Budget incentives may help, but confidence remains crucial

Investment will depend less on tax incentives and more on restoring business confidence, said Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID).

While the proposed budget offers tax breaks and concessional financing for selected sectors, investors are unlikely to expand operations unless confidence in the overall business environment improves, he said.

According to Razzaque, political stability and improvements in law and order could gradually help restore confidence. However, persistently high inflation remains a major obstacle.

"People's purchasing power has been eroded by years of high inflation. When consumers spend less, businesses see weaker demand and become reluctant to invest," he said.

He described the situation as a vicious cycle in which inflation suppresses consumption, discourages private investment, and slows economic activity.

Razzaque said budgetary incentives, particularly those targeting micro, small and medium enterprises (MSMEs), could provide some support. Lower borrowing costs and targeted assistance may help businesses in those segments.

However, he cautioned that incentive packages could also add inflationary pressure if not managed carefully.

He also stressed the need to ease import constraints, arguing that the prolonged slowdown in imports is hurting both production and investment.

"With imports remaining significantly below previous levels, it will be difficult to boost exports and sustain industrial expansion," he said.

Measures announced in the budget to support exports, including tax-related incentives, are steps in the right direction, but their impact will take time to materialise, he added.

Bangladesh's exporters are also facing growing competition from countries such as India and Vietnam, which are gaining improved market access and tariff advantages in key export destinations.

At the same time, Bangladesh's higher inflation compared with that of competing economies has weakened its competitiveness, creating additional challenges for investment and export growth, Razzaque said.