FDI falls over 30% in Jul-Nov of FY21

Foreign direct investment (FDI) in the first five months of the current fiscal year declined by more than 30% compared to the same period of the previous financial year.

Published on Wednesday, the Bangladesh Bank's balance of payment report said the gross FDI, during July-November, was $950 million, down from $1.36 billion in the same period of the previous fiscal year.

Towfiqul Islam Khan, a senior research fellow at the Centre for Policy Dialogue, attributed the fall in FDI solely to the ongoing Covid-19 pandemic.

He said it is normal that there was no investment in setting up new industries during the pandemic.

"FDI came in to operate the existing industries or increase units as the demand for some products went up during the pandemic," Towfiqul said.

Meanwhile, foreign investment in the capital market decreased as well. It was $44 million from July to November in the fiscal 2019-20. During the same period of this fiscal year, foreigners bagged $164 million by selling shares.

But investments by expatriate Bangladeshis increased. In July-November of this fiscal year, their investment amounted to $116 million, up about 21% from the same period of the previous financial year.

According to the central bank's report, the current account balance surplus exceeded $4.1 billion from July to November because the trade deficit had fallen. This was caused by a reduction in import costs and a decline in export growth due to the impacts of the pandemic.

During this period, import costs decreased by about 9% compared to the same period of the previous fiscal year, reaching $20.24 billion. At the same time, export earnings rose slightly to $15.52 billion while the trade deficit stood at $4.71 billion.

Foreign exchange reserves increased as the current account balance surplus went up. In July-November, reserves exceeded $41 billion, which covered imports costs for about eight months.

The government is thinking about using the reserves on project expenditures.

But Towfiqul said that without considering the reserve's impact on the macro economy this would be the wrong decision.

"The taka has gained a strong position as the demand for the dollar on the market is low due to an increase in foreign exchange reserves. This is reducing import costs," he explained.

The researcher thinks Bangladesh is in a comfortable position as inflation pressure is easing due to low import costs.

He believes buying dollars from the market and keeping the exchange rate stable is the right policy of the central bank as there are more dollars in the market than the demand.