BD needs $9.55b additional annual FDI, foreign aid

Dhaka,  Mon,  25 September 2017
Published : 04 Aug 2017, 22:42:57
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Formidable task of financing SDGs

BD needs $9.55b additional annual FDI, foreign aid

FE Report

Bangladesh will need around US$ 7.0 billion in additional foreign direct investment per annum over the next thirteen years for financing the programmes that would help it achieve the Sustainable Development Goals.

The amount is three times the FDI the country currently receives annually.

Added up to its daunting task of arranging external funds for implementing the UN-mandated development recipe is pulling another amount of around US$ 2.55 billion each year in foreign aid and grants during the period, a recent estimate by the Planning Commission reveals.

In total, the country will require around US$ 928 billion worth of additional resources during the period of 2017 to 2030 for achieving the 17 Sustainable Development Goals set by the United Nations for its member-countries.

Out of this total amount, US$ 796.09 billion has to come from domestic sources while US$ 132 billion from external sources.  

The findings were part of an SDG needs assessment and financing strategy carried out by the General Economics Division of the Planning Commission recently.

Out of the total amount of external resources required for SDG financing, around 73 per cent has to come in the form of FDI. Experts, however, observed that given the recent trend in FDI flow into the country, meeting the FDI portion of SDG finances would be one of the big challenges facing the country in this respect.

Bangladesh received around US$ 2.33 billion worth of foreign direct investment in 2016, up by only 4.4 percent from US$ 2.23 billion it received back in 2015.

Although the annual FDI inflow has more than doubled in last six years from US$ 1.13 billion in 2011, the growth curve has often been erratic and inconsistent.

"The ideal way in this regard would be to increase the FDI flow gradually over time," said Professor Selim Raihan of the South Asian Network for Economic Modelling (SANEM), who has worked with the Planning Commission in developing this financing strategy.

"According to our projection, the goal should be to attract US$ 2.7 billion of additional FDI by 2020, US$ 6.5 billion additional FDI by 2025 and US$ 10 billion by the year 2030," he added.

When contacted, the government officials concerned also agreed that the projection of annual FDI receipt outlined in the SDG-financing assessment is 'ambitious'. However, they pin their hopes on government's plan to set up special economic zones across the country.  

"Although this FDI projection seems to be ambitious, nevertheless, given the government's initiative to set up 100 SEZs by 2030 and the prospects of large FDI from China, Japan, India and other countries in those SEZs may fulfil much of this requirement," said Member of the Planning Commission Professor Dr. Shamsul Alam.    

Experts, however, pointed at a lack of specific government roadmap in setting up these planned 100 SEZs.

"A specific roadmap would help us to chalk out how and by when these economic zones would be set up," Prof Selim Raihan said.     

Overall, private sector is expected to share the biggest chunk of SDG finances for Bangladesh. The contribution of the private sector is expected to grow from 37 per cent in FY 2017 to 46 per cent in FY 2030.  

The contribution of external sources, on the other hand, is expected to decrease from 18.35 per cent in FY 2017 to 13.25 per cent in FY 2030.

Nevertheless, the contribution of external resources would be crucial for the implementation of SDG 13 that deals with climate action where it would contribute 50 per cent of total funding.

Meanwhile, it would also play a significant role in the implementation of SDG 6, 14, 15, 16 and 17 which deal with the issues of water and sanitation, conservation and sustainable use of ocean, sustainable management of forests, peace, justice and strong institutions as well as global partnership.

The dire need for boosting FDI for funding Sustainable Development Goals was also noted in the aforementioned SDG Financing Strategy which stresses greater trade openness and infrastructural development as major prerequisites for attracting more foreign direct investment in to the country.

"Liberalization of trade leads to greater specialization and division of labour leading to higher productivity and export capabilities," says the Planning Commission in the study report.

It also notes that infrastructures including electricity, transportation and telecommunications assist in smooth operation of the businesses and promote greater productivity.

Pointing out that FDI is positively associated with the magnitude of domestic investment, the report has called for improving the business environment, reducing the cost of doing business and facilitating domestic investment through eliminating policy-induced and supply- side constraints.

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