The private sector is dominated by export-oriented garment and knitwear manufacturing, accounting for 70 percent of exports. This market has become extremely competitive since the dismantling of quotas in 2005, but exports continue to grow. The power and energy sectors (natural gas and coal) are also important potential areas of private investment; major international energy and mining companies have largely withdrawn from exploration and development due to the limited size of the local market and the government’s policy of not allowing gas exports. There has been renewed interest in coal and power development recently, with sponsors seeking IFC support, in view of the major social and environmental issues involved.
Poor governance, inadequate infrastructure, and social and political instability have raised the costs of doing business to very high levels. Corruption has hampered investment in power generation capacity, leading to increasing shortfalls in power supply.
Bangladesh’s economy is extremely resilient to adverse shocks such as the expiry of the Agreement on Textile and Clothing at end-2004, flooding, and the problems created by poor governance and corruption. The new caretaker government, backed by the military, appears to have restored a degree of confidence. The government's and central bank's growth forecast of 7.0% appears optimistic however, a more conservative forecast for growth in FY06/07 is 6.0%. Prices have risen in recent months, with inflation at 7% pa.
The practice of subsidizing fuel is a threat to the public finances and price stability. Other risks that could cloud the outlook are the possibility of renewed flooding; a slowdown in the US and the EU, Bangladesh’s main export markets for clothing; and failure to solve the power crisis and secure foreign direct investment.
