Uncertainty stifling investment and sapping growth, says Mustafa K Mujeri

Bangladesh is facing a precarious economic moment, caught in what economist Mustafa K Mujeri calls a “critical transition” marked by persistent political uncertainty and deepening economic strain.

Speaking on bdnews24.com’s Inside Out, the former Bangladesh Bank chief economist warned that the fallout from last year’s August Revolution has left the country grappling with a rare convergence of political volatility and economic dysfunction--conditions he describes as “one of the most transitional times Bangladesh has faced since independence in 1971.”

He observed that instability on both fronts is leaving people unsettled about the future. “People are kind of, you know, really they don't know what's going to happen tomorrow.”

Mujeri, the executive director of the Institute for Inclusive Finance and Development (InM), argued that the country’s economic woes run deeper than global shocks, rooted in internal failures.

High inflation, stagnant growth, rising unemployment, and a breakdown in investor confidence are among the most urgent problems the country now faces.

He warned that unless immediate steps are taken, “the more this situation persists, the more the challenges will multiply.”

Mujeri believes the upcoming national budget presents a vital opportunity--but only if it breaks from past habits of overextension and poor quality spending.

Crucially, he sees the interim government as well-positioned to make bold decisions unburdened by political compulsions.

“One good thing about this government is that they don’t have such commitments, you know, because it’s an interim government. They don’t have those kind of commitments to any particular group… So they can prepare a budget which really can fulfil the aspirations of the common people.”

To revive economic momentum, Mujeri is calling for a coordinated inflation strategy, structural reforms to improve investment conditions, and a revamp of the social protection system to shield low-income groups who have been “squeezed to the wall”.

He insists that the solution lies not in inflating the size of the budget, but in improving the quality and impact of public spending. “Unless you increase the quality of the budget… the money is really wasted.”

CONTROLLING INFLATION, REVIVING GROWTH

Mujeri highlighted that the way Bangladesh addresses its economic and political challenges would shape its future.

The former director general of the Bangladesh Institute of Development Studies (BIDS) identified two key issues.

“High inflation has been persisting for the last couple of years,” he said, adding that it created serious difficulties for low-income groups, the poor, and even the middle class.

The economist noted that “things are really going in the worst directions” for them, with real incomes falling sharply.

The second major challenge is stagnant growth, which “has slumped down to one of the minimum levels since independence”. This led to rising youth unemployment and shrinking income opportunities.

Mujeri pointed out that “people are now facing one of the worst economic crises in terms of maintaining their living standards.”

He stressed that “these challenges must be fought by increasing levels of investment and moving the wheels of the economy so that production increases, employment increases, and people get opportunities of earning incomes.”

Mujeri warned that if the situation persisted, “the challenges will multiply”, making recovery even harder.

He stressed the importance of tackling these issues head-on to bring Bangladesh back to political, social, and economic normalcy as soon as possible.

RATE HIKES FALLING SHORT

Mujeri pointed out that while the central bank has been actively using monetary tools to rein in inflation, the results so far have fallen short.

“As a matter of fact, once this new government came to power, they have been trying to use whatever policy weapons they have at their disposal to control inflation,” he said.

He noted that Bangladesh Bank had relied heavily on interest rate hikes--raising the policy rate to 10 percent--to control excess demand in the economy.

But despite these efforts, inflation has remained stubbornly high.

“What has happened after that? The inflation has not been controlled, you know. It is coming now, it is hovering around 9 to 10 percent for the last maybe 8 to 10 months,” he said.

This, he argued, proves that “demand management policy alone is not adequate to control inflation in Bangladesh”.

MARKET GAPS DRIVING PRICES

Beyond monetary policy, Mujeri emphasised the need to address persistent problems on the supply side of the economy, including weak market structures and disruptions in value chains.

“In developing countries, it's not only demand pressure that creates inflation, it also results from supply bottlenecks, inadequacies in the market structure, and other factors on the supply side,” he said.

He stressed the need for “coherent and consistent” action to curb inflation by addressing both supply and demand pressures.

Despite some moves on interest rates, Mujeri said little has been done on the supply side, where market flaws still fuel unnecessary price hikes.

CREDIT SQUEEZE

While interest rate hikes have slowed credit growth, Mujeri cautioned that they are also having unintended consequences on the wider economy.

“When you raise the policy rates, the interest rate rises, credit supply squeezes… and that also has a dampening effect on the working of the economy,” he explained.

With borrowing costs up, private investment has stalled, foreign capital is staying away, and production is struggling to expand.

“Private sector investment is almost reduced to very little. No foreign investment is coming, and the market is not really working for expanding productions of various commodities,” he said.

UNEMPLOYMENT

The slowdown in investment has fed directly into the job market, Mujeri warned, pushing unemployment--especially among youth--to dangerous levels.

“Jobs are not being created in the economy, and the unemployment rate has already increased to more than 2.7 million, and is on the rise,” he said.

He noted that it is the educated youth who are bearing the brunt of the downturn. “Most of this unemployment is youth, and they are the educated youth, which is creating havoc in the economy.”

To break the cycle, Mujeri called for a well-coordinated policy framework that combines both monetary and supply-side interventions.

“The main challenge remains for us today is how soon we can have a coordinated policy framework to control inflation,” he said.

He warned that without such coordination, government hopes of pulling inflation down to 5 or 6 percent would be hard to realise. “It will be difficult to attain unless a coordinated policy framework is in place, comprising both demand and supply sides.”

INVESTMENT PARALYSED

While global shocks have played a role, Mujeri believes Bangladesh's growth slowdown is largely driven by internal failings--most critically, a collapse in investor confidence.

“Obviously, you know, these global developments… have an impact on the economy,” he acknowledged, referring to trade and financial flows in a globalised world. “But I think what is more important is to address the domestic challenges.”

He pointed to a near-total standstill in both domestic and foreign investment. “One of the major reasons for this is the lack of investment… No new investment is taking place in the economy, either by domestic investors or entrepreneurs, as well as foreign direct investment. It's not really coming that way.”

Mujeri stressed that without investment, growth cannot be revived. “We all know that investment is the driving wheel of growth. Unless you have investment, you won't be able to create additional growth in the economy.”

‘TODAY WE DON’T KNOW WHAT WILL HAPPEN TOMORROW’

At the core of the crisis is a sense of unpredictability—economic and political—that is pushing investors into wait-and-see mode.

“If someone is an investor, he'd look for what? A certain environment so that he can invest his money and can be sure of the returns of that investment,” Mujeri said. “But in an uncertain situation, you can't really predict.”

That uncertainty is everywhere, he warned. “Today we don't know what will happen tomorrow, both politically and economically, because we are living now in a situation where… uncertainty is kind of spreading in every sphere of life.”

He noted that investment is not a short-term venture. “They would look at a relatively longer-term horizon… four, five, eight, ten years or so in order to make an investment.”

But with an interim government in place and no clarity on future political leadership or policy direction, “you would like to see, wait and see. That kind of attitude you would be taking rather than investing now.”

A HOSTILE CLIMATE

In addition to uncertainty, Mujeri cited long-standing barriers that continue to choke investment flows: red tape, institutional dysfunction, and corruption.

“These are still there,” he noted, adding that the overall environment simply is not encouraging for fresh capital—either local or foreign.

Without structural reforms and clearer policy direction, Mujeri warned that new investment is unlikely.

In the current situation, he said: “One cannot expect… any foreign investor would come to Bangladesh and invest.

DOMESTIC CONFIDENCE

Mujeri acknowledged that the Muhammad Yunus -led government has made efforts to woo investors--most notably by organising an investment summit and inviting foreign delegations to explore opportunities in Bangladesh.

But despite these gestures, he said the results remain underwhelming.

“We have only some commitments, but actual flow of investment is not coming,” he said. And given the current uncertainty, it’s unlikely to change anytime soon. “Why should foreign investors… invest their money in Bangladesh when they don't see what's going to happen maybe next few months or so?”

For Mujeri, the bigger concern is the absence of domestic investment.

He argued that no foreign investor will commit to Bangladesh if local businesses themselves are holding back.

“When the domestic investors are not coming, you can't expect the foreign investors to come,” he said. “If the domestic investors… come, that gives some degree of confidence to the foreign investors.”

Mujeri urged the government to rebuild local investor confidence.

He said domestic investment must come first. That, he argued, would send the right signal abroad and help restart the economy.

A BUDGET WITHOUT POLITICAL BAGGAGE

Despite widespread uncertainty, Mujeri sees a unique opportunity in the upcoming budget--one that comes not from optimism, but from the nature of the interim government itself.

“When a political government comes up with a budget, they have many kinds of political commitments… a large constituency to fulfil,” he said. “One good thing about this government is that they don’t have such commitments.”

Still, he admits the circumstances are far from ideal. Framing a budget in the middle of economic stress and political flux is no easy task.

But he believes the main goal should be clear: “The main task of this year’s budget should be to… turn back the economy into the normal trajectory so that the economy can move on the right path to move to the highway of growth.”

For that to happen, Mujeri stressed the need to focus on core economic challenges.

Despite positive signs such as rising remittances and improved foreign reserves, Mujeri warned these alone do not guarantee macroeconomic stability.

“The banking sector is still in a very sick situation,” he said. “We haven’t really been able to address the problems… so that, you know, the banking sector can perform effectively and efficiently.”

To be meaningful, Mujeri said, the budget must look beyond surface-level indicators and tackle deeper systemic problems. Without that, efforts to revive growth risk falling short.

GROWTH SECTORS LOSING STEAM

Mujeri pointed to new labour force data showing a rise in employment in agriculture--something he sees not as progress, but as a warning sign.

While agriculture contributes only about 14–15 percent of GDP, it now absorbs around 43 percent of the workforce, up from 39 percent.

The shift, he explained, reflects the lack of job creation in other sectors like industry and services.

As opportunities dry up, people are falling back on low-paying agricultural work, where wages and productivity remain low.

To address this imbalance, Mujeri stressed that the upcoming budget must focus on reviving underperforming sectors. “We must take steps through this budget to help these sectors to work properly.”

SOCIAL PROTECTION

Mujeri called the current moment a “golden opportunity” for the interim government to overhaul the country’s broken social safety net system and set a new benchmark for future budgets.

He said the government could design a “model budget” focused on the needs of the most vulnerable.

Instead of token cash handouts and politically motivated programmes, he said the system needed to be streamlined, better targeted, and scaled up.

“We have about more than around 150 social security and social safety net programmes,” the economist said, warning that leakages and mistargeting are inevitable when the government lacks the capacity to manage so many fragmented schemes.

Programmes like TCB truck sales may provide temporary relief, but Mujeri criticised them for being undignified and inadequate. “We should find out some more human [ways]... so that they are too, but they are also humans.”

Instead of piecemeal fixes, he called for a reimagined safety net based on dignity, adequacy, and accountability--offering meaningful support to the poor while restoring trust in state welfare.

With the political stakes temporarily lowered, this budget could set a benchmark for future governments to follow.

QUALITY OVER QUANTITY

With budget growth likely to remain modest this year, Mujeri argued that the priority should not be expanding the size of the budget, but improving how the money is spent.

“It is not the size of the budget… it is the quality of expenditure in the budget that matters,” he said.

He criticised past political governments for pursuing oversized budgets filled with thousands of projects, many of which were poorly executed or riddled with corruption.

This time, he believes, the caretaker administration has a real chance to break that cycle and focus on high-priority projects that deliver real impact.

Rather than chasing big numbers, Mujeri urged the government to ensure every taka delivers value, especially in key sectors like health, education, infrastructure, and social protection. “We have spent crores of money, but the return is not there,” he said.

He called on policymakers to use this transitional moment to rebuild a culture of quality and accountability in public spending. “This budget has the opportunity to change that culture and bring back the quality.”