Bangladesh Investment Climate 2024: Growth Potential Amid Reserve Crisis, Banking Weaknesses, and Policy Challenges

Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (170 million) within a territory the size of Iowa. Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 2,500-mile border with India and a 150-mile border with Burma.

In 2023, Bangladesh obtained an International Monetary Fund (IMF) loan to bolster its foreign currency reserves. The IMF Executive Board approved USD 3.3 billion under the Extended Credit Facility/Extended Fund Facility and USD 1.4 billion under the Resilience and Sustainability Facility. According to the IMF, “Bangladesh’s robust economic recovery from the pandemic has been interrupted by Russia’s war in Ukraine, leading to a sharp widening of Bangladesh’s current account deficit, depreciation of the Taka and a decline in foreign exchange reserves.” The 42-month program “will help preserve macroeconomic stability, protect the vulnerable, and foster inclusive and green growth.”

Bangladesh had average annual GDP growth of 6.5 percent between 2013-2022. For FY2023-2024, GDP growth is expected to be 5.78 percent, according to the Bangladesh Bureau of Statistics. Its strategic location between the emergent South and Southeast Asian markets and its large workforce were reasons for U.S. companies to invest. Bangladesh received USD 3.48 billion in foreign direct investment in 2022, according to Bangladesh Bank (the central bank). The COVID-19 pandemic and Russia’s war in Ukraine impacted Bangladesh by reducing demand for its main export—ready-made garments—while contributing to a sharp rise in the prices of energy and food.

Bangladesh’s rising commodity prices and high imports in 2023 resulted in a wide balance of payments deficit. Published gross foreign currency reserves declined from USD 48 billion in August 2021 to under USD 21.8 billion in December 2023, while the unpublished net foreign currency reserves are estimated to be far lower. The Government responded with measures to delay foreign currency payments owed by state-owned enterprises and require Bangladesh Bank approval for removal of foreign currency from the country. The foreign currency shortage also coincided with a banking scandal in which several major Bangladeshi banks made large, questionable loans to companies that then defaulted on the loans. In September 2022, nonperforming loans (NPL) in the banking system reportedly surged to a record USD 12.8 billion, much of which the Government has been unable to trace. By June 2023, NPLs exceeded USD 14.4 billion, which accounted for over 10 percent of loans issued.

Bangladesh has made gradual progress over the past decade in reducing some constraints on investment, such as taking steps to better ensure reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labor laws, and corruption continue to hinder foreign investment. The full implementation of Bangladesh Government foreign investment policies has yet to materialize. Capital markets in Bangladesh are still developing and the financial sector is highly dependent on banks, which suffered a major scandal in 2022 in which 11 banks faced a collective shortfall of USD 3.1 billion. A sluggish and reportedly corrupt judicial process and limits on alternative dispute resolution mechanisms impede the enforcement of contracts and the fair resolution of business disputes.

In the areas of labor, intellectual property rights (IPR), and environment, the Government has passed various laws but does not effectively enforce many of them. It devotes limited resources to IPR protection. Although Bangladesh has made progress over the past decade to improve fire and building safety standards in the export ready-made garment industry, workers face significant barriers in law and in practice in exercising their rights to organize and collective bargaining. Despite the many environmental conventions Bangladesh joined, Dhaka is among the world’s worst cities for air pollution.