High Interest Rates Hindering Private Investment

Business leaders and economists have warned that Bangladesh’s private sector will struggle to regain momentum unless lending rates are reduced, arguing that persistently high interest rates, elevated inflation, rising tax burdens and energy shortages are discouraging investment and slowing economic activity.

The concerns were raised during a discussion on the proposed national budget for the upcoming fiscal year, organised by the Bangladesh Economic Association at the Institution of Diploma Engineers, Bangladesh (IDEB) auditorium in Kakrail, Dhaka.

Participants at the event acknowledged several positive measures in the proposed budget, including an initiative to create an incentive fund for reopening closed factories. However, they stressed that keeping existing industries operational should be an even greater priority, warning that weakening private sector growth could further dampen the country’s economic outlook.

The discussion was attended by Finance Minister Amir Khasru Mahmud Chowdhury as the chief guest. The session was chaired by Mahbub Ullah, convener of the Bangladesh Economic Association’s interim committee, while Member Secretary Mohammad Helal Uddin moderated the programme.

Addressing the gathering, the finance minister said the government had sought to introduce a new budget model centred on the “democratisation of the economy”, with the objective of ensuring broader public participation in economic development.

“We have tried to change the budget model. We have spoken about democratising the economy so that all citizens can participate in it,” he said.

He added that Bangladesh had previously evolved into what he described as a patronage-based economy, where a limited group enjoyed disproportionate access to opportunities and influence.

“Unfortunately, it had become an economy driven by patronage. A particular group received most of the opportunities and became very powerful. We are trying to move away from that system,” the minister said.

A major focus of the discussion was the challenging economic environment facing the country. Seven papers were presented by university academics and economists, each examining different aspects of the proposed budget and the broader economy.

Mohammad Abdur Razzaque, Chairman of the Research and Policy Integration for Development (RAPID), said the government appeared to be pursuing three objectives simultaneously: economic recovery and stabilisation, restoration and structural reform.

He cautioned that stabilising the economy must remain the immediate priority before broader reforms could succeed.

“The economy is facing numerous challenges. It must first be stabilised before it can be repaired. Otherwise, inflationary pressures could intensify once again,” he said.

Sharmind Neelormi, a faculty member of Jahangirnagar University’s Department of Economics, welcomed the proposal to recognise women as household heads under the family card programme.

She acknowledged that the proposed monthly support of Tk 2,500 might have only a limited impact on overall consumer demand, but described the policy itself as an important social initiative that formally recognises women’s role within households.

Saima Haque, a lecturer in the Department of Economics at the University of Dhaka, described the decision to increase allocations for the education sector as a positive step.

She argued, however, that greater emphasis should be placed on improving educational quality rather than focusing primarily on infrastructure and equipment. She also called for stronger policies to address youth unemployment, skills mismatches in the labour market and barriers to women’s participation in employment.

Additional papers were presented by Bangladesh Institute of Development Studies (BIDS) Research Director Mohammad Yunus, economist Kazi Iqbal and Bangladesh University of Engineering and Technology (BUET) academic Nazmul Islam.

Several speakers emphasised that lower borrowing costs would be essential if the government hopes to achieve its economic growth target.

Abu Ahmed, Chairman of the state-owned Investment Corporation of Bangladesh (ICB), said achieving the projected GDP growth rate of 6.5 per cent would require a much stronger contribution from the private sector.

“The government cannot achieve this target on its own,” he said. “Policy interest rates in India remain considerably lower, while Bangladesh’s are approaching 10 per cent. As a result, private sector credit growth has fallen to its lowest level in at least two decades.”

He urged policymakers to reduce lending rates across the banking sector, arguing that businesses with the financial capacity to expand would begin investing once borrowing costs became more affordable.

Mohammad Nurul Amin, Chairman of Bangladesh Krishi Bank, welcomed the proposed measures aimed at protecting depositors. He said restoring public confidence in the banking sector should be treated as an immediate priority, as confidence is fundamental to maintaining financial stability and supporting sustainable economic growth.

Business representatives also highlighted structural challenges beyond financing.

Anwar-ul-Alam Chowdhury, President of the Business Initiative Leading Development (BUILD), said reliable energy supplies were indispensable for sustained private sector expansion.

He also criticised inefficiencies within the National Board of Revenue (NBR), claiming that administrative shortcomings had weakened institutional effectiveness. According to him, meaningful reform of the country’s tax administration would be necessary to improve the business environment and encourage greater investment.

Other speakers included Professor Emeritus A.T.M. Nurul Amin of the Asian Institute of Technology (AIT) and Imran Matin of the BRAC Institute of Governance and Development (BIGD), who also shared their perspectives on the proposed budget and the broader economic challenges facing Bangladesh.

The discussion concluded with a broad consensus that restoring confidence among investors, maintaining macroeconomic stability, reducing financing costs and implementing institutional reforms will be essential if Bangladesh is to revitalise private sector investment and sustain long-term economic growth.