Bangladesh is confronting a steep drop in foreign direct investment (FDI) since the formation of an interim government last summer, prompting Chief Advisor (CA) Yunus to spearhead reforms to address critical gaps in the country’s investment climate and stabilize the floundering economy.

FDI inflows plunged 71% year-on-year in the first quarter of 2025, marking the lowest level in over a decade. The dip is driven by the grim outlook held by many foreign investors who are increasingly disillusioned with the country’s bureaucracy, ongoing political instability, and a mix of financial challenges such as persistent liquidity shortages and deteriorating asset quality in weak banks.

Exceedingly high non-performing loans, a legacy of corruption, and persistent power shortages have driven up business costs, while the country’s overreliance on the ready-made garment (RMG) sector leaves it vulnerable to external shocks. At the same time, competition from India is intensifying, with New Delhi promoting its own textile exports and potentially restricting market access for Bangladeshi goods. Recognizing these challenges, CA Yunus has pledged to reform the private sector and labor market, commissioning studies from economic agencies to identify targeted improvements that could revitalize foreign investor interest.

Key Changes:

• The interim government is prioritizing Special Economic Zones (SEZs), aiming to develop infrastructure, repurpose unused land, and attract $5.5 billion in investment in a move the Yunus administration believes can create over 238,000 jobs and pave the way for foreign investors to draw on the country’s large pool of educated but underemployed youth.

• Following commission recommendations published publicly in February 2025, Yunus plans to digitize government processes and introduce financial and labour reforms that meet global standards. In an early first step, the interim government has revamped its digital portal launched by the Bangladesh Investment Development Authority (BIDA) to streamline access to foreign investment opportunities in the country.

• The interim government, buoyed by Yunus’s perceived credibility worldwide as a trusted statesman, has so far maintained the support of international institutions such as the World Bank, IMF, and Asian Development Bank to stabilize the country and implement reforms. For example, the World Bank is providing loans and technical support to help the interim government increase transparency in bank resolution, asset recovery, and tax administration.

While Bangladesh courts foreign finance, structural deficiencies and political uncertainty have weakened the investment climate despite reform efforts. With national elections set for December 2025—featuring the Bangladesh National Party (BNP), a new student-led party, and other contenders— prospective foreign investors will want to closely monitor the risk dynamics of the country’s shifting political landscape.