Investment climate hinges on post-poll political reset

After a difficult year marked by macroeconomic stress, high borrowing costs and prolonged political uncertainty, Bangladesh has entered 2026 with watchful anticipation that a post-election political reset could begin to revive the investment climate.

While some indicators stabilised toward the end of last year, most notably the exchange rate and foreign exchange reserves, investor confidence remained weak, and the effects are expected to linger into 2026.

Economists and business leaders warn that recovery will depend heavily on the elected government's ability to set out a clear and credible economic direction.

Private investment lost momentum throughout 2025, with central bank data showing sectoral credit growth stood at 6.58 percent in November, compared to 7.66 percent a year earlier.

Fresh foreign investment in company shares and ownership stakes, known as foreign equity inflows, dropped nearly 17 percent year-on-year to $554.77 million in fiscal year 2024-25 (FY25).

Total net foreign investment, however, rose to $1.69 billion from $1.42 billion, driven mainly by reinvested earnings rather than new capital entering the economy.

 "Without a credible medium- to long-term roadmap, investment will remain in low gear well into 2026," said M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh.

He described 2025 as a year of missed opportunities, noting that while some progress was made in exchange rate stability and banking oversight, targeted policies to support small and medium enterprises (SMEs), exports and job creation were largely absent.

He added that limited government engagement with the business community further weakened confidence, which should be addressed in 2026. "The slowdown was not just due to the election cycle. It reflected deeper weaknesses in investment facilitation and policymaking."

Economists say the easing of political uncertainty following the national election could help unlock delayed investment decisions this year, but only if accompanied by policy reforms.

"Bangladesh's investment environment remained fragile throughout the year, and that fragility will take time to mend," said Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue.

He attributed last year's sluggish investment to elevated interest rates, which hovered at around 10 percent, alongside policy inefficiencies and high business costs, despite initiatives such as the One Stop Service.

Rahman noted that weak export growth, low imports of capital machinery and difficulties in profit repatriation for some foreign investors reflected subdued private sector activity.

"Investment, particularly in job-creating sectors, lacked the necessary stimulus in 2025," he said, stressing the need for stronger institutions and infrastructure to revive momentum in 2026.

Exporters, meanwhile, remain wary about the near-term outlook.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said the past year was among the most difficult for export-oriented investors.

"There is no possibility of rebound within the next six months," he warned, citing banking bottlenecks, high costs and the withdrawal of export incentives under IMF-backed reforms.

Business leaders also point to persistent structural challenges.

Taskeen Ahmed, president of the Dhaka Chamber of Commerce and Industry (DCCI), said high interest rates, liquidity shortages and stress in the banking sector continued to hurt SMEs, while energy shortages and inflation further dwindled confidence.

Asif Ibrahim, former chairperson of Business Initiative Leading Development (BUILD), said, with GDP growth estimated at just 3.7 to 3.9 percent in 2025, the weakest in more than a decade, expectations for 2026 hinge on whether political stability translates into decisive reforms.

He stressed that economic diversification, robust reforms and targeted investment in infrastructure and human capital are essential this year.