Trade, investment hit hard by Middle East-driven energy shock

Bangladesh’s trade, investment climate, and industrial growth are facing mounting pressure as an energy shock, triggered by the Middle East crisis, continues to disrupt fuel supply chains, drive up prices, and hamper industrial production.

Industry insiders report that energy-intensive sectors, including ready-made garments (RMG), textiles, agriculture, pharmaceuticals, plastics, steel, cement, and ceramics, are facing escalating costs and reduced output as a result of the ongoing crisis.

Economists and business leaders have urged the government to adopt a pragmatic and implementable budget for the 2026–27 fiscal year (FY27) to revitalise economic activity. They emphasised the need for targeted fiscal support, reliable energy supply, a reduction in the cost of doing business, and stronger efforts to attract foreign direct investment (FDI).

They also called for export diversification, job creation, and comprehensive reforms in regulatory bodies, alongside improved governance and stricter anti-corruption measures.

Experts further stressed that green transformation should remain central to policy planning. Incentives for renewable energy, energy-efficient technologies, and circular manufacturing would not only align Bangladesh with global standards but also strengthen the long-term resilience of its industrial base.

Manufacturing sector under pressure

Industry stakeholders noted that during the interim government led by Prof Yunus, trade and investment slowed due to political instability and a weakened law and order situation.

Although expectations rose following the formation of a new government, the Middle East crisis has dealt a fresh blow, given Bangladesh’s significant trade dependence on the region.

Anwar-Ul-Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries (BCI), said that industries are currently grappling with severe challenges due to the energy crisis.

He noted that private sector credit growth has fallen to a historic low of 6.03%, while demand has weakened significantly amid high inflation.

“In the upcoming FY27 budget, the government must take effective measures to reduce the cost of doing business to maintain competitiveness. Otherwise, sustaining operations will become increasingly difficult,” he said.

He also called for lower bank interest rates to support industrial recovery, alongside stable corporate tax policies. Expanding the tax net, he added, would help reduce the burden on compliant businesses and prevent the closure of existing industries.

SMEs seek easier access to finance

Taskeen Ahmed, president of the Dhaka Chamber of Commerce & Industry (DCCI), highlighted the importance of coordinated action between the government and the private sector.

He pointed out that cottage, micro, small, and medium enterprises (CMSMEs), which contribute around 30% of GDP and generate nearly 80% of industrial employment, have been among the hardest hit since the COVID-19 pandemic.

To support SME entrepreneurs, he recommended low-interest loans, simplified credit procedures, improved access to finance, and targeted tax incentives.

Export industries hit by rising costs

Export-oriented sectors, particularly the RMG industry, which accounts for over 80% of Bangladesh’s exports, are facing significant disruption due to irregular gas and electricity supply.

According to Export Promotion Bureau (EPB) data, Bangladesh exported products valued $48.28 billion in fiscal year 2024-25. Of this, the RMG sector exported products worth $39.35 billion (81.49% of the country’s total export).

Mahmud Hasan Khan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said the sector is struggling with frequent load-shedding across major industrial zones such as Gazipur and Ashulia.

“Factories are facing severe power shortages, and even diesel supplies for generators are inadequate. As a result, shipments are being delayed,” he said.

He also expressed concern over rising raw material costs linked to the Middle East crisis, noting that additional overtime is required to offset production losses.

Policy consistency key to attracting FDI

Despite Bangladesh’s competitive labour costs, inconsistent policies have hindered its ability to attract higher levels of foreign investment.

Although the Bangladesh Investment Summit 2025 aimed to position the country as a regional manufacturing hub, it failed to secure significant investment commitments.

Bangladesh Bank data shows net FDI stood at $1.77 billion in 2025, compared to $1.27 billion in 2024.

Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh (AmCham), emphasised the importance of policy predictability.

“Investors make long-term decisions. They need clarity in tax structures, stability in policies, and confidence that these will not change abruptly,” he said.

He recommended rationalising the tax system, reducing overlapping taxes, addressing double taxation, and simplifying administrative procedures to improve compliance and investor confidence.

He also highlighted the need for customs modernisation, digitalisation, and investment in human capital to enhance competitiveness.

Energy and food security top priorities

Economist Dr Zahid Hussain identified energy and food security as the two most pressing challenges facing the economy.

“To manage the ongoing crisis, the government must ensure uninterrupted supply of gas, oil, and electricity to sustain industrial and agricultural production,” he said.

He also stressed the need to diversify energy import sources and improve market management to prevent inefficiencies and irregularities observed during previous crises.

On food security, he underscored the importance of adequate fertiliser imports to support agricultural output in upcoming seasons.

Call for a realistic and implementable budget

Dr Zahid Hussain cautioned against an overly ambitious budget, noting that the government is planning a FY27 budget exceeding Tk880,000 crore.

“In the current crisis, the priority should be a cost-effective and implementable budget. The government must carefully assess where funds can be effectively utilised,” he said.

He warned that revenue targets may be unrealistic given current economic conditions and limited institutional capacity, particularly within the National Board of Revenue (NBR).

He reiterated the need for reforms in key institutions, including the NBR, Bangladesh Investment Development Authority (BIDA), and the banking sector, alongside stronger governance frameworks.

Government initiatives to revive the economy

To address ongoing challenges, the government has recently engaged business leaders through the Private Sector Advisory Council (PSAC), aiming to revitalise the private sector and improve the investment climate.

Speaking to Daily Sun, a member of the Private Sector Advisory Council (PSAC) said the council had discussed a range of issues with the prime minister, including ongoing business challenges and measures to revive the country’s private sector and boost the economy.

The FY27 budget, expected to be announced on 11 June, is projected to be around Tk883,000 crore—approximately Tk93,000 crore higher than the current fiscal year.

The revenue target is set at Tk636,000 crore, with a projected deficit of Tk247,000 crore (3.6% of GDP). Financing plans include Tk241,000 crore from domestic sources, with significant borrowing from the banking system.