World Bank Warns of Alarming Drop in FDI to Developing Nations, Hits Lowest Level Since 2005
Foreign direct investment (FDI) into developing economies has plummeted to its lowest point in nearly two decades, according to a new World Bank report. In 2023, these countries received just $435 billion in FDI—down sharply from previous years and the lowest since 2005. This global retreat in cross-border investment is mirrored in advanced economies, which saw FDI fall to $336 billion, the lowest since 1996. The World Bank attributes this trend to rising trade and investment restrictions, warning that such barriers threaten broader development goals.
The report highlights that restrictive government policies are at the heart of the FDI slowdown. Indermit Gill, Chief Economist of the World Bank Group, emphasized that high public debt and anti-investment policies are creating a hostile environment for private capital flows. With public financing under strain, FDI—considered one of the most productive types of private investment—must fill the gap. Yet, governments in developing economies introduced a record number of restrictive FDI measures in 2025, intensifying investor uncertainty.
Ahead of the global Conference on Financing for Development, the World Bank is calling for urgent reforms. M. Ayhan Kose, Deputy Chief Economist, stressed that reversing the FDI slowdown is vital for job creation, economic resilience, and achieving development goals. Key solutions include easing investment restrictions, improving the business climate, and strengthening international cooperation to boost investor confidence and reinvigorate cross-border flows.
The report also shows that FDI benefits are far greater in countries with robust institutions, openness to trade, skilled labor, and low informality. However, investment remains highly concentrated: between 2012 and 2023, China, Brazil, and India received nearly half of all FDI to developing economies, while the poorest 26 countries got just 2 percent. Most of the capital originated from advanced economies, especially the European Union and the United States.
To address the crisis, the World Bank recommends three key policy directions: attracting more FDI by easing restrictions and improving macroeconomic stability; maximizing FDI’s economic impact by boosting trade, education, and formal employment; and advancing global cooperation to direct investment to countries with the greatest needs. The Bank pledged continued support through risk-reduction tools, market development, and increased private sector engagement.
Source: Business Day