risks.

Another underappreciated factor is the lack of export diversification. Over 80 per cent of Bangladesh's exports come from ready-made garments (RMG), a sector that, while successful, is increasingly vulnerable to automation, environmental scrutiny, and shifting global demand. Vietnam and Mexico have diversified aggressively, attracting investment in high-tech sectors. Vietnam has become a manufacturing base for global electronics giants such as Samsung and Intel. Mexico, meanwhile, has emerged as a competitive hub for aerospace and automobile production. These countries offer not just low costs but ecosystems of suppliers, skilled labour, and logistics that reinforce FDI flows.

Bangladesh's efforts to emulate this model-such as the One-Stop Banking Service (2023) launched by BIDA and BRAC Bank-are helpful but far too limited in scope. It has been argued that a broader industrial policy framework is needed, one that actively supports the emergence of new export sectors through targeted infrastructure, tax incentives, and R&D support.

Geographic disadvantage is another oft-cited explanation for Bangladesh's FDI underperformance. The country is remote from major global markets and surrounded by challenging neighbours with whom it shares complicated political and logistical relationships. While there is an element of truth to this explanation, this truth is not immutable to time and effort. Vietnam, too, once suffered from isolation and conflict but overcame it through strategic investments in connectivity, openness to trade, and deep institutional reform. Bangladesh can follow a similar path-if it has the will.

Crucial to this transformation is a decisive commitment to education. Despite broad acknowledgment of its importance, the education sector remains chronically underfunded and politically manipulated. Public schools suffer from poor facilities, low teacher morale, and weak oversight. University curricula are often out of sync with market needs. Even more troubling is the politicisation of student life: student groups, historically agents of progressive change, have become tools of political patronage, undermining the development of a forward-looking, employable youth population.

This long-standing neglect has created a large pool of low-skilled labour-unsuited for a knowledge-intensive, globally competitive economy. Unless Bangladesh radically improves the quality and relevance of its education system, it will fail to generate the human capital necessary to attract high-value FDI.

Bangladesh's disappointing FDI record is not a function of bad luck or immutable geography. It is the product of avoidable policy failures. The experiences of Vietnam and Mexico demonstrate that with strategic vision, institutional reform, trade openness, and investments in human capital, countries can transcend initial disadvantages and become investment hubs. Bangladesh must shed its complacency and embrace a reform agenda that is bold, sustained, and coherent.

The window of opportunity is narrowing. As global value chains reorganise in response to geopolitical shifts and technological disruption, investors are scouting for reliable, efficient, and responsive partners. Bangladesh has the potential to be one of them. But potential means little without execution. Reform-not resignation-is the only viable path forward.



Dr M G Quibria is a development economist and former Senior Advisor at the Asian Development Bank Institute. His academic career spans institutions across three continents.​

 

[Saif]

IMF board okays $1.3b payout to BD

Bangladesh is receiving US$1.3 billion from the International Monetary Fund in its lending programme's latest two tranches trapped in unmet reform-related conditions as the IMF board finally nods the payout, sources said. Finance Division officials in Dhaka said the executive board of the Wash

thefinancialexpress.com.bd

TAGS BINDING LENDING PACKAGE BENT
IMF board okays $1.3b payout to BD

Syful Islam
Published :
Jun 24, 2025 00:49
Updated :
Jun 24, 2025 00:49

Bangladesh is receiving US$1.3 billion from the International Monetary Fund in its lending programme's latest two tranches trapped in unmet reform-related conditions as the IMF board finally nods the payout, sources said.

Finance Division officials in Dhaka said the executive board of the Washington-based Fund cleared the credit release as the deadlock over the two instalments of the $4.7 billion worth of lending package was over.

The approval follows a staff-level agreement reached in mid-May for the fourth review of the credit programme. The IMF staff and the Bangladesh authorities had reached staff-level agreement for the third review in December last year.

However, citing Bangladesh's repeated failure in fulfilling prerequisites, the IMF board held back approval for the loan's fifth and fourth tranches expected to be available in February and May respectively.

Two unmet tags, which stood as big barriers to approval for both the loan tranches, were enhancing revenue mobilisation and ensuring exchange-rate flexibility.

The dispute over the release of the loan tranches deepened after the country's revenue board had declined to set a larger revenue target for the forthcoming fiscal year 2025-26. Also, the central bank showed unwillingness to make exchange rate flexible as suggested by the IMF.

In the first week of April, an IMF team, led by Chris Papageorgiou, the agency's Mission Chief for Bangladesh, visited Dhaka for the fourth review of the credit programme.

However, after ten days of reviewing the progresses made under loan programme, the IMF team on April 17 announced that the staff-level agreement with Bangladesh authority had been delayed due to the existence of some differences over the exchange- rate flexibility and higher revenue-generation target.

"Discussions are continuing with the objective of reaching a staff-level agreement in the near term -- including during the April 2025 IMF-World Bank Spring Meetings in Washington, DC -- to pave the way for completion of the combined third and fourth programme's review," Mr Papageorgiou said at a press conference in Dhaka.


Later, the two sides discussed the issue in Washington on the sidelines of the Spring Meetings. However, a consensus eluded the parties. Back to Dhaka, a Bangladeshi team, led by central bank governor Dr Ahsan H Mansur, continued discussion virtually with IMF officials in Washington.

After series of parleys the central bank governor in mid-May agreed to go for market-driven exchange rate to remove roadblock to IMF loan payout worth $1.3 billion.

Thereafter, the IMF on May 14 announced reaching staff-level agreement with the Bangladeshi authorities and said the "agreement is subject to approval by the Executive Board of the International Monetary Fund, contingent on the completion of prior actions related to tax-revenue mobilisation and full implementation of exchange-rate reforms".

The Fund granted the $4.7 billion loan to Bangladesh in January 2023 to help support the country's sluggish economy and slim foreign-exchange reserves. The loan was scheduled to be given in seven instalments by May 2026.


Until now, the country has received $2.295 billion under this loan programme.​