Bangladesh stands at a pivotal crossroads, balancing the optimism of surging foreign portfolio investment with the sobering realities of an impending transition from its Least Developed Country (LDC) status. As the nation prepares for its scheduled graduation from the United Nations’ LDC category on November 24, 2026, recent economic trends and policy debates highlight both the achievements and vulnerabilities that will shape its future trajectory.
According to data from the Dhaka Stock Exchange (DSE), July 2025 marked a notable uptick in foreign portfolio investment, with a net increase of about Tk250 crore. Prime Bank and BRAC Bank led the surge, attracting the highest volume of foreign investments. Foreigners bought Tk233 crore in BRAC Bank shares and Tk78 crore in Prime Bank, followed by smaller but significant purchases in IDLC Finance, Marico, and Uttara Bank. Yet, the month also saw foreign investors selling off substantial holdings in BAT Bangladesh, Renata, Reckitt Benckiser, and United Commercial Bank, with sales amounting to Tk48 crore from BAT Bangladesh and Tk29 crore from Renata, among others.
By the end of July, BRAC Bank held 35.5% foreign portfolio investment, with Olympic Industries at 33.96%, Beximco Pharma at 27.55%, Navana Pharma at 19.64%, Renata at 19.43%, and Islami Bank at 17.88%. Analysts told The Business Standard that foreign investors are drawn to firms with strong business potential and robust governance. However, the prevalence of so-called "junk stocks" means that foreign capital tends to concentrate in a select group of companies. Broader economic factors—macroeconomic instability, weak reserves, currency market volatility, and political unrest—also weigh heavily on investor sentiment.
Market accessibility remains a sticking point. In its June 2025 review, MSCI maintained "special treatment" for Bangladesh securities, citing ongoing issues such as capital repatriation delays and low liquidity in the onshore foreign exchange market. This special treatment, introduced in February 2023, defers index review changes and aims to reduce volatility in the MSCI Bangladesh Indexes. Meanwhile, FTSE Russell announced plans to reevaluate Bangladesh's securities for index eligibility in its upcoming September 2024 review, following the removal of floor price restrictions on most stocks—except for Beximco Limited and Islami Bank Bangladesh.
The Foreign Investors Summit 2025, held on August 13, became a focal point for discussions about Bangladesh’s economic resilience and future prospects. Anisuzzaman Chowdhury, Special Assistant for Economic Affairs to the Chief Adviser, emphasized, "In the context of the global economy, the July performance of Bangladesh's capital market shows that our economy is stable." He pointed out that, despite political changes, GDP growth has held steady and inflation is on the decline. "Now is a good time to invest in Bangladesh. Our capital market is ready for long-term investments. This is a message not only for foreign investors but also for domestic ones," Chowdhury added.
Yet, the summit also served as a reality check. Takao Hirose, managing director of Contextual Investment LLC, delivered a candid warning: "We are fast money, we are greedy money, and we are aggressive — but we are capricious. The moment we see you going out of control, we will go back to Japan. No violence, please. Differences of opinion are fine, but work them out. You are being watched by international investors — do not scare them off." Hirose likened overreliance on foreign capital to a "Faustian bargain," urging Bangladesh to deepen its domestic investor base and build market depth. "When foreigners come into your market, be careful what you wish for," he cautioned, underscoring that stability is the price of retaining investor confidence.
The theme of stability resonated throughout the summit. Ruchir Desai, fund manager at Asia Frontier Investments Limited, noted that foreign investor confidence began to wane around the 2018–19 fiscal year due to regulatory uncertainties, interest rate caps, and market shutdowns. "Confidence is critical. You can have great companies and demographics, but without stability, the economy will not take off," Desai said. Despite recent headwinds, he observed positive signs: "The platform has been set. If you can build a stable political and policy environment, nothing should stop Bangladesh from meeting its potential over the next five to six years."
Bangladesh’s pending LDC graduation adds another layer of complexity. The nation met the three graduation criteria—Gross National Income per capita, Human Assets Index, and Economic and Environmental Vulnerability Index—for two consecutive triennial reviews since 2018, signaling decades of progress in economic growth, poverty reduction, and resilience. Yet, as The Daily Star reported, graduation also means the loss of vital international support measures: duty-free quota-free access to developed markets, special treatment under World Trade Organization (WTO) rules, and concessional financing.
The private sector is increasingly vocal in its apprehension, urging the government to seek a deferment of graduation for at least three years. Their concerns are not unfounded. The ready-made garment (RMG) sector, which accounts for 85 percent of Bangladesh’s exports, relies heavily on preferential access to developed markets like the EU, Canada, Australia, and Japan. Preferential access currently covers 70 percent of Bangladesh’s global exports. Losing these benefits would erode competitiveness, especially as export diversification remains limited and sectors like pharmaceuticals, leather, and ICT are still underdeveloped.
Financial vulnerabilities compound the challenge. As of August 14, 2025, Bangladesh’s foreign exchange reserve stood at $25.82 billion—enough to cover about three months of imports, according to the International Monetary Fund’s benchmark. Non-performing loans in the banking sector climbed to 24.13 percent as of March 2025, reflecting deep-seated governance issues and constraining the sector’s ability to support genuine businesses. Rising external debt and the need to service loans from large infrastructure projects further strain the financial system.
Graduation will also increase borrowing costs by ending access to concessional development finance from multilateral institutions. This is particularly concerning given Bangladesh’s already rising external debt service burden and low reserves. The government’s interim status, with national elections slated for February 2026, adds a layer of political uncertainty. While some reforms have been initiated, major overhauls in governance, regulatory frameworks, and transparency remain unfinished business.
Bangladesh is not alone in seeking a postponement of LDC graduation. Nepal, Vanuatu, Tuvalu, Maldives, and the Solomon Islands have all secured deferments due to economic shocks, natural disasters, or political instability. The United Nations Committee for Development Policy recognizes such exceptional circumstances as legitimate grounds for delay. The European Union has also committed to extending duty-free market access for goods from graduating LDCs for three years post-graduation, offering a temporary cushion.
Legal reforms are underway to address investor concerns. DSE Chairman Mominul Islam stated at the summit, "Our key priority is ensuring the regulator's complete independence. Unlike before, regulators no longer intervene in the daily operations of the market. Legal reforms have been designed accordingly, addressing complaints that were especially common among foreign investors." However, Bangladesh’s stocks continue to be subject to MSCI’s "special treatment," underscoring the need for further improvements in market accessibility and transparency.
For Bangladesh, the path forward is clear but challenging. Requests for a deferral of LDC graduation should be framed as a strategic move toward readiness, not a retreat. As Dr. Fahmida Khatun of the Centre for Policy Dialogue wrote, "Without credible reforms, deferment would merely postpone the crisis." The coming months will test Bangladesh’s ability to balance ambition with pragmatism, ensuring that its economic ascent is both sustainable and inclusive.
