Investment Confidence Still Missing in Bangladesh: Economist Birupaksha Paul

Jagaran Chakma, Dhaka — Bangladesh is yet to see recovery in investor confidence even though the current government has taken some good initiatives to improve the business environment and encourage investment — an assessment that strikes at the heart of the country's post-LDC graduation economic strategy, according to economist Birupaksha Paul, Professor of Economics at the State University of New York in Cortland, US, and former Chief Economist at the Bangladesh Bank.

Without investment revival, the economy — which has been suffering from sluggish growth for the last four years — will struggle to gain momentum, Paul said in an interview with The Daily Star recently. Bangladesh needs stronger institutions and political inclusivity for a manufacturing revival to put the economy back on the growth path.

📊 Six Months of Government: Mixed Scorecard

As the government marked six months in office, Paul observed that weak domestic and foreign investment, factory closures, and growing frustration among young people show that the economy is yet to regain confidence.

"Neither foreign direct investment nor domestic investment has shown an exponential rise. Without a significant increase in investment, Bangladesh will struggle to achieve the growth required to become a trillion-dollar economy," said the economics professor.

Birupaksha pointed to the growth data as evidence of the structural weakness:

• 📉 FY25 GDP growth: fell to 3.49 percent
• 📈 FY26 GDP growth: stood at 4.14 percent
• 📊 Recovery assessment: minimal recovery largely represents a rebound from a weak base

👥 "Confidence Is the Missing Link"

For Birupaksha, who is also a former chief economist at the Bangladesh Bank, the problem is not simply the cost or availability of credit. Investment depends heavily on confidence — what economist John Maynard Keynes described as "animal spirits".

"That confidence is missing," he said.

When businesses are uncertain about demand, policy direction, political stability, or the investment climate, they postpone expansion. An investor may have financing but still decide not to build a factory, expand production, or hire workers. This dynamic has been visible in Bangladesh over the past year — with several factory closures (including Matrix Dresses Ltd on 28 August 2026) and slow uptake of available bank credit despite Bangladesh Bank's Tk 60,000 crore stimulus package.

🏛 Lessons from the 1990s Reform Momentum

Birupaksha pointed to the early 1990s as an example of how reform can change economic expectations. After the BNP came to power in 1991:

• 🏢 Bank privatisation advanced
• 🏥 Reforms in hospitals and universities
• 💰 VAT modernisation introduced
• 📱 Rapid expansion of mobile phones — transforming communications infrastructure

These reforms helped reshape economic activity and create the conditions for the sustained growth that followed. "That reform momentum is not visible today," Birupaksha said — a striking critique that suggests the current government's incremental approach is insufficient to catalyse the investment revival Bangladesh needs.

🏛 Political Inclusivity Required

Birupaksha believes political inclusivity is also necessary to restore investor confidence. "Wrongdoers must be punished," he said, stressing that every political party has people who commit wrongdoing. The reference to accountability for wrongdoers across all political parties reflects a strategic concern that selective or politically-motivated enforcement creates uncertainty for businesses with cross-party relationships.

He said if businesses remain unsure about the political and economic environment, they are likely to delay major investment decisions. That is why political accommodation cannot simply be postponed until the end of the government's five-year term. "It has to begin now."

👕 Factory Closures Deepen Crisis

Hundreds of factories have closed, and workers have lost their jobs in recent years, according to Birupaksha. "Being unemployed is one kind of pain. But once you are employed and then lose your job, that pain is 10 times greater," he said — capturing the social cost of factory closures in personal terms.

The employment challenge is becoming more urgent as:

• 👥 22 to 23 lakh young people enter the Bangladesh labour market every year
• 🏛 Government cannot employ everyone — and cannot even provide jobs to one lakh people directly
• 👥 Private investment and business expansion are the main mechanisms for absorbing new workers
• 🏢 Businesses cannot create jobs at scale without investing

🏢 Manufacturing vs Services: Strategic Choice

The economist questioned the government's emphasis on services. A healthy economy, he argued, first develops strong manufacturing and then expands services around that productive base.

"You cannot build a service economy without a manufacturing base," he said. A stronger service economy should grow around productive industries through:

• 🚢 Logistics supporting manufacturing supply chains
• 🏛 Finance providing working capital and trade finance
• 🚗 Transportation moving raw materials and finished goods
• 📊 Trade — both domestic and external
• 💰 Exports and imports — cross-border commercial activity

Birupaksha noted that China and Vietnam have demonstrated the importance of manufacturing, while Bangladesh still has factories that have not reopened. The government's employment target will be difficult to achieve when a large share of jobs is expected to come from services. He described the strategy as "impractical" — a pointed critique of the current policy direction.

🏛 Banking and Institutional Reform Recommendations

Banks should primarily provide working capital to:

• 👥 SMEs (small and medium enterprises)
• 🚀 Startups — early-stage high-growth ventures
• 🎨 Creative economy — design, content, technology ventures

Calling for institutional reforms, Birupaksha recommended:

• 🏛 Separate revenue collection from the Finance Ministry and place under a new "Ministry of Revenue"
• 🏛 Separate the Planning Commission from the Planning Ministry
• 🏛 Greater autonomy for Bangladesh Bank to prevent excessive fiscal pressure on monetary policy

"Sometimes you need to lose power to be strong," Birupaksha said — articulating the principle that institutional independence ultimately strengthens rather than weakens state capacity. The recommendation for separating revenue collection from the Finance Ministry echoes similar recommendations from international development partners, including the IMF, which has consistently advocated for institutional separation of tax policy and tax administration.

🦠 Covid-19 as an Insufficient Explanation

Birupaksha also questioned whether Covid-19 can still explain Bangladesh's economic weakness. The pandemic caused severe supply disruptions, but he said it cannot account for all of the country's continuing problems — particularly given that other countries in the region (Vietnam, India, Indonesia) have largely moved past Covid-related disruption and resumed growth trajectories.

A temporary GDP rebound will not be enough if:

• 📉 Businesses remain reluctant to invest
• 📉 Factories continue to close
• 📉 Young people struggle to find productive employment

💰 Investment as the Bridge to Sustainable Growth

Investment is the bridge between economic recovery and sustainable growth, stated Birupaksha. The economist sees three interconnected pillars of the investment challenge:

• 🏛 Political inclusivity — broad-based accommodation across political forces
• 🏛 Institutional independence — Bangladesh Bank autonomy, revenue collection separation
• 🏛 Manufacturing revival — reopening closed factories, supporting industrial expansion

"If you do not create an environment of inclusivity, you will have problems on the investment front," he said.

🌏 Strategic Implications for Bangladesh

Birupaksha Paul's assessment carries significant strategic weight given his credentials as a former Chief Economist at Bangladesh Bank and his current academic position in the United States. His diagnosis aligns with broader investor sentiment captured in recent JETRO and BIDA surveys:

• 📊 JETRO FY2025 survey: 94.4% of Japanese companies in Bangladesh cited political instability as investment risk
• 📊 FY25 net FDI inflows: only ~$1.77 billion (0.4% of GDP)
• 📊 Matrix Dresses closure (28 August 2026) and other factory shutdowns signal sustained investor caution
• 📊 LDC graduation (November 2026) will require accelerated investment to offset tariff preference losses

For Bangladesh, the real test of recovery is not simply whether growth returns, but whether investors regain the confidence to invest for the future, Birupaksha concluded. With the LDC graduation transition beginning in November 2026, the country has a narrowing window to translate the current government's reform initiatives into the kind of structural transformation that Birupaksha — and other economists — argue is essential for sustained growth.

The path to a trillion-dollar economy, which the government has articulated as its strategic ambition, runs directly through the investment confidence question that Birupaksha has placed at the centre of his analysis. Without that confidence, the growth numbers will continue to disappoint — regardless of the individual policy initiatives undertaken.