Fresh FDI in Bangladesh plunges 70% in Q1

Infographics: TBS

Fresh foreign direct investment (FDI) or equity into Bangladesh plummeted by 70.34% year-on-year to $78.26 million in the first quarter of 2026, driven by persistent structural weaknesses, macroeconomic risks, and election-related uncertainties.

Data released by the Bangladesh Bank yesterday show that net equity inflows – which reflect actual new overseas capital – reached their lowest level in four quarters during the March period.

Economists said equity investment reflects fresh foreign capital entering the country and its sharp decline indicates that foreign investors were increasingly reluctant to undertake new projects in Bangladesh.

They attributed the slowdown to a combination of political uncertainty surrounding the first-quarter election, a weaker investment climate and mounting economic risks.

They said elections typically create uncertainty for businesses and investors, prompting foreign companies to postpone investment decisions until the political outlook becomes clearer.

Economists also pointed to Bangladesh's repeated sovereign credit rating downgrades by international rating agencies in recent years, noting that foreign investors consider such ratings an important indicator before committing capital. Investors also assess whether they will be able to repatriate profits and capital smoothly after investing.

They added that the sharp rise in non-performing loans in the banking sector has further undermined investor confidence by signalling growing financial sector risks.

Equity investment stood at $263.87 million in the first quarter of 2025, before declining to $81.30 million in June, $101.12 million in September, and $108.34 million in December. 

Total FDI inflows, which encompass equity, reinvested earnings, and intra-company loans, dropped to $447.31 million in the first quarter of 2026 from $796.57 million in the corresponding period of the previous year.

In contrast, reinvested earnings from existing foreign enterprises increased significantly to $342.92 million during the first three months of 2026, up from $191.22 million in the first quarter of 2025. 

While retained profits expanded the total FDI stock to $21.30 billion by the end of March 2026 from $18.99 billion a year earlier, economists cautioned that true investment growth depends on fresh equity rather than accounting adjustments of retained earnings.

Policy bottlenecks and structural woes

Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management, told TBS that the decline in equity is an alarming signal indicating that foreign investors are reluctant to launch new ventures. 

He noted that successive sovereign credit rating downgrades by international agencies have severely damaged investor confidence. He added that the escalating ratio of non-performing loans within the domestic banking sector sends a negative signal abroad, necessitating urgent recovery measures and financial transparency.

Ahsan H Mansur, former governor of the central bank, observed that the prime minister's announcement of a 1.5% cash incentive for securing foreign investment is a positive policy measure that should be sustained. 

However, he emphasised that large-scale infrastructure projects, such as the Bay Terminal project in Chattogram, require an additional five to seven years of preparation before they can actively attract global capital.

Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, emphasised that structural deficiencies, including the incomplete operationalization of the automated one-stop service system and the prohibitive cost of doing business, remain primary deterrents. 

He noted that investors are guided by infrastructure quality and stable policy frameworks rather than political shifts, predicting that FDI will remain subdued unless long-standing administrative barriers are dismantled. 

A senior official at the Bangladesh Bank added that a corresponding slowdown in domestic private sector investments indicates that local entrepreneurs are adopting a similarly cautious stance.

Laggard status in global investment report

Despite maintaining a gross domestic product exceeding half a trillion dollars as the second-largest economy in South Asia, Bangladesh continues to lag behind smaller African nations in attracting external capital, according to the Unctad World Investment Report 2026. 

The publication highlighted that countries such as Ghana, Uganda, and the Democratic Republic of Congo have successfully attracted billions of dollars through sweeping statutory transformations.

Ghana, following governance transitions in early 2025, achieved significant macroeconomic stabilisation by eliminating specific taxes, reducing inflation from 21% to 3.4%, and expanding national reserves to nearly $14 billion. 

The enactment of the Ghana Investment Promotion Authority Act 2026 eliminated restrictive minimum capital requirements for foreign entities. 

Similarly, Uganda significantly enhanced its business environment by transforming its investment administration into a single window centre, while Congo liberalised its domestic energy sector and expanded special economic zones to draw global manufacturing capital.