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IMF identifies major barriers to attract FDI

Its reform proposals should be implemented by country's own need: Experts

18 March 2023

Al Amin :
Rein in inflation, control of foreign currency market, improvement of good governance and prevention of corruption is must to attract foreign direct investment (FDI) in the country, according to International Monetary Fund (IMF).
The multinational lender made a series of observations in a memorandum revealed after the release of first instalment of it loan for Bangladesh recently.
It also cited a number of challenges for the country's economy and expressed disappointment for decline in FDI.
According to the Investment Development Authority and Bangladesh Bank, the accumulated FDI fell by 5 percent in the first six months of 2022.
At the end of 2021, it touched the $21 billion milestone for the first time. At that time the stock of FDI stood at $21.58 billion. But, it declined to $20.50 billion at the end of first half of calendar year 2022.
It also mentioned that Bangladesh is still lagging behind export competitiveness, although the country is going to graduating from least development country (LDC) in 2026.
It further said that the main risks of lending programme in Bangladesh are limited scope for easing monetary policy due to adverse conditions, high inflation, a fuel crisis, a fragile banking sector and depleting foreign exchange reserve.
Overcoming the crisis, the IMF has suggested a set of reform proposals.
Economists said that the reform proposals should be implemented by the country's own need and initiative.
Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), told The New Nation, "Given the importance of these reform measures, the government should have taken these initiatives on its own. The consequences of all previous governments' refusal to undertake reforms have been the weakening of public institutions and unabated corruption."
"Reforms should be designed and implemented by the country itself, since reforms under the directives of external
agencies could limit the policy space and often ignore a country's context and reality," she added.   
She also said Bangladesh is lagging behind in export competitiveness due to high tariff barriers, lack of business-friendly environment and confidence.
The value of Taka against the dollar continues to decline due to ongoing war between Russia and Ukraine that began in February last year and the dollar crisis has become evident in the country. Bangladesh is struggling in international trade. One of the reasons behind it is decline in FDI.
Even though the government has spent a huge amount of money on the infrastructure sector over the last decade, proper infrastructure has not yet been ensured, the IMF observed.
Besides, the international lender thinks that it is important to take effective initiatives to improve governance and reduce corruption, otherwise, it will be not possible to improve business-friendly environment.
Government monitoring in the financial sector should be expanded to increase financial governance and transparency.
Development of public service sectors and further digitization of public services and protection of freedom of opposition are also essential to increase investment, it added.
The Anti-Corruption Commission should be made more effective and the Office of the Comptroller and Auditor General should be made more transparent, the IMF suggested.

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