Investment shortfall hits BD’s economic growth
Reza Mahmud :
The continuous decline in Foreign Direct Investment (FDI) remains a pressing concern for the country.
Despite efforts by relevant authorities to provide top-tier services to investors, Export Processing Zones (EPZs) have struggled to attract the anticipated volume of foreign capital.
Economists said the prevailing political and economic atmosphere in Bangladesh created huge obstacles of FDI and internal investment.
They said political uncertainty pushed the investors to be reluctant from investing money on the one hand, and on the other, government’s attitude of borrowing money from banks created huge liquidity crisis and keeping investors away from invest their money.
They suggested the government to ensure investment friendly environment in the upcoming national budget to overcome the worse situation.
Contacted, eminent economist and former Lead Economist of the World Bank, Bangladesh office, Dr. Zahid Hussain on Friday told The New Nation, “Investment crisis is remaining long in Bangladesh due to the economic and political instability.
There are no magic solutions to overcome the crisis.
The government has to take several specific measures to overcome the situation.”
He said, deficit budget push the government to borrow more money from banking sector as a result the business people fail to get enough liquidity from financial institutions.
The government should take an investment friendly budget. If the government takes less deficit budget, it will make the investors assured to invest more money, he added.
The economist said, “Once the political uncertainty will be removed but in which way it is yet to clear to the people. So, the business people have to be ensured over the issue.”
When contacted, eminent economist Professor Muinul Islam told The New Nation, “Huge and uncontrolled plundering, mammoth default loans made the banking sector ruined. As a result, private sector investments become vulnerable.”
The economist suggested the authorities to take special measures for recovering the banking sector for enabling those in private sector investment.
Meanwhile, Bangladesh Bank has formed a committee headed by Mezbah ul Islam, one of the Executive Directors of the central bank to support for realising default loans of the banks.
Bangladesh Bank’s spokesperson Husne Ara Shikha confirmed it to media on Thursday.
Experts hope that such a measure will be helpful to recover the sick banking sector on favouring private sector investments.
A report released recently indicates that foreign investments in all EPZs dropped by 22.33pc, totaling $126.33 million in the first half of the fiscal year 2024-25.
This marks a decline from the $162.66 million recorded during the same period in the previous year.
As per the latest data from Bangladesh Bank, net FDI declined by 8.8pc during the 2024 fiscal year. Besides, net FDI fell from $1.609 billion in FY23 to $1.468 billion in FY24, reflecting a year-over-year decline of $142 million.
Several factors have been identified as contributing to this downturn. The main reason is the political instability caused by the disruptions in July-August. Additionally, global challenges, including the war in Ukraine, the Gaza conflict, and the persistent dollar crisis in the local market, have exacerbated the situation.
Interestingly, despite the decrease in foreign investment, exports from EPZs have experienced a 22.41pc increase during the July-December period of the current fiscal year. In contrast, the country’s overall export growth stood at 12.84pc during the same timeframe.
Economists said, amid this downward trend in overall FDI, the government must implement reforms to improve investment policies and enhance services for foreign investors.
One possible solution would be consolidating all investment promotion agencies under a single entity to streamline efforts in attracting both local and foreign investments.
Bangladesh has introduced One-Stop-Shop (OSS) services through collaboration among the Bangladesh Investment Development Authority, Bangladesh Economic Zones Authority, Bangladesh Export Processing Zones Authority, and Bangladesh Hi-Tech Park Authority.
However, these OSS services have yet to fully meet investors’ expectations.
Experts said, complex bureaucratic procedures continue to pose significant challenges for foreign investors.
Other persistent obstacles include a shortage of skilled labor, insufficient infrastructure, difficulties in acquiring land, and complications with the repatriation of returns and capital.
Reports from the World Bank and other institutions have repeatedly highlighted these barriers.
They said, it is imperative that the government takes proactive measures to address the challenges faced by both local and foreign investors, ensuring a more conducive environment for investment in the country.