In the first quarter of 2026, fresh foreign direct investment (FDI) into Bangladesh fell more than 70% year over year, a reflection of declining investor confidence amid political unpredictability, structural impediments, and escalating macroeconomic concerns.

Net equity inflows indicating fresh foreign investment decreased 70.34% to $78.26 million during the January–March period from $263.87 million a year earlier, according to figures issued by Bangladesh Bank on Saturday. In the previous four quarters, this number represents the lowest quarterly equity inflow.

The total amount of foreign direct investment (FDI), which includes intra-company loans, reinvested earnings, and equity investments, also fell precipitously to $447.31 million in the first quarter from $796.57 million during the same time in 2025.

Economists said the steep fall in fresh equity investment indicates that foreign investors have become increasingly cautious about launching new projects in Bangladesh.

They attributed the decline to a combination of election-related uncertainty during the first quarter, a challenging investment climate, sovereign credit rating downgrades and mounting financial sector risks.

Analysts noted that elections often prompt foreign companies to delay investment decisions until the political outlook becomes clearer. Concerns over the ability to repatriate profits and capital, along with rising non-performing loans in the banking sector, have also weighed on investor sentiment.

Despite the slowdown in fresh capital inflows, reinvested earnings by existing foreign companies rose significantly to $342.92 million in the first three months of 2026, compared with $191.22 million in the same period last year.

As a result, Bangladesh’s total FDI stock increased to $21.30 billion at the end of March 2026 from $18.99 billion a year earlier. However, economists cautioned that higher retained earnings do not necessarily indicate stronger investment activity, as sustainable growth depends on fresh equity inflows.

Md. Ezazul Islam, Director General of the Bangladesh Institute of Bank Management (BIBM), described the decline in equity investment as an alarming signal, citing repeated sovereign credit rating downgrades and rising bad loans as key factors undermining investor confidence.

Former Bangladesh Bank Governor Ahsan H. Mansur said the government’s 1.5% cash incentive for attracting foreign investment is a positive initiative but stressed that major infrastructure projects, including the Bay Terminal in Chattogram, will require several more years before they significantly boost FDI.

Professor Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), said high business costs, administrative inefficiencies and the incomplete implementation of the automated one-stop service system continue to discourage foreign investors. He warned that FDI is likely to remain subdued unless longstanding structural barriers are addressed.

Bangladesh Bank officials also observed that slower private sector investment by domestic businesses reflects broader caution across the economy.

Meanwhile, the UNCTAD World Investment Report 2026 noted that despite being South Asia’s second-largest economy, Bangladesh continues to lag behind several smaller African countries in attracting foreign investment. The report highlighted reforms undertaken by countries such as Ghana, Uganda and the Democratic Republic of Congo, including regulatory changes, improved investment services and sector liberalisation, as key drivers of stronger FDI inflows.