Private investment hits a trough

Private investment in Bangladesh fell to its lowest level in 14 years in the last fiscal year owing to the lingering uncertainty caused by the coronavirus pandemic and continuing structural weaknesses.

The descent may slow down the progress made in the areas of employment and poverty alleviation over the last few years.

In 2020-21, the private investment-to-gross domestic product (GDP) ratio declined to 21.25 per cent, provisional data from the Bangladesh Bureau of Statistics (BBS) showed. This is the lowest ratio since 2007-08.

The proportion was also lower than the 24.41 per cent private investment predicted for the last fiscal year in the Eighth Five-Year Plan.

The ratio had risen to 23.5 per cent in 2018-19. It declined to 22.06 per cent in 2019-20 amidst the onset of Covid-19 in March last year.

Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem), said the decline in private investment was definitely due to the impacts of the unprecedented shock from Covid-19.

"Private investment might have declined more compared to the provisional data of the BBS since the imposition of fresh lockdowns is hurting the economy."

Prof Raihan stressed the need for proper reassessment of the plan, especially over the investment situation in the context of the pandemic.

Shamsul Alam, state minister for planning, said, "The plan is not a static document; it is a dynamic document. If the situation requires, we will revisit it."

He said the plan was formulated, taking into account the impacts of the crisis.

"If any reassessment is needed with the new information and new situation, we will revisit growth rates and investment."

The overall investment-to-GDP ratio was 29.92 per cent in FY21, the lowest in five years.

In 2016-17, the ratio was 30.5 per cent, and it rose to 31.6 per cent in 2018-19 before coming down to 30.47 in 2019-20 as the pandemic struck Bangladesh.

However, the public investment-to-GDP ratio increased amid the pandemic as the government accelerated spending to safeguard the economy and the people from the crisis.

The public investment-to-GDP ratio was 8.67 per cent in FY21, up from 8.41 per cent FY20 and 8.03 per cent in FY19.

Industrial loan disbursement, a key indicator to assess the investment situation, declined by 8.15 per cent in FY20. In the first half of FY21, the lending fell by 30.8 per cent compared to the same period a year ago, according to data from the central bank.

SME loan disbursement declined by 8.62 per cent in the calendar year of 2020 compared to 2019. It, however, rose 17 per cent year-on-year in the first three months of 2021.

A central banker said the SME loan disbursement increased as many small and medium enterprises started taking loans as the economy was recovering. The disbursement under the stimulus packages also picked up.

However, the private sector credit growth slipped to 8.40 per cent in FY21 against the central bank target of 14.80 per cent due to the depressed appetite for loans among investors.

The decline has led to a pile-up of liquidity. The excess liquidity in the banking system was Tk 231,462 crore in June, up 66 per cent year-on-year.

The Sanem conducted surveys on 500 firms every three months since June last year.

Referring to the survey findings, Prof Raihan said the pandemic badly hit private investors, and most of them were yet to make any recovery.

"So, they are not going for any new investment."

A few garment factories might have gone for expanding their capacity to manufacture personal protective equipment and masks.

"But we have not found any large investment or industrial set-ups," he said.

The micro, small and medium enterprises have been hit hard by the pandemic. The situation for them worsened because of inadequate support from the government.

Prof Raihan praised the government for announcing the stimulus packages to help the economy absorb the shock. But the outreach of government assistance to the micro, small and medium enterprises was not satisfactory.

Only 9 per cent of micro and small enterprises received funds from the stimulus packages, compared to 30 per cent medium enterprises and 46 per cent larger enterprises.

Mahbubul Alam, president of the Chittagong Chamber of Commerce and Industry, said: "As most of the businesses have been badly affected by the pandemic, they are now on a survival mode."

"They are busy in recovering the losses, so a majority of them are unwilling to make new investment and expand."

He said global connectivity had been disrupted in the last one and a half years, slowing the flow of foreign investment to Bangladesh.

He called for proactive roles of Bangladesh's diplomatic missions abroad to attract foreign investment.

Since the start of the pandemic, economists were in agreement that investment would not pick up unless the coronavirus situation comes under control.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said: "My position remains unchanged. What we have been apprehending has been validated by the latest data of the BBS."

Private investment growth had stagnated at around 22 per cent even before the pandemic.

"Covid-19 has worsened the situation," said Mansur.

"But there have been no efforts on the part of the government to solve the structural weaknesses. It could have carried out various reforms even during the pandemic."

"As a result, we might go back to the pre-pandemic level after the crisis peters out. But we will not be able to attain sustained green growth post-Covid-19."

He said the only way for the government to pull the economy out of the pandemic was to accelerate the vaccination programme and enforce containment measures successfully.

"There is no point in talking about growth without vaccines."

State Minister Alam said the government would do everything possible in terms of financial, economic and monetary management and trade policies to speed up the economic recovery.

"We hope our all-out efforts will accelerate the economic growth, taking it to the pre-pandemic level."