Industry Desk: Foreign direct investment in Bangladesh dropped 10.8% to $2.6 billion in 2020. Except for India, all other countries in South Asia observed negative growth in FDI inflows, according to an annual report prepared by the United Nations Conference on Trade and Development (UNCTAD).
FDI in India rose around 27% to $64 billion last year.
The increase in FDI inflows in India pushed up the overall growth of foreign investments in South Asia to 20.1% to $71 billion last year.
This is the second time FDI inflows in Bangladesh slumped, with 20.47% fall registered in 2019.
FDI inflows in Pakistan declined by 6% to $2.1 billion in 2020, “cushioned by continued investments in power generation and telecommunication industries,” said World Investment Report 2021 published on June 21. Afghanistan experienced the highest decline in FDI inflows, 67% to 0.013 billion. The Maldives, Sri Lanka, Nepal, Iran and Bhutan saw a decline of 64%, 43%, 32%, 11% and 7% in FDI inflows.
The UNCTAD estimated that this year foreign investment globally will be 25% lower than in 2019 before Covid-19 broke out across the world. The Foreign Exchange Policy Department of the Bangladesh Bank has issued a circular on setting interest rates for short term trade financing in the wake of changes in LIBOR (London Interbank Offered Rate). The central bank issued the circular on Monday informing all the Authorised Dealer (AD) banks concerned that interest rate will be determined by adding 3.5% to the new benchmark in the international market system and adding 2.5% annual risk premium.
The UK’s Financial Conduct Authority is reported to end LIBOR after 2021. The Declaration of LIBOR will completely be phased out from July 2023.
It is expected that from 2022 onward, all new loans and LCs will be priced differently in addition to carrying out entire outstanding loans and LCs with switching LIBOR to the new reference rate.
The circular has focused on short term trade financing for which presently 6-month LIBOR + 3.5% per annum can be applied.
The circular has allowed, besides LIBOR, reference/benchmark rate in the currency of financing with prescribed mark up for discounting/early payment of export bills.
In case of risk free benchmark rates, risk premium of 2.5% per annum on the markup rate of 3.5% can be applied, according to the circular.
The circular has relaxed six month fixed tenure by allowing flexibility depending on the credit period for financing.
In absence of tenure-linked rate like 3-month or 6-month, the relative rate may be compounded in advance to calculate effective benchmark rate for the specified tenure.
The circular has also allowed Islamic Shariah-based benchmark rate for Shariah-based finance.
The policy will be applicable for permissible usance import under supplier’s/buyer’s credit.
In case of import finance, where forward looking benchmark rate with tenure-link is absent, the relative rate applied as benchmark rate for import finance may be compounded in arrears to calculate effective interest for the tenure of credit.
According to the circular, respective benchmark rate may be applied during the credit period as per mutual understanding with the lenders concernedin case of necessity for phasing out of LIBOR.
In addition, AD banks shall refrain from arranging LIBOR-tag financing as and when global discourse is published with regards to deadline for its usability.
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