Bangladesh's foreign direct investment (FDI) continues to weaken, with fresh foreign equity investment falling 5% year-on-year in the April-June quarter of 2026, marking a second consecutive quarterly decline.
Fresh equity investment had plunged 70.34% in the January-March quarter. Meanwhile, total net FDI fell 22% quarter-on-quarter in April-June, despite a recovery in reinvested earnings, according to the latest Bangladesh Bank data.
Economists said repeated downgrades to Bangladesh's sovereign credit ratings in recent years were among the factors discouraging foreign investment. Investors consider sovereign ratings an important indicator when assessing a country's investment risks.
The high level of non-performing loans in Bangladesh's banking sector has also sent negative signals to potential investors, they said. These concerns are weakening appetite for new projects and contributing to the decline in fresh equity investment.
Fresh equity investment represents new foreign capital entering the country. Its continued decline signals growing reluctance among foreign investors to commit capital to new projects in Bangladesh.
According to Bangladesh Bank, fresh equity investment stood at $77.42 million in April-June 2026, down from $81.3 million in the same quarter a year earlier, a decline of 4.77%.
Total net FDI, comprising fresh equity investment, reinvested earnings and inter-company loans, reached $346.94 million in the quarter, up from $307.62 million a year earlier.
This represented a 12% year-on-year increase, driven largely by higher reinvestment by existing foreign companies. However, net FDI fell 22% from the January-March quarter.
Reinvested earnings refer to profits that foreign companies already operating in Bangladesh retain in the country and invest back into their businesses. While this boosts overall FDI, it does not indicate an increase in new foreign investors entering the market.
In April-June, reinvested earnings rose to $269.1 million from $168.2 million in the same period a year earlier. This suggests that a substantial share of total FDI came from existing investors rather than new entrants.
Gross inflows of reinvested earnings stood at $664.35 million during the quarter, while outflows amounted to $403.45 million, leaving a net inflow of $260.91 million.
Inter-company loans recorded the steepest decline among the three components of FDI. Net inflows fell 67.04% quarter-on-quarter, from $26.13 million in January-March 2026 to $8.61 million in April-June. Compared with $58.08 million in the same quarter a year earlier, the figure was down 85.17%.
Gross inflows from inter-company loans totalled $333.8 million during the quarter, while outflows reached $325.19 million, leaving only a small net contribution to overall FDI.
The World Bank has identified weaknesses in Bangladesh's banking sector as one of the most serious risks to the economy. The NPL ratio stood at 33.2% in June 2026.
The banking sector's overall capital adequacy ratio fell to negative 2.6% in December 2025, far below the minimum regulatory requirement of 10%.
Meanwhile, Bangladesh's sovereign credit rating has come under pressure in recent years amid persistent economic vulnerabilities, weak revenue collection, pressure on foreign exchange reserves and growing stress in the banking sector.
As of October 2026, the picture is mixed: Moody's affirmed Bangladesh's B2 rating and revised its outlook to stable in September, while S&P and Fitch maintained their B+ ratings but revised their outlooks to negative.