FDI To Developing Economies At 20-Year Low, World Bank Calls For Urgent Reforms

New Delhi, Jun 17 (KNN) The World Bank issued a call for developing economies to reduce foreign direct investment restrictions and strengthen international cooperation as global FDI flows reached their lowest levels in nearly two decades.

The multilateral institution released its findings Monday in a comprehensive report examining declining investment trends worldwide.

Foreign direct investment into emerging market and developing economies has fallen to levels not seen since 2005, according to the World Bank's report titled ‘Foreign Direct Investment in Retreat, Policies to Turn the Tide.’

The decline reflects broader global patterns, with high-income countries experiencing their lowest FDI levels since 1996, recording just USD 336 billion in inflows.

India emerged as a leading destination for foreign investment among developing nations, receiving USD 28.1 billion in FDI during 2023.

The South Asian economy ranked among the top recipients of foreign capital flows within the emerging market and developing economy category, according to World Bank data.

The concentration of FDI flows remains heavily skewed toward major emerging economies. India, China, and Brazil collectively captured nearly half of all foreign direct investment flowing to emerging market and developing economies during the 2012-2023 period.

China led with a 10 percent share of total EMDE inflows, while India and Brazil each accounted for 6 percent of the flows during this timeframe.

Low-income countries received a disproportionately small portion of global FDI, capturing only 2 percent of total inflows to emerging markets and developing economies.

This distribution pattern highlights the challenges faced by the world's poorest nations in attracting foreign investment capital.

World Bank Group Chief Economist and Senior Vice President Indermit Gill attributed the investment decline to policy decisions by governments.

Gill emphasised the connection between rising public debt levels and falling private investment flows, noting that the simultaneous occurrence of these trends was not coincidental.

The economist stressed the critical role of private investment in driving economic growth, particularly highlighting foreign direct investment as one of the most productive forms of private capital deployment.

This assessment underscores the potential economic impact of sustained FDI declines on global growth prospects.

Deputy Chief Economist M Ayhan Kose characterised the reversal of declining FDI trends as both an economic necessity and a development imperative.

Kose emphasised that addressing the investment slowdown was essential for job creation, maintaining sustained economic growth, and achieving broader development objectives across emerging economies.

The World Bank's analysis points to rising trade and investment barriers as key factors contributing to the global decline in foreign direct investment flows.

These restrictions have created additional obstacles for international capital flows at a time when developing economies face mounting financing needs for infrastructure and development projects.

(KNN Bureau)