Banking on govt securities — a risky shift for macroeconomic landscape
Bangladesh is facing a worrying decline in private sector investment, exacerbated by prolonged political instability.
The country’s banking sector has witnessed a surge in excess liquid assets, reaching Tk2.15 lakh crore at the end of December 2024, compared to Tk1.63 lakh crore a year earlier.
According to a report published in a news portal on Friday, this stark increase, largely driven by reduced private-sector borrowing, signals a deep-rooted economic uncertainty that could have long-term ramifications.
One of the most telling indicators of this downturn is the fall in private sector credit growth, which stood at 7.28 per cent in December 2024, down from over 10 per cent the previous year.
With businesses hesitant to expand and investors wary of committing capital amid political upheaval, banks have opted for safer investments in government securities rather than funding private enterprises.
This shift is understandable but problematic — it underlines a lack of confidence in the business environment and stifles economic dynamism.
Further evidence of this investment slowdown can be seen in declining imports of capital machinery, which plummeted by 27.66 per cent in the first half of the fiscal year.
This sharp drop suggests that businesses are reluctant to commit to new projects or modernise existing operations.
If this trend continues, it will undoubtedly hinder industrial growth, limit job creation, and curb economic expansion in the long run.
Political uncertainty remains at the heart of this crisis. Since the fall of the Awami League government in August 2024, financial institutions have grappled with unpredictable market conditions.
Law and order concerns have only exacerbated the reluctance of businesses to make substantial investments.
While there has been no dramatic outflow of foreign reserves, the prevailing hesitation among investors suggests that Bangladesh is not yet perceived as a stable and secure destination for investment.
The government and Bangladesh Bank must take urgent steps to restore business confidence.
Strengthening political stability, ensuring transparent economic policies, and offering incentives for private sector investment will be crucial.
Additionally, structural reforms in banking regulations could encourage lending to businesses rather than excessive reliance on government securities.
The decline in private sector investment is not just a temporary blip — it is a red flag that must not be ignored.
Without swift and strategic intervention, Bangladesh risks hampering its economic momentum and jeopardising the progress it has made over the past decades.
Encouraging investment and fostering a conducive business climate must be prioritised to steer the country back onto a path of sustainable growth and prosperity.