Stimulating private investment in times of pandemic

In Bangladesh, despite the gradual rise in the investment-GDP ratio over the past three decades, private sector investment, compared to GDP, had remained stagnant for years even prior to the onset of Covid-19. The Covid-19 crisis intensified the problem.

As the official statistics on private sector investment during the pandemic are yet to come, the indicators linked to private sector investment are showing an extremely alarming picture. Depressing trends of imports and exports and the private-sector credit growth are testimony to the picture.

Just about the most critical aspects of Bangladesh's financial development in the 1990s and 2000s was the increased participation of the private sector, with the rise in private investment's share in overall investment, which contributed drastically to elevate the investment-GDP ratio. During those decades, there was a persistent rise in the private investment to GDP ratio. However, through the 2010s, the ratio remained almost stagnant. In the time of the pandemic, this ratio will probably fall further.

Bangladesh can be seriously lagging in attracting foreign direct investment (FDI). Bangladesh has not been in a position to attract much FDI even by LDC (least-developed country) standards. Between 2015 and 2019, the FDI share in GDP in Bangladesh was only 0.9 per cent against the LDC average of 2.5 per cent.

Therefore, the question is, how exactly to boost private sector investment in Bangladesh in the time of the pandemic?

There is no denying that the federal government, to begin with, should effectively implement its stimulus packages in order that firms, especially cottage, micro, small and medium enterprises, can continue steadily to grow even of these troubled times.

The federal government should address several long-standing policy-induced issues, with greater importance, to boost private investment. In this context, trade policy reform and strategic and dynamic professional policies, aimed at economical growth and diversification through large-scale domestic and foreign investments, would be the priority.


Bangladesh's banking sector crisis isn't conducive to private sector investment. Banking scams and the escalation of non-performing loans reveal the financial sector's main structural flaws. Simply lowering the interest isn't enough to expand private sector credit as a slew of other issues should be addressed within the broader reform agenda.

The disbursement of the stimulus packages through the banking channels is also encountering problems as a result of inherent institutional weaknesses of the sector.

Therefore, it is necessary to attempt concrete and immediate remedial measures in the banking sector to gain the business enterprise confidence of the private sector.

Furthermore, the tax system in Bangladesh continues to be a revenue-seeking tax system, not development-oriented and private investment-friendly. Therefore, it needs a substantial overhauling.

A range of supply-side constraints, for instance a insufficient infrastructure and a high cost of doing business, should be addressed quickly. Bangladesh must resolve essential infrastructure and a weak business environment to draw both domestic and FDI. According to most of the global indices of the business enterprise environment, Bangladesh is at underneath of the rankings in most cases.

However, it is not just the size but also the caliber of the infrastructure that is equally important. Because of institutional deficiencies, infrastructure projects have problems with massive cost and time overruns. Overly expensive infrastructure projects, and uncertainty in the timely delivery of such projects, may decrease the rate of return of private investment.

Furthermore, although some supply-side constraints linked to poor infrastructure limit future private investment in new and emerging sectors, many of these constraints are 'universal' in nature when others are critically sector-specific. Interconnection and complementarities between universal and sector-specific infrastructures are critical for bettering service quality, introducing new technology and encouraging private investment in those sectors.

As you will find a general trend in Bangladesh, like in lots of developing countries, to target excessively on large-scale infrastructures, such as for example increased power, improved highways, and improved port facilities, essential sector-specific infrastructural development remain unaddressed. Developing large-scale infrastructure is relatively appealing to the policymakers as solving the challenges of sector-specific infrastructure necessitates prioritisation in the policy-making process and consideration of several political economy factors, institutional deficiencies and vested interests.

However, failure to handle sector-specific infrastructure issues in Bangladesh contributes to a situation where many potential growth-enhancing sectors neglect to enjoy the great things about improved large-scale infrastructures. This example deters private investment in those sectors.

The country's current level and efficiency of recruiting also discourage domestic and foreign private investment in high-value and various industries. Bangladesh has a number of the lowest public expenditures on education and health, as proportions of GDP, on the planet. There is a need to prioritise increased public spending on education, skill development, and health facilities.

During the pandemic, the added challenge is how exactly to recover the losses in the training and health sectors and place them in the higher development trajectories.

In sum, we are looking for successful implementation of stimulus packages; critical reforms in macro, trade and investment policies; institutional reforms in the banking sector; investment-friendly taxation regime; efficient public investment in social and physical infrastructure; faster and quality implementation of some special monetary zones to attract FDI; and improvement in the entire governance of the macroeconomic policy environment.

The writer is executive director of the South Asian Network on Economic Modeling.