Investment-GDP ratio remains flat despite public spending increase

Bangladesh's economic growth is becoming susceptible due to long-standing dormant investment, as the private-sector investment remains on a poor trajectory, analysts said on Wednesday.
Despite incremental government investments in infrastructure development, the country continues to post lower economic growth. The investment-to-GDP ratio remains stagnant, with private investors yet to be invigorated, they say.
Economists point to the huge depreciation of local currency Taka, restrictions on import, mismanagement of monetary policy and dormant public development activities as factors affecting investment.
They also argue that the failure to achieve quality outcomes from public investment is dampening expectations of higher local and foreign investment in the country.
A Financial Express analysis found that a splurge on public investment, particularly in infrastructure megaprojects, has failed to stimulate private investment over the years. As a result, the ratio has remained on a steep downward trend for the past three years.
The latest data of the Bangladesh Bureau of Statistics (BBS) shows that while gross domestic product (GDP) growth is estimated to have seen a slight rebound in the current fiscal year (FY) 2023-24 compared to FY 2022-23, the investment-to-GDP ratio remains low.
The Bangladesh economy grew at a rate of 5.89 per cent in the current FY 2024, recovering from a fall to 5.78 per cent in FY 2023 due to the economic downturn.
Latest BBS data shows that the investment-to-GDP ratio in the current FY 2024 is estimated at 30.98 per cent, which is almost identical to the 30.95 per cent recorded in FY 2023.
The FE analysis shows that public and private sector investments have behaved inversely over the years, leading to a lower overall investment trend.
Usually, when public investment in infrastructure and social services increases, the investment climate improves, attracting local and foreign investors.
However, the government's incremental public investment-to-GDP ratio has yet to reach the much-anticipated level.
The FE analysis found that public investment compared to GDP has been rising year-on-year since FY 2016.
The public investment-to-GDP ratio for infrastructure and social services rose from 6.96 per cent in FY 2019 to 7.29 per cent in FY 2020, 7.32 per cent in FY 2021, and 7.53 per cent in FY 2022.
However, the public investment-to-GDP ratio dipped to 6.77 per cent in FY 2023 before rebounding to 7.47 per cent in FY 2024.
In contrast, private investment-to-GDP ratio has followed a downward trend over the past few years.
The private investment-to-GDP ratio stood at 25.25 in FY 2019. It then fell sharply to 20.24 in pandemic-troubled FY 2020 and then to 23.70 in FY 2021, BBS data shows.
There was a slight recovery in FY 2022 to 24.51 per cent, but the ratio has since started to decline again. The latest BBS figures show it was recorded at 24.18 per cent in FY 2023 and 23.51 per cent in the current FY 2024.
Dhaka University economics Professor and South Asian Network on Economic Modeling (SANEM) Executive Director Dr Selim Raihan told the FE that the incremental public investment has clearly failed to attract investment from both domestic and foreign sources.
"Usually, higher public investment crowds in private investment," Dr Raihan said. "But Bangladesh's investment trajectory is behaving differently. This raises serious questions about the quality of public investments."
While the completion of megaprojects may lead to some environmental and climatic improvements, Dr Raihan said these projects remain unfinished for many years, with rising costs and time delays.
Besides, import restrictions, taka depreciation, higher inflationary pressures and weak monetary policy implementation have also adversely affected investment in Bangladesh, the economics professor added.
Former World Bank lead economist Dr Zahid Hussain agrees that a lack of quality public investment is frustrating improvement in the country's investment climate.
And the incremental public investment is failing to lift the overall investment-to-GDP ratio in Bangladesh, he added.

[email protected]