Foreign investment inflow falls 8% in Jul-Mar FY24

• Net FDI inflow in July-March of FY24 was $2.21 billion
• It was $2.41 billion in the equivalent period of FY23
• Exchange rate volatility discouraged investors from new investments
• Dollar shortage prevented foreign firms from properly repatriating earnings 
• Downgrading credit rating by international agencies may have a further negative impact on FDI

The net foreign direct investment (FDI) inflow decreased by 8.37% year-on-year in the first nine months of the fiscal 2023-24 due to several factors, including difficulties in profit repatriation by foreign companies and a volatile forex situation in Bangladesh.

According to data from the Bangladesh Bank, net FDI inflow in July-March of FY24 was $2.21 billion, down from $2.41 billion in the equivalent period of the previous fiscal year.

When asked why FDI inflow in Bangladesh has dropped, Mustafa K Mujeri, former chief economist of the central bank, said, "Considering the macroeconomic situation of the country, investors might have lost their confidence. Foreign investors make investment decisions based on the complete picture of a country.

"Bangladesh is not the only destination for their investment. There are other countries similar to us, and perhaps the investments have gone there."

In July 2023, the official exchange rate for the dollar was Tk108.40, according to the central bank. By March 2024, the official rate had risen to Tk110.

However, banks reported that dollars were not available anywhere at the rates set by the central bank. In March, banks were selling dollars at rates between Tk115 and Tk116.

This volatility in the exchange rate discouraged investors from pursuing new investments. Additionally, the ongoing dollar shortage in the country prevented foreign companies from properly repatriating their earnings. Downgrading the credit rating from international agencies may have a further negative impact on FDI, according to economists.

In July, S&P Global Ratings lowered the long-term rating outlook for Bangladesh to negative from stable, citing a weakened liquidity position and the risks of current domestic political conditions, which may undermine the predictability of future policy responses. 

Earlier in May, Moody's Investors Service downgraded Bangladesh's rating, but it keeps the country's long-term outlook stable, which indicates the rating agency does not anticipate any significant changes in the economy's creditworthiness or its ability to meet its financial obligations.

Moody's downgraded Bangladesh's rating for the first time, placing it at B1 from the Ba3 category.

When asked whether investment will be hindered due to downgrading the credit rating from international agencies, Mustafa K Mujeri said, those who invest must take these ratings into consideration.

He said these ratings have different importance in the global market. It shows the relative strength of the economy. Rating deterioration has a negative impact on investment.

According to Bangladesh Bank data, $751 million in net FDI came during January-March this year. Of this, $612 million is reinvested earnings. Of net FDI in the first nine months of FY24, 79% is reinvested earnings.

That is, the net FDI inflow of the country is from the reinvestment of the return received from the old foreign investment, it added.

When asked why reinvestment earnings are a major part of FDI, a senior official of the central bank said, "The return on investment in our country is very good. Therefore, many people reinvest the income they earn from investments."

"However, in many cases investors face various hurdles including the dollar crisis in repatriating their earnings. As a result, he was naturally forced to invest the earnings again," he added.

According to central bank data, the highest investment of $127 million came in the banking sector in the first three months of January-March 2024. Besides, investment in the textile and apparel sectors has reached $109 million. Besides, good investment has come in sectors like power, gas, petroleum, and food.

A country-wise review showed that more than $100 million in investment came from the UK, China, and the Netherlands in these three months.