Bangladesh Faces Nearly 40% Decline in Net FDI)

Bangladesh experienced a significant setback in net foreign direct investment (FDI), witnessing a nearly 40% decline in the three months leading up to September 2023. Bangladesh Bank data reveals that net FDI during this period was $670 million, down from $1.1 billion in the same quarter of the previous year. The trend continued for the first nine months of 2023, with net FDI totalling $2.115 billion, reflecting a nearly 23.78% decrease compared to the same period in 2022.

Foreign direct net investment involves the overall flow of investment across international borders, considering the difference between investment inflows and outflows. Bankers attribute the decline to ongoing issues in Bangladesh, including corruption, poor governance, low labor productivity, and underdeveloped money and capital markets.

Analysts suggest that the decline indicates a reduction in gross money inflow, signifying that foreign investors may find higher returns elsewhere. Factors such as the country’s credit rating downgrade, governance issues, a fuel crisis, and complex approval processes contribute to the lack of interest from foreign investors.

Intra-company loans, a component of foreign direct investment, also witnessed a significant decline of 162% in the September quarter of 2023. The net debt for this component was negative $59 million, contrasting with the positive $95 million in the same period the previous year. The dollar crisis in Bangladesh, affecting local companies’ ability to borrow from parent companies, has contributed to this decline.

While Bangladesh’s total FDI amounted to $20 billion as of September 2023, concerns persist about the country’s forex reserves. The forex reserves, standing at $20.03 billion as of January 17, 2024, have significantly decreased from $32.49 billion a year ago. The financial account deficit, driven by a decline in short-term foreign loans and foreign investment, adds pressure to the country’s forex reserves.

The continuous decline in reserves, coupled with challenges in remittances and export earnings, indicates ongoing economic difficulties for Bangladesh, prompting a need for measures to attract foreign investment and stabilise the financial account deficit.