Bangladesh has to attract additional Tk 4,23,406 crore investment from private investors to attain its investment to GDP target of 27.83 per cent in FY24, which in turn would allow retaining economic growth and creating jobs to reduce poverty.
In the proposed budget for FY24, the government set a target to increase the private investment’s share in the GDP to 27.83 per cent, and that of total investment to 33.75 per cent. Besides, the target of public investment’s share in the GDP was set at 6.32 per cent.
Investment in the private sector is estimated at Tk 969,981 crore in the current financial year. The estimated investment has to come from both domestic and foreign investors.
As per the budget document, the nominal GDP is estimated to be Tk 44,39,273 crore for FY23 (revised) while the forecasted FY24 GDP is Tk 50,06,782 crore. The amount of investment in the private sector has been calculated on the basis of the GDP data.
The finance minister gave indications of how he wants to achieve the goal while the present investment status shows a different picture.
As per the provisional data from the Bangladesh Bureau of Statistics (BBS), the private investment to GDP ratio declined by 0.88 percentage points to 23.64 per cent in FY23.
“We expect to return to a higher growth trajectory and achieve a 7.5 per cent GDP growth in the coming fiscal year by way of investing in the productive sectors and stimulating productivity and domestic demand,” said Finance Minister AHM Mustafa Kamal in his budget speech.
“To achieve the growth target, we will gradually come out of the contractionary policy and invest in ongoing and new growth-inducing projects, including the mega-projects,” he said.
At the same time, investment will continue to be facilitated in economic zones with an investment-friendly environment consisting of various facilities, such as undisputed land, improved infrastructure, uninterrupted utilities, financial incentives, ease of doing business, etc., said the minister.
“To assess our position in creating an investment and business-friendly environment and attract foreign investment, we are thinking of developing an index on trade and ease of doing business,” he said.
The ‘Guidelines for providing permission for the establishment of foreign commercial offices, providing visa recommendations to foreign workers, and issuing work permits to foreign workers in Bangladesh 2023’ has been approved, said Kamal.
Besides, the benefits and scopes of investment in Bangladesh are being highlighted by organising international conferences, seminars, exhibitions etc. at home and abroad, he added.
Investors, economists say target difficult to attain
Businessmen and economists believe the private sector investment target is not achievable due to the on-going gas and electricity shortages, the USD crisis, the devaluation of taka, inflationary pressure, import control measures, high levels of government’s bank borrowing target, and political uncertainty ahead of elections.
Rizwan Rahman, former president of Dhaka Chamber of Commerce and Industry (DCCI), compared the present situation with the economic crisis after the 1971 liberation war.
He told The Business Post, “I do not understand how the finance minister has set such a big target with so many problems in the country. It is a very ambitious target, which cannot be achieved.”
Ahead of national elections, businessmen usually monitor the situation and no new investments are made, he said.
“Besides, due to the on-going economic crisis, businessmen lack confidence. The investment situation will not improve unless the government improves it.”
Anwar-ul Alam Chowdhury (Parvez), president of Bangladesh Chamber of Industries (BCI), questioned how it will be possible to achieve the FY24 private investment target as FY23 private investment has dropped below the target.
He also said, “How will investment increase if the uninterrupted supply of gas and electricity cannot be ensured and the import of capital machinery does not increase?
“The proposed budget has no guidelines to increase investment. On the other hand, ahead of elections, who will increase investment in an uncertain environment?”
Echoing Rizwan and Parvez, Centre for Policy Dialogue (CPD) Distinguished Fellow Mustafizur Rahman said domestic demand has decreased due to high inflationary pressure and new investment will not come in this situation.
“On the other hand, the import of capital machinery has negative growth. From that, we can estimate how much new investment can be there. If the present problems could be solved, at least it can be 25 per cent of GDP,” he added.
According to the Bangladesh Bank, the import of intermediate goods decreased by 14.7 per cent to $34.55 billion during the July-March period of FY23 compared to the same period of the previous fiscal year. On the other hand, the import of capital machinery decreased by 17.8 per cent to $10.41 billion in the same period year-on-year.
Parvez said the domestic industry should be kept active as there may otherwise be a negative impact on employment, adding at least the import of raw materials, intermediate goods, and capital machinery should not be disrupted.
“Meanwhile, traders said due to the global situation and the USD crisis, production costs have increased. That is why export growth is not at the expected level.”
Export earnings increased by 7.11 per cent to $50.52 billion during the July-May period of FY23 compared to the same period of the previous fiscal year. However, in April alone, export earnings fell by 16.52 per cent compared to the same month of the last fiscal year. Export earnings also fell by 2.49 per cent in March.
In this context, Mustafizur said the performance of export-oriented industries in March and April does not signal new investment.
On the other hand, the reduction in the Export Development Fund (EDF), downgrading of Moody’s credit rating, and deferred letter of credit (LC) payments will increase the cost of traders in future, he said.
“So the plan is to grow private investment by 6 per cent in a year, which is impossible and has never happened before,” he added.
Finance Minister AHM Mustafa Kamal mentioned in the proposed budget that private investment will increase as a result of increasing public investment, continuing the benefits of economic zones, and developing logistics support.
Mustafizur said although establishing economic zones is a good idea, there is no reason to think that huge investment will come within a year. “A 7.5 per cent GDP growth target was fixed first, and then government and private investment targets were set.”
Rizwan said the GDP is growing but businessmen know the reality.
“Now there is no point in expecting an increase in foreign investment. Our main crisis is to meet the USD shortage. For this, long-term foreign loans should be taken.
“Since Moody’s has downgraded our rating, the cost of borrowing will increase slightly. But there is no alternative to meeting the current economic crisis.”
He also said imports will increase if the USD crisis eases. “But we have to make some reforms to reduce the cost of doing business and those do not require dollars. If you can do this, businessmen’s confidence will increase and foreign investors will also show interest.”
Net FDI inflow reached $3.47 billion at the end of 2022, up by 20.18 per cent compared year-on-year, shows latest data from the Bangladesh Bank.
The taka was devalued by around 25 per cent against the American greenback in the last one year. The Bangladesh Bank has given USD support from the reserves to prevent further devaluation. As a result, the amount of reserves decreased by $13 billion in the last one year to $29 billion.