Business slowdown, weak job creation put spotlight on budget

Little Star Spinning Mills, an export-oriented yarn manufacturer in Savar, depends on natural gas to run its operations.

According to the company, the factory is approved for a gas pressure of 10 PSI (pounds per square inch), but in reality it receives only 1.5 to 2 PSI.

Facing persistent gas shortages, the company invested Tk 120 million in solar power generation and battery-based energy storage systems. Even then, its electricity and energy problems remain unresolved. The factory is currently operating at only 60 per cent of its production capacity.

Khorshed Alam, chairman of Little Star Group, told Prothom Alo, “Due to the gas crisis alone, our company has suffered production losses worth nearly Tk 2.5 billion over the past four years.”

Most industries across the country have been grappling with gas and electricity shortages for years. Since July 2024, Bangladesh has also undergone significant political upheaval and transition. A degree of stability returned following the 12 February election, but it was soon followed by the Iran war, which pushed up global energy prices.

At the same time, the country continues to struggle with high inflation. Declining purchasing power has weakened consumer demand, resulting in sluggish business activity. New investment remains limited, while many companies are cutting costs and laying off workers. Recruitment has also fallen short of expectations.

Against this backdrop, Finance Minister Amir Khasru Mahmud Chowdhury is set to unveil the national budget for fiscal year 2026–27 on 11 June. It will be the first budget of the new government.

Business leaders and economists say the government's immediate challenge is to revive business activity, stimulate investment and create jobs while keeping inflation under control. They will be watching closely to see what measures are announced in the budget.

Manwar Hossain, chairman of Anwar Group, told Prothom Alo that the government must first recognise that the economy remains in a fragile condition and will take time to recover.

“Before attracting new investment, the government must ensure the survival of existing investors and entrepreneurs who are already struggling. Otherwise, current investments may end up having a negative impact on the economy rather than contributing positively,” he said.

Investment is commonly assessed as a share of gross domestic product (GDP). Private-sector investment has been declining steadily for the past three years.

Private investment stood at 24.52 per cent of GDP in fiscal year 2021–22. It then declined to 24.18 per cent and 23.96 per cent in the following two fiscal years. According to provisional estimates, private investment fell further to 22.48 per cent of GDP in fiscal year 2024–25, the lowest level in a decade.

Several indicators reflect the current state of domestic and foreign investment.

According to Bangladesh Bank data, letters of credit (LCs) opened for capital machinery imports during the first nine months (July–March) of the current fiscal year declined by nearly 3 per cent compared with the same period a year earlier. LC settlements for capital machinery imports also fell by nearly 10 per cent.

Lower LC openings and settlements generally indicate weaker new investment and reduced expansion of existing businesses.

Private-sector credit growth has fallen to a record low amid high interest rates and global uncertainty. In April, private-sector credit growth stood at just 4.75 per cent, whereas it typically remains above 10 per cent.

Riyad Mahmud, managing director of NPOLY Group, told Prothom Alo that business activity had dropped by half following the political transition.

“Although conditions have improved somewhat, business remains 18–20 per cent below normal levels. The prolonged slowdown has created pressure on our working capital,” he said.

The slowdown is also reflected in the Purchasing Managers’ Index (PMI), which tracks activity across four major sectors—manufacturing, agriculture, construction and services.

According to the PMI, the pace of economic expansion slowed in January. It improved somewhat in February but weakened again in March. In April, the PMI rose slightly to 54.5 points.

Sources at the National Board of Revenue (NBR) said the upcoming budget is expected to include several measures aimed at creating a more investment-friendly environment and reducing business costs.

Advance income tax (AIT) at the import stage and withholding tax rates at the local level may be reduced for at least 19 categories of businesses. The government may also introduce tax incentives for young and women entrepreneurs.

In addition, the budget is expected to announce a package of reforms to speed up the issuance of business licences and approvals.

Even before the budget announcement, Bangladesh Bank unveiled a Tk 600 billion stimulus fund to support economic recovery. Of that amount, Tk 200 billion has been allocated for closed industrial enterprises.

Private-sector businesses will be able to access loans from the fund at an average interest rate of 7 per cent.

Foreign direct investment (FDI) remains a crucial component of private investment. However, Bangladesh has struggled to attract significant FDI for years.

Although the interim government took several initiatives and the new government is continuing those efforts, there has been little visible improvement. Ongoing geopolitical uncertainty has further clouded the outlook.

According to Bangladesh Bank data, net FDI inflows during the first nine months (July–March) of fiscal year 2025–26 amounted to US$1.006 billion, compared with $1.316 billion during the same period of the previous fiscal year.

This represents a decline of 23.5 per cent in net foreign investment.

Several entrepreneurs noted that local businesses continue to face challenges including gas and electricity shortages and high bank lending rates. They argue that foreign investors are more likely to invest when domestic businesses are operating smoothly.

Ashik Chowdhury, executive chairman of the Bangladesh Investment Development Authority (BIDA), told Prothom Alo that the government has adopted a 180-day action plan to increase both domestic and foreign investment, including 25 priority initiatives.

Among the key measures are integrating investment-related agencies such as BIDA, BEZA, BEPZA, PPPA and the Hi-Tech Park Authority, as well as opening a BIDA office in China to engage directly with potential investors and facilitate investment inflows.

According to Ashik Chowdhury, these initiatives will help build a stronger foundation for investment growth.

Following the Eid holidays, Al-Muslim Group laid off a total of 1,868 workers from seven garment factories in Savar.

The group is not alone. During the first five months of this year, several thousand workers were laid off across six industrial zones.

Analysts say that while layoffs are increasing, weak business activity and sluggish investment are also limiting new job creation, worsening the unemployment situation.

At the end of 2024, Bangladesh had 2.7 million unemployed people, up from 2.55 million in 2023. The Bangladesh Bureau of Statistics (BBS) has yet to release updated figures for 2025.

M Masrur Reaz, chairman of the private research organisation Policy Exchange Bangladesh, told Prothom Alo that inflation must be brought down by any means necessary.

High inflation suppresses demand. If inflation continues to rise, pressure on currency depreciation will intensify. That would increase import costs and, consequently, business expenses, he said.

He also stressed the need to strengthen medium-term energy capacity, expand solar power generation and accelerate gas exploration to restore confidence among entrepreneurs.

Work must begin immediately to improve the business and investment environment. The most pressing problems should be addressed first, he added.