Investment to GDP shrinks amid pandemic

Bangladesh’s investment to GDP ratio witnessed a downtrend in the 2020-21 fiscal year hit by the Covid-19 pandemic.

It stood at 29.92 per cent, down by 0.55 percentage points in the last FY, according to the provisional data of the Bangladesh Bureau of Statistics (BBS).

The figure is 1.65 percentage points lower than the pre-pandemic level of 31.57 per cent in FY 2018-19. 

In FY21, private investment to GDP declined by 0.81 percentage point to 21.25 per cent, which was 22.06 per cent in the previous FY. It is 2.29 percentage points lower compared to the pre-Covid level of 23.54 per cent in FY20.

However, implementation of ongoing mega projects pushed up public investment to GDP by 0.26 percentage point to 8.67 per cent in FY21, which was 8.41 per cent in the previous year. 

For the current FY 2021-22, the government aims to increase the investment to GDP ratio to 33.1 per cent. Of which, 25 per cent will come from the private sector and 8.1 per cent from public investment.  

Why investment declines?

Experts blamed declining confidence of business people and uncertainty over recovery, fall in demand of goods caused by the pandemic, and prolonged impact for the decline in investment.

“With the outbreak of the Covid-19 pandemic in March 2020, there was uncertainty among the investors. The severity of the infection rate dampened their confidence,” Dhaka Chamber of Commerce and Industry President Rizwan Rahman told The Business Post. 

As a result, investors discarded their expansion plans and new projects, fearing the further deterioration in the Covid situation, said the business leader. He noted that there was some investment in the medical and healthcare sector to meet the increased demand triggered by the pandemic. 

Meanwhile, economists said that the investment trend was slower even before the pandemic. 

“Private investment was sluggish even before the Covid-19 outbreak, which expedited with the outbreak of the pandemic,” Dr Zahid Hussain, former lead economist of World Bank, Dhaka told The Business Post. 

Even the current investment ratio is 2 per cent less than that of the pre-Covid level. This is because of the pandemic as people could not utilise the existing capacity and did not go for expansion, said the economist.

He said there was no urgency from the investors to invest in expansion or new investment as demands slowed. 

Spurring investment

To gear up private investment, business people and trade analysts urged the government to ensure vaccination for people without any delay. 

“Improving the Covid-19 management and skill is a pre-condition to stimulate economic activities or investment,” said Zahid. 

On the other hand, the government has to bring required reforms in regulation to improve ease of doing business and create a congenial atmosphere for the investors, said the economist.  

“To attract investment, we have to boost investors’ confidence, which is possible only by vaccinating 70 to 80 per cent of the population as soon as possible,” said Rizwan. 

For vaccination, the focus should be on rural people who are the drivers of the economy. If confidence grows slowly with vaccination, the investment will improve gradually, he said.

“The investment scenario could be worse as the prevailing situation does not encourage investment,” Ahsan H Mansur, executive director of Policy Research Institute (PRI), told the Business Post.  

He suggested removing barriers to investment and pumping funds to investors, especially those facing a capital shortage. Mansur said the government has to bring changes in policy so that business people can take quick decisions for investment.

GDP rate falls in FY19-20

Bangladesh’s GDP rate declined to 3.51 per cent in FY 2019-20, while the rate was 8.15 per cent in FY2018-19.

BBS data showed that almost five per cent of the GDP decreased due to the pandemic. The provisional estimation of the GDP rate of FY20 was 5.24 per cent. Meanwhile, the economic growth rate was 8.15 per cent in FY 2018-19.

In FY 2020-21, the initial GDP growth rate recorded was 5.47 per cent, much lower than the target of 8.2 per cent, it said.

The size of GDP stood at Tk 30,11,065 crore in FY 2020-21, which was Tk 27,39,332 crore in FY20. The GDP saw 9.92 per cent nominal growth in terms of currency. It was 7.74 per cent in FY20.

State Minister of Planning Dr Shamsul Alam said the GDP growth rate of 3.51 per cent in FY 2019-20 was very positive. “Our neighbouring India, USA and entire Europe registered drastic falls in their GDP due to the pandemic,” he pointed out.

He said the countrywide lockdown had affected the economy. “But exports and remittance flow supported us. The agricultural production also contributed to the growth,” he said, adding that the government announced stimulus packages to recover the economy.

He hoped that the GDP growth would edge up in the current fiscal year.

Earlier, different development partners, donor agencies, and think tanks were forecasting lower GDP growth for FY2020 and FY2021 as the pandemic hit the country hard.