What is the actual amount of FDI in Bangladesh?

The inflow of foreign direct investment (FDI) in the last fiscal year declined further, which was predictable. After recording a big jump three years back, the country witnessed a decline in FDI for two consecutive years. Macroeconomic instability coupled with political uncertainty discouraged foreign investors from injecting fresh capital. Existing multinational entities (MNEs) also repatriated more instead of reinvesting. Thus, FDI in FY24 declined by 8.80 per cent, after a fall of 6.50 per cent in FY23.
The latest statistics on FDI, released by Bangladesh Bank last week, also gave rise to a few queries about the overall FDI situation in the country. The most important question is whether the statistics provided by the central bank regarding FDI represent the actual scenario. The half-yearly report titled 'Foreign Direct Investment and External Debt January-June, 2024', prepared and published by the statistics department of Bangladesh Bank, showed that the country received US$1.47 billion as net FDI in FY24 which was $1.61 billion in FY23. A year back, the January-June 2023 version of the report, however, showed that the net inflow of FDI in FY23 stood at $3.25 billion.
Therefore, it is crucial to seek clarification when comparing the latest reports on FDI with the previous versions. The latest report presents a significantly different picture, with FDI data revised downward. The central bank publication simply stated: "Data has been revised as per BPM6 Guideline from 2019 and onwards." However, this explanation lacks the necessary depth and transparency, leaving room for misinterpretation. The report mentioned that the Bangladesh Bank has been conducting an enterprise survey since 1995 to collect detailed information on FDI in the country, and FDI data are compiled and published on a quarterly basis on the central bank's website. But more transparency is needed in this process.
Application of the guidelines and methods of BPM6 led to revising the FDI data downward significantly. An explanatory note should be there to avoid misunderstanding and misinterpreting the data. By not doing so, the central bank has continued the old practice of data concealment as was the case during the previous regime.
The Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) was introduced in 2009 by the International Monetary Fund (IMF). The international guideline is designed to calculate and compile the balance of payments and foreign investment statistics. Bangladesh Bank has started to follow the BPM6 since 2013 to calculate and prepare the country's balance of payments gradually. In this process, the statistics of FDI are also being estimated in line with the BPM6, which is also reflected in the BoP table.
For instance, in FY14, net FDI was recorded at $1.40 billion in the BoP table, in line with the previous method or BPM5. After revision as per BPM6, it reduced to $1.08 billion. Since then, the FDI figures in BoP have been estimated in line with BPM6. At the same time, the half-yearly report of the FDI continued to provide the statistics based on the enterprise survey without adjusting it with the BoP data. Thus, a significant discrepancy between the BoP data and survey data continued. As the figures generated through survey data were higher than BoP data, the government used to demonstrate the survey data on FDI as the country's success story. In this way, manipulation with a key economic indicator provided a distorted picture of the economy to the rest of the world.
The same also happened in terms of foreign exchange reserves, which are a key component of the BoP. Despite starting the use of BPM6 in FY13, central bank fabricated the forex reserve data to inflate the amount. Intervention from IMF finally compelled Bangladesh Bank to release both the gross and net reserve as the latter matches the BPM6 guideline.
Interestingly, the gross inflows of FDI are also reported in the BoP table since FY15. The estimation of gross FDI also started to appear simultaneously in the survey-based half-yearly report. Gross inflows are the total inward direct investment made by non-resident investors in the country. Net inflows are derived by deducting disinvestment from gross inflows. Disinvestment includes capital repatriation, reverse investments, loans given to parent firms and repayments of intra-company loans to parent firms.
However, the latest report did not provide the gross inflows of FDI or the disinvestment figure, which were included in the previous report. This omission in the latest report makes it less comprehensive and may leave the audience feeling that their need for a complete picture of the FDI situation is not being fully considered. Only the figures on gross outflows of FDI and related disinvestments are there, which is not enough for a comprehensive understanding of the FDI situation.
Once again, the downward revision of FDI data in the report after seven years raises the question of data quality. The potential for data manipulation to inflate national incomes during the ousted Hasina regime has already distorted the overall economic development statistics. This manipulation not only distorts the economic reality within the country but also affects the country's economic reputation on the global stage, making it a matter of concern and vigilance for all stakeholders.
The White Paper on the state of the Bangladesh economy, prepared by a group of experts assigned by the interim government, said: ".....the data ecosystem is highly foggy and toxic for the gullible. Just as global warming is the result of human actions, so are the fogs and toxicity in Bangladesh's data results of errors of omission arising from data collection and computation methods and errors of commission by the ruling elites to fit political purposes." The White Paper also pointed out that the balance of payment data, considered relatively free from systematic bias, entered the flux zone with a story changing revision of export data. "Foreign exchange reserve reporting became controversial with the publication of discrepancies in an IMF report in 2020," it added. Now, the adjustment of the survey data on FDI with the BoP data, which was overdue, needs some clarification for the sake to credibility and transparency of FDI and relevant data.

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