Bangladesh's economy stands at a critical juncture. For decades, the banking sector has served as the principal engine of industrialization, infrastructure development, and business expansion. However, mounting non-performing loans, persistent liquidity pressures, and the structural limitations of bank-led financing have exposed a fundamental reality: a modern and sustainable economy cannot thrive without a deep, efficient, and trustworthy capital market.
The proposed national budget for FY2026-27 brings that reality into sharper focus. The government has reiterated its intention to transform the capital market into a major source of long-term financing, while also pledging to promote foreign investment, expand the bond market, improve the ease of doing business, and encourage industrial growth. On paper, these are encouraging policy directions. Yet the central question remains unchanged: can the budget address the chronic crisis of investor confidence that continues to undermine Bangladesh's capital market?
The history of Bangladesh's stock market has been a tale of untapped potential punctuated by recurring disappointments. The market crashes of 1996 and 2010 inflicted deep financial and psychological scars on hundreds of thousands of retail investors. More than a decade later, those scars have not fully healed. As a result, many investors still view the stock market not as a vehicle for long-term wealth creation, but as a highly speculative arena vulnerable to manipulation and uncertainty. Against this backdrop, restoring confidence�"not merely introducing incentives�"must be the foremost priority.
The broader macroeconomic framework outlined in the proposed budget has important implications for the future trajectory of the capital market.The government has proposed a Tk 9.38 trillion budget for FY2026-27, targeting revenue collection of Tk 6.95 trillion, of which Tk 6.04 trillion is expected to come through the National Board of Revenue (NBR). While these targets demonstrate ambition, recent experience suggests that ambitious targets alone do not guarantee success.Revenue mobilization ultimately depends on a vibrant investment climate, efficient tax administration, broader tax compliance, and policy consistency. Without meaningful reforms in these areas, revenue collection may once again fall short of expectations.
The budget also projects an overall deficit of Tk 2.43 trillion, equivalent to approximately 3.6 percent of GDP. Financing this deficit will require substantial borrowing from both domestic and external sources.
Of particular concern is the government's plan to borrow Tk 1.12 trillion from the banking sector as part of its domestic financing strategy. While deficit financing is a common fiscal tool, excessive reliance on bank borrowing can create unintended consequences for private-sector investment.
This concern is especially relevant in the current economic environment, where private-sector credit growth has already slowed to historically low levels. According to Bangladesh Bank data, private-sector credit growth stood at only 4.72 percent in March 2026�"the lowest rate ever recorded in the country's history. More importantly, industry experts argue that the figure may overstate actual lending activity because outstanding loan balances include accrued interest. In real terms, the expansion of fresh credit may be even weaker.
This raises an important policy dilemma. If the government absorbs a significant share of available banking resources, private enterprises may find it increasingly difficult or expensive to access financing. Economists describe this phenomenon as the "crowding-out effect," where government borrowing constrains private-sector investment. Such a scenario would be particularly problematic for Bangladesh, where private investment remains the primary driver of employment generation, industrial expansion, and long-term economic growth.
The challenge becomes even more apparent when viewed against the government's growth ambitions. The budget targets GDP growth of 6.5 percent while simultaneously aiming to reduce inflation to 7.5 percent. Both objectives are desirable. However, achieving them simultaneously will require navigating a complex domestic and global environment. Persistent volatility in global energy markets, geopolitical uncertainties, supply chain disruptions, and structural inefficiencies within domestic markets continue to pose significant inflationary risks. Discussions surrounding adjustments in electricity, gas, and fuel prices could further increase production and transportation costs, potentially creating additional pressure on consumer prices.
In this context, sustaining robust economic growth while controlling inflation will require careful policy coordination and disciplined implementation. Nevertheless, the budget does contain some encouraging signals for the capital market. Perhaps most importantly, policymakers have acknowledged that an excessively bank-dependent financial system is not sustainable in the long run. In most developed economies, large corporations rely heavily on capital markets for long-term financing, reducing pressure on banks while providing investors with opportunities to participate in economic growth.
Bangladesh's recognition of this reality is a step in the right direction. The government's emphasis on developing the bond market is also timely. The country's capital market remains overwhelmingly equity-centric, with limited depth in the corporate bond segment. Yet mature financial systems typically rely on a balanced mix of equity and debt instruments to support infrastructure projects, industrial expansion, and long-term investment.
Concerns regarding market manipulation, insider trading, inadequate disclosure, weak corporate governance, and insufficient protection of minority investors have persisted for years. Many investors continue to believe that influential market participants enjoy disproportionate advantages, while ordinary investors bear the brunt of market volatility. Until these perceptions are addressed through credible reforms and consistent enforcement, no amount of fiscal incentives is likely to restore lasting confidence.
The same principle applies to foreign investment. International investors evaluate far more than tax benefits. Regulatory predictability, rule of law, foreign exchange stability, political certainty, and market transparency often weigh more heavily in investment decisions. Bangladesh's limited foreign participation in the stock market reflects unresolved concerns in many of these areas.
Another persistent challenge is the shortage of quality listings. Many of the country's most profitable and reputable companies remain outside the stock market. Their reluctance often stems from concerns about valuation, regulatory burdens, and market perception. Expanding the market's depth and quality therefore requires not only incentives but also a more business-friendly and transparent regulatory environment. Ultimately, capital market reform is not about ensuring a short-term rise in stock indices. It is about building an ecosystem founded on transparency, accountability, investor protection, and fair competition.
Achieving that goal will require stronger regulatory oversight, improved corporate governance, faster dispute resolution mechanisms, and unwavering commitment to market integrity. The FY2026-27 budget can therefore be viewed as a statement of intent rather than a comprehensive solution. It points toward long-term reforms but falls short of delivering the confidence-building measures that investors have been waiting for.
The real test lies not in the announcements themselves but in their implementation. Bangladesh's capital market history repeatedly demonstrates that the problem has rarely been a lack of promises. Rather, it has been the failure to translate those promises into credible and sustained action. If the government genuinely seeks to transition from a bank-dominated financial system to a market-based economy, it must pursue bolder reforms, stronger governance, and greater institutional accountability. The future of Bangladesh's capital market will ultimately be determined not by the volume of incentives offered, but by how effectively the country can rebuild the trust it has lost over the years.
The writer is a banking and economic analyst
