FY27 Investment Goal Faces Major Economic Hurdles

The government is set to adopt an ambitious investment target in the national budget for fiscal year 2026–27 (FY27) in a bid to revive economic activity, though economists and business leaders caution that deep-rooted structural challenges may hinder progress.

According to draft budget documents, the government plans to raise total investment to 31.4 percent of GDP in FY27, up from 25.21 percent in the current fiscal year, marking a significant increase from the lowest investment rate recorded in nearly a decade.

The proposed national budget for FY27 stands at Tk 9.38 lakh crore, while GDP is projected at Tk 68.32 lakh crore.

Under the plan, public investment is expected to reach 6.5 percent of GDP, while private investment is targeted at 24.9 percent.

Finance officials said the strategy is designed to restore economic momentum, generate employment, increase production and strengthen export growth.

However, analysts remain cautious, pointing to long-standing economic constraints.

Over the past decade, Bangladesh’s investment rate has rarely exceeded 32 percent of GDP, while recent trends indicate a decline. Investment fell to 28.54 percent of GDP in FY25, down from 30.70 percent in FY24. Even during the COVID-19 pandemic, investment remained higher than current levels.

Economists attribute the slowdown to elevated borrowing costs, weaknesses in the banking sector, energy supply uncertainty and policy instability.

Economist Dr Zahid Hussain said restoring investor confidence would be essential for achieving the target.

“Setting a higher investment target is positive, but implementation will be difficult without addressing banking sector vulnerabilities, delays in project execution and policy uncertainty,” he said.

He added that despite positive signals from political stability, the real economy continues to face pressure from the dollar shortage, energy uncertainty and global instability.

“Unless these structural challenges are resolved, investment growth will remain difficult,” he said, noting that the effectiveness of the recently announced Tk 60,000 crore stimulus package would depend on implementation.

To encourage investment, the government plans to expand economic zones, introduce incentives for local and foreign investors, strengthen public-private partnerships, widen digital services, support startups through dedicated funds, offer low-interest financing for small and medium enterprises, and simplify export-related duty drawback procedures.

Dr Zahid said maintaining strong economic growth would require investment to rise to between 32 and 34 percent of GDP, but warned that achieving such levels would demand comprehensive reforms and a more business-friendly environment.

Economist Fahmida Khatun said lower lending rates alone would not be sufficient to revive investment due to persistent structural barriers.

She also warned that increased government borrowing to finance the budget deficit could intensify pressure on the financial sector and further discourage private investment.

Business leaders identified high lending costs as one of the biggest obstacles to new investment. Following tighter monetary policies aimed at controlling inflation, average lending rates climbed to 11.76 percent in April, compared with around 7 to 8 percent just a few years ago.

Uncertainty in the energy sector remains another major concern.

Global tensions involving Iran, Israel and the United States have increased volatility in energy markets, pushing up liquefied natural gas (LNG) import costs and worsening domestic gas supply shortages.

Industry representatives said irregular gas and electricity supply, limited long-term financing and policy uncertainty have created severe pressure on manufacturers, particularly in export-oriented sectors.

They warned that without uninterrupted energy supply and a stable policy environment, attracting large-scale investment would remain difficult.