Political crisis, policy paralysis deterring foreign investment in Bangladesh: Selim Raihan

Economist Selim Raihan says Bangladesh is mired in deep stagnation across both foreign and domestic investment, and argues that expectations of attracting foreign capital amid ongoing political uncertainty are simply unrealistic.

He emphasises the need for not only resolving ongoing political volatility but also adopting investment-friendly decisions in the upcoming budget.

However, based on available information so far, the executive director of the South Asian Network on Economic Modeling (SANEM) does not foresee major changes in the proposed budget for the 2025–26 fiscal year.

“This year’s budget is being prepared in an apolitical period, under a unique set of circumstances,” said Raihan, a professor of economics at the University of Dhaka. “That’s why expectations around it are naturally high.”

Speaking to bdnews24.com’s discussion programme Inside Out, Prof Raihan said: “We understand that the interim government has had around nine months after August. Still, from what we know so far about the budget to be proposed in the coming days, there doesn’t seem to be much scope for doing anything fundamentally new outside the old budgetary framework.”

“Of course, there is some expectation that this budget will offer something different. But I think we may not see any major changes.”

The programme was streamed on bdnews24.com’s Facebook page and YouTube channel on Friday.

Addressing the broader economic context, Prof Raihan said the lack of private and foreign investment stems from persistent uncertainty.

He warned that if the next political government sticks to the same old paths without learning from examples or making meaningful reforms, Bangladesh risks being trapped in a vicious cycle once again.

“If the next political government walks the same old road, and if it lacks any guiding example in front of it,” he cautioned, “we’ll end up circling back to that same old vicious cycle.”

He underscored the need for genuine reform, not only in economic policy but also in governance and political stability, to restore investor confidence and break out of economic stagnation.

INFLATION NEEDS TO BE TAMED

The economist stressed that sustainably controlling inflation is essential for alleviating poverty in Bangladesh, adding that reforms in the social protection sector are also urgently needed.

“Inflation must be brought under control. I believe this is the most important step in helping the poor,” said Prof Raihan.

“Because inflation hits the poor the hardest. While we’ve seen some success recently—over the past two to three months, inflation has declined—the question remains: how sustainable is this trend?”

Citing a World Bank report that found 2.8 million people had fallen into poverty during this period, he warned that high inflation could suddenly push large segments of the population into poverty.

“The government has several social protection programmes in place, but we’ve also seen cuts in some of these areas,” he said. “In some cases, allocations have been reduced.”

Prof Raihan highlighted long-standing issues in how these programmes are administered, urging the government to ensure greater specificity and transparency.

“Over the past two decades, studies on Bangladesh’s social safety nets have consistently shown that the people who are supposed to benefit often don’t, while many who receive support are not actually eligible.”

HEALTH AND EDUCATION SHOULD BE PRIORITIES

Despite fiscal pressures, the SANEM chief believes health, education, and social protection should remain high on the government’s priority list in the national budget.

“The key issue is: what are the government’s real priorities at this moment? The economy is facing serious challenges, and for the people, sectors like health and education must receive proper attention,” he said.

“For more than two decades, economists have pointed out that these sectors are among the most neglected in national budgets. Unfortunately, that trend continues.”

Prof Raihan also pointed to stagnation in private investment, urging that the new budget include strong measures to stimulate business confidence.

“Recent data show that private investment, as a share of GDP, has been steadily declining over the past five years. In fact, over the past 15 years, it has remained virtually stagnant.”

“Without significant momentum in investment, we won’t see large-scale job creation. Poverty reduction will also stall. So the question is: how do we generate that investment?”

He linked the sluggish investment climate to the ongoing political instability and the uncertainty surrounding general elections.

“The current political situation is fraught with uncertainty. It’s driven by election-related concerns, law and order issues, and a lack of consensus among political parties on reform,” said Prof Raihan.

“In this environment, investors, both domestic and foreign, don’t feel confident. Hoping for large-scale foreign investment under these circumstances is unrealistic.”

He called for the budget to reflect concrete strategies to address these challenges and stimulate investment. He particularly urged reforms in interest rates and tax policy.

“The cost of capital is very high right now. Interest rates are high, and naturally, that raises doubts about how eager investors will be to commit capital under such conditions,” he explained.

“There should be clear signals in the budget about how the government plans to reduce the cost of capital going forward.”

“The high cost of doing business remains a serious problem. Taxation is another key area—we need broad reforms to simplify and stabilise the system.”

FOREIGN INVESTORS WARY

Prof Raihan noted that foreign investors often find Bangladesh’s tax regime unpredictable and burdensome.

“There’s a fear among foreign investors about the tax system. The NBR operates in two ways: one is policy on paper, and the other is how it’s applied in practice,” he said.

“In practice, many investors feel they are unfairly penalised or mismanaged, which deters long-term investment.”

ELECTION ROADMAP KEY TO STABILITY

Finally,Prof Raihan stressed that addressing the political crisis is crucial: not only for economic recovery, but for national coherence.

“This isn’t just about the budget. A budget is a one-year income and expenditure plan. The government should also bring forward a clear roadmap for the upcoming election,” he said.

“We must move beyond the current climate of uncertainty. Without a political resolution, economic reform alone won’t restore investor confidence.”

INVESTMENT SLUMP CONTINUES

To boost private sector investment, the upcoming budget must include specific incentives, said Prof Raihan.

He pointed out that recent data show a steady decline in private investment as a share of GDP over the past five years, with the ratio largely stagnant for the last decade and a half.

“If we fail to trigger a strong wave of investment, we won’t see large-scale job creation. Poverty reduction will also stall,” he said. “But how will that investment happen?”

Prof Raihan linked the “sluggish” investment environment to the country’s political uncertainty, particularly surrounding elections, law and order concerns, and deepening rifts between political parties over reform agendas.

These factors, he believes, are making investors uneasy. “Even expecting major foreign investment in this climate is becoming increasingly unrealistic.”

Prof Raihan stressed that the budget should address this issue directly, suggesting reforms to interest rates and tax policy to make investment more appealing.

“The cost of capital is very high right now. With such high interest rates, how eager will investors really be to take risks?”

He also pointed to the broader problem of the high cost of doing business and the need for comprehensive solutions.

On taxation, he said foreign investors are wary of Bangladesh’s complex system. “There’s a fear,” he noted, “stemming from the difference between policy on paper and how the National Board of Revenue operates in practice.

“That discrepancy is where foreign investors get hurt.”

Prof Raihan believes the political uncertainty may ease once the government outlines a clear path to elections.

“This isn’t just about the budget,” he said. “A budget is a one-year income-expenditure plan. The government should present a full election roadmap to move the country beyond this climate of uncertainty.”

WHY NBR REFORM HAS RUN INTO TROUBLE

The recent complications over splitting the NBR stem from gaps in consultation and flaws in execution, says Prof Raihan.

“When the idea to split NBR into two divisions--policy and implementation--was first proposed, we welcomed it,” he said. “But what followed was resistance, and I think two key issues are at play.

“First, the design of the reform --while the intent was right --seems incomplete. That’s why we’re seeing loopholes and criticisms emerge.”

The second issue, he pointed out, was stakeholder engagement.

“For a major reform like this, support from key stakeholders is essential. Views should have been sought early on. The complaints we’re already hearing must be addressed -- and that needs proper planning.

“My concern is, this may set back the broader NBR reform process.”

Based on past experiences, he warned that such setbacks will likely to happen again.

“And whether we talk about domestic or foreign investment, delays or confusion around NBR reform certainly don’t help.”

AMNESTY FOR BLACK MONET DEEMED ‘UNFORTUNATE’

Giving another chance to whiten black money in the upcoming budget would be “unfortunate,” according toProf Raihan.

“If this really happens, I hope the policymakers will use their wisdom and judgement,” he said. “We’ve opposed this for a long time. It’s neither morally acceptable nor practically effective.”

He pointed out that past budgets offering such opportunities have shown “very poor” results.

“The outcomes have been weak, minimal at best. I believe this should be ended once and for all. It simply should not be allowed in any form.”

‘REPATRIATING LAUNDERED MONEY WILL BE TOUGH’

Raihan believes repatriating money laundered out of the country will be a difficult task, especially given the limited time left for the current government.

Welcoming the government's initiative, he said, “I appreciate the effort, and we’ve also heard that bringing back such funds isn’t easy.

“It involves lengthy processes, agreements between countries, and legal complexities. It’s time-consuming. In some cases, there may be signs of success, but we’ll have to wait.”

The SANEM executive director believes the process will ultimately depend on the resolve of the future political government.

“A new political government is expected to take over through elections soon. Their willingness to continue this process will be key. So the outcome of this effort will largely depend on the next government,” he said.

Prof Raihan, who also serves on the White Paper Committee and Economic Taskforce of the interim government, emphasised that stopping illicit financial outflows will require a coordinated effort among all stakeholders.

“In the white paper, we pointed out that one major route of money laundering is over- and under-invoicing--and that involves many businesses. Another big channel is Hundi. It might have shrunk a bit lately because some Hundi operators--who once had backing from within the system--are now weaker.

“That’s why we’re seeing a stronger flow of remittances through formal channels.”

He added, “But whether overall money laundering has declined remains unclear. We’re still seeing media reports about funds being smuggled abroad.

“So, this has to be seen as a process. It can’t depend solely on Bangladesh Bank. Several other government institutions, including the NBR, must come together.”

“We’re yet to see a proper common platform,” the economist said. “This fight requires unified work—across data, laws, and institutions.

“And in that space, we’re still quite behind. There’s a long way to go.”

BUDGET BEING PREPARED ON ‘FLAWED DATA’

Prof Raihan has voiced serious concerns over the structure of the new budget, arguing that it is being framed based on outdated and inaccurate data inherited from the previous government.

“Our expectations from this government were high,” he said. “I’ve repeatedly pointed out that the interim government is working within the budget framework laid out by the last administration.

“That framework badly needed a quick review by December, but that never happened.”

He explained that the current budget is relying on the same data that the White Paper Committee had already challenged--GDP figures, national accounts, and investment data, among others.

"Manipulation and factual inaccuracies were evident. Some figures even seemed outright fabricated. Yet no corrections were made, and now a new budget is being built on the same faulty foundation."

Despite demands for the establishment of a data commission, the proposal was not acted upon, Prof Raihan said.

When asked why, he said: “Only a handful of advisors are involved. When political pressures come into play, priorities shift, causing economic reform efforts to lose momentum.

“That is likely the main reason. Still, he’s willing to give them the benefit of the doubt."

Prof Raihan said: “But in this case, setting the right priority was crucial. This government had the chance to set an example. If the next political government follows the same flawed path and finds no precedent to look to, we’ll stay stuck in the same old vicious cycle.

“I believe this is a lost opportunity. If this budget turns out to be just another business-as-usual exercise, then yes--it's a lost opportunity,” he added.