GDP growth achievable, but investment needs a boost

Despite low GDP growth over the past three consecutive years, the government is targeting 6.5 percent growth for the next fiscal year in the proposed budget, based on the democratisation of the economy and encouraging private sector investment to boost growth, two economists said today.

Whether the target is achieved will mainly depend on how private investment rises and how the global economy performs, according to the economists.

“There is about a 1.5 percent (estimated) gap in FY26 between potential GDP and actual GDP; last year it was 2.5 percent. So the 6.5 percent GDP growth target is not impossible to achieve,” said Md Deen Islam, a professor of economics at the University of Dhaka.

“It will depend on how private sector investment can be boosted. The government has proposed some measures in the budget. If these can be implemented fully and positive developments emerge in the global economy, then the GDP growth target can be achievable,” he added.

The finance minister sought to encourage private investment through several fiscal measures in the proposed budget.

The government launched a single digital platform to ensure ease of doing business and identified 19 potential sectors for attracting foreign direct investment.

It has also focused on building new export processing zones (EPZs) and economic zones.

Most importantly, the government has taken steps to sign free trade agreements with several potential countries and to diversify export products; eight sectors are set to enjoy duty-free import services.

The government proposed including some new chapters in the Customs Act in order to build free trade zones so that trade and investment can expand.

In these zones, firms will be able to import duty-free raw materials and process them for export. To promote foreign investment, the 49 percent cap on foreign ownership has also been removed.

Apart from these, the government has provided significant protection for local industry, which will encourage local entrepreneurs.

To ensure loan flow to the private sector, Bangladesh Bank has already announced a stimulus package of Tk 60,000 crore.

To support the SME sector, the government has proposed to set aside Tk 2,000 crore in the next budget, to be provided by the Infrastructure Development Company Limited (IDCOL), Bangladesh Infrastructure Finance Fund Limited (BIFFL), and the SME Foundation.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said this growth target is achievable, but a supportive investment environment is necessary as Bangladesh’s growth is driven by the private sector.

How the global economy behaves will also affect GDP growth, though it is not in Bangladesh’s control.

To create the environment, the government should address the binding constraints that the private sector suffers from. For instance, the energy problem should be solved and the cost of doing business should be reduced to encourage entrepreneurs to invest.

“Until local investors invest, foreign investors are unlikely to invest, and without investment, the targeted GDP growth will be difficult to achieve,” he added.

Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), said the FY27 targets of 6.5 percent growth and 7.5 percent inflation appear desirable, but they seem difficult to achieve simultaneously.

“The budget itself acknowledges weak growth, high inflation, tight credit conditions, banking-sector stress, energy uncertainty and fragile private investment,” he said.

“In such a context, reducing inflation requires restraint, better supply management, exchange-rate stability and credible market monitoring. Raising growth, by contrast, requires stronger investment, credit flow, export recovery and faster ADP implementation,” Raihan added.

Raihan, also a professor of economics at the University of Dhaka, said the medium-term ambition of 8.5 percent growth by 2031 is even more demanding.

“It would require a sharp rise in private investment, major productivity gains, improved logistics, stronger human capital and a credible recovery of the financial sector. Without these, the target risks becoming aspirational rather than realistic.”