Foreign investors channelled more money into their Bangladesh operations during the January to March period this year, marking a sharp rebound in foreign direct investment after years of sluggish inflows amid political uncertainty and erratic energy supplies.

Foreign direct investment (FDI) rose to $1.58 billion in the first quarter of 2025. Of this, $711 million was repatriated, while the remaining $865 million stayed in the country, according to the Bangladesh Bank.

This net inflow was 114 percent higher than the $403 million recorded in the same period a year earlier.

It was the highest quarterly net FDI since around mid 2022, and 76 percent above the $490 million received in the October-December quarter of 2024.

FDI usually consists of equity capital, reinvested earnings, and intra-company loans. Equity capital refers to the purchase of shares or ownership stakes in a foreign enterprise.

Reinvested earnings are profits retained in the business rather than distributed as dividends. Intra-company loans are financing arrangements between foreign investors and their local subsidiaries within the same multinational group.

In the first quarter of 2025, equity capital rose by 62 percent year-on-year, while intra-company loans saw a 147 percent increase to reach $627 million.

Economists and business leaders say the spike in intra-company loans may reflect firms trying to sidestep high local borrowing costs.

Such loans are mainly used to maintain liquidity, fund ongoing operations, or support expansion without turning to domestic banks.

Ashik Chowdhury, executive chairman of the Bangladesh Investment Development Authority (Bida), said the agency played only a limited part in securing the recent inflows, as many investment decisions had been made earlier.

However, he credited faster approvals from Bida and the central bank for helping sustain the current momentum.

While the rise in FDI suggests growing investor interest, economists caution that much of the increase comes from intra-company loans rather than fresh capital.

"Post-election stability after January of 2024 and easing industrial unrest may have revived investor confidence, but it hasn't fully returned to pre-crisis levels," said M Masrur Reaz, chairman and chief executive of Policy Exchange Bangladesh, a local think tank.

"It's vital to verify whether these inflows represent genuine new investments or mainly financial adjustments," added the economist.

In January–March, reinvested earnings, which are a key indicator of confidence among existing investors, fell by 24 percent year-on-year, dropping to $194.71 million from $257.26 million a year earlier.

At the same time, outflows rose to $711 million, up from $651 million in the first quarter of 2024.

Zaved Akhtar, chairman and managing director of Unilever Bangladesh, said more firms appeared to be leaning on intra-company loans as interest rates in the local banking sector spiked.

Akhtar, also president of the Foreign Investors Chamber of Commerce and Industry (FICCI), said that if the funds are only used to cover operational costs or liquidity gaps, they do little to benefit the broader economy.

"But if the funds go into local investments, they can generate jobs and boost the economy," he said, urging closer assessment of the data.

Akhtar pointed out that investment still remains low as a share of GDP, and fresh equity comprises just 30 percent of the total inflow. Declining reinvested earnings also reflect caution among current investors. "We need to push all these other levers of FDI," he said.

Selim Raihan, executive chairman of local think tank South Asian Network on Economic Modelling (Sanem), agreed that while the net FDI inflow in the first quarter of 2025 was encouraging, much of it came in the form of intra-company loans, which do not necessarily signal stronger greenfield investment.

"Inflows of FDI through intra-company loans are positive, but multinational companies usually bring in such loans from their parent companies either to finance further expansion or to manage crises," he said.

He added that under Bangladesh's FDI policy, these types of inflows are not usually viewed as successful outcomes of investment promotion efforts.

However, Bida's Executive Chairman Chowdhury said that investors had kept a close eye on the second half of 2024 to assess whether the interim government could deliver on its promises, leaving FDI largely stagnant during that period.

"However, they have witnessed that the interim government has performed well and has managed to build confidence among investors," he said.

"To maintain this momentum, it is crucial to expedite reform initiatives aimed at attracting foreign direct investment," he added.