Foreign direct investment (FDI) in Bangladesh continues to show signs of strain, with fresh equity investment declining for a second consecutive quarter amid ongoing economic and financial sector challenges. According to recent data from Bangladesh Bank, fresh foreign equity investment fell by 4.77% year-on-year to $77.42 million during the April-June quarter of 2026, following a steep 70.34% drop in the preceding quarter. This reduction signals waning investor appetite for new projects in the country.
Despite the decline in fresh equity inflows, total net FDI — which also includes reinvested earnings and inter-company loans — rose 12% from $307.62 million a year earlier to $346.94 million in the latest quarter. However, this figure represents a 22% decrease compared with the January-March quarter, highlighting significant quarter-on-quarter volatility. The growth in total net FDI was primarily driven by a rebound in reinvested earnings, which climbed to $269.1 million from $168.2 million in the same period last year. Reinvested earnings reflect profits by existing foreign firms that are retained and reinvested within Bangladesh, rather than new capital from fresh investors.
Inter-company loans experienced the sharpest decline among FDI components. Net inflows from such loans fell 67.04% quarter-on-quarter to $8.61 million in the April-June period and plummeted 85.17% compared to the same period in 2025, when net inflows stood at $58.08 million. Gross inflows from inter-company loans totaled $333.8 million, while outflows were nearly as high at $325.19 million, resulting in only a nominal net contribution to overall FDI.
Economists attribute the subdued foreign investment climate to several factors, including successive downgrades of Bangladesh’s sovereign credit ratings in recent years. Sovereign ratings are a key criterion for investors assessing country risk, and Bangladesh’s ratings have come under pressure due to persistent economic vulnerabilities such as weak revenue mobilization, stress on foreign exchange reserves, and ongoing fragility in the banking sector.
Financial sector weaknesses are particularly notable. The World Bank has identified systemic risks within Bangladesh’s banking system as a major concern, highlighting a non-performing loan (NPL) ratio of 33.2% as of June 2026. Additionally, the sector’s overall capital adequacy ratio fell to negative 2.6% in December 2025, far below the 10% regulatory minimum, raising doubts about banks’ resilience and capacity to support economic growth.
Credit rating agencies present a mixed outlook. As of October 2026, Moody’s affirmed Bangladesh’s B2 sovereign rating with a stable outlook, while S&P and Fitch both maintained their B+ ratings but revised their outlooks to negative, reflecting cautious investor sentiment amid ongoing economic and financial challenges.
Taken together, these dynamics suggest that while existing investors are continuing to commit capital through reinvested earnings, foreign investors remain hesitant to increase fresh equity exposure in Bangladesh under current conditions.