[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Export target set at $57.5b for FY25

The government has set the country’s export earnings target at $57.50 billion with 12.59 per cent growth for the financial year 2024-25...

www.newagebd.net

Export target set at $57.5b for FY25
Staff Correspondent 08 September, 2024, 23:21

A file photo shows workers sewing clothes at a readymade garment factory in Narayanganj recently. The government has set the country’s export earnings target at $57.50 billion with 12.59 per cent growth for the financial year 2024-25. | New Age photo

The government has set the country’s export earnings target at $57.50 billion with 12.59 per cent growth for the financial year 2024-25.

The commerce ministry on Sunday approved the export target at the 146 meeting of the board of directors of the Export Promotion Bureau held at Bangladesh Secretariat in the capital Dhaka.

‘We have set an export earnings target aiming for over 12 per cent growth compared with the earnings for the financial year 2023-24,’ commerce adviser Salehuddin Ahmed told reporters following the meeting.

He said that the target has been set keeping the current situation in mind and expressed hope that it would be achieved.

In response to a question, the adviser said that the United States had put some queries, rather than conditions, regarding the GSP facilities, and the government had already addressed those.

‘This month, I will travel to Washington, where I will discuss the matter with them,’ Salehuddin said.

According to the presentation from the meeting, an export target of $50 billion has been set for goods, having a 12.44-per cent growth, and $7.5 billion for the service sector with a 13.64-per cent growth.

The meeting was attended by industries ministry senior secretary Zakia Sultana, commerce secretary Md Selim Uddin, finance secretary Khairuzzaman Mozumder and EPB vice-chairman Anwar Hossain.

Revised data from the EPB showed that total export earnings from both goods and services amounted to $51.07 billion for the financial year 2023-24.

In FY24, exports totalled at $44.47 billion for goods and $6.60 billion for services, with growth rates of -11.97 per cent for goods and -5.30 per cent for services, respectively.

According to sources from the commerce ministry, the export earnings target for readymade garments in FY25 has been set at $40.48 billion, with an 11.99-per cent growth from the $36.15 billion earned in FY24.

The commerce ministry has set the export earnings target for FY25 at $21.07 billion for knitwear, having a 12.54-per cent growth, and $18.78 billion for woven garments, with an 11.36-per cent growth.

Meanwhile, the EPB on Sunday submitted revised export earnings data for the FY23 and FY24 to the commerce ministry.

The EPB revised its earnings for FY24 downward by more than $10.81 billion to $44.46 billion, which was 4.22 per cent lower than the $46.43 billion earned in FY23.

After excluding double entries, the country’s export earnings for FY23 decreased by $9.06 billion, from the previously reported $55.56 billion.

There was a total decrease of $19.88 billion in export earnings over the past two financial years, official data showed.

Due to discrepancies between the statistics reported by the EPB and the National Board of Revenue, the EPB has suspended the publication of export data since last June.

On Sunday, the EPB data submitted to the commerce ministry showed that export earnings from readymade garment in the FY24 fell by 5.22 per cent to $36.15 billion from $38.14 billion in FY23.

The data showed that earnings from knitwear in FY24 decreased by 5.13 per cent to $19.28 billion, while earnings from woven garments fell by 5.32 percent to $16.87 billion during the same period.

Export earnings from home textile in FY24 feel by 22.05 per cent to $851 million from $1.09 billion in the previous financial year.

The country’s export earnings from leather and leather goods in FY24 fell by 11.6 per cent to $1.04 billion while the earnings from jute and jute goods declined by 6.17 per cent to $855.23 million.

Export earnings from agricultural products, however, increased by 16.59 per cent to $964.34 million in FY24 from $827.10 million in FY23.

Live and frozen fish exports in FY24 decreased by 10.71 per cent to $376.68 million from $421.86 million in FY23.

In June, the final month of FY24, the country’s export earnings decreased by 8.54 per cent, falling to $3.61 billion from $3.95 billion in the same month of FY23.​

 

[Saif]

Bangladesh seeks $3b from ADB, WB

Bangladesh could get $3 billion in budgetary support under an Asian Development Bank (ADB) and World Bank (WB) arrangement for energy and power sector reforms and the upcoming status graduation from a least developed country (LDC) to a developing nation in 2026.

www.thedailystar.net

Bangladesh seeks $3b from ADB, WB

Bangladesh could get $3 billion in budgetary support under an Asian Development Bank (ADB) and World Bank (WB) arrangement for energy and power sector reforms and the upcoming status graduation from a least developed country (LDC) to a developing nation in 2026.

Last Thursday, the finance ministry sent a letter to the ADB seeking $1 billion in budgetary support for the energy and power sector.

Besides, an ADB mission has been holding talks with the government since September 3 over lending another $1 billion as LDC graduation-related support.

Of the amount, the ADB will provide $400 million. The remaining $600 million is expected to come from the Asian Infrastructure Investment Bank (AIIB) and Japan International Cooperation Agency (JICA) under an ADB arrangement.

In line with its bid to get budgetary support, the finance ministry on Sunday sought another $1 billion from the WB to bring about reforms in the energy and power sector.

Meanwhile, an International Monetary Fund (IMF) staff mission will arrive in Dhaka on September 24 to hold talks over lending another $3 billion in addition to the $4.7 billion it lent to the country in January last year.

All in all, the interim government, which took charge last month following the toppling of the Sheikh Hasina-led Awami League government on August 5, is seeking an additional $6 billion.

The interim government wants to bolster foreign exchange reserves, which have been falling for over two years, bring back stability to the exchange rate and restore confidence in the economy, which has been facing one of the most challenging situations in decades.

In the letter sent to ADB, budgetary support was sought for bringing about reforms in sustainable power and energy, according to a finance ministry official.

Focus points mentioned in the letter include improving sectoral governance, developing conducive policies and regulatory frameworks, improving financial viability and sectoral sustainability, attracting private investment, and preparing and formulating renewable energy procurement plans, the official said.

It also includes preparations for technical studies and pilot projects on smart grid energy storage and demands, the official added.

The letter added that the government's expenditure on importing energy and power increased significantly. Besides, due to a decline in domestic natural gas production, more primary fuel needs to be imported, it said.

In this context, the interim government has formed a committee to review the existing power generation practices and procurement process.

The finance ministry official said they requested $1 billion for the energy and power sector from the ADB in two tranches of $500 million each.

Government officials said the ADB suggested bringing about reforms in the revenue sector, budgeting, fiscal policy, procurement, logistics, and various other sectors to get the country status graduation-related budgetary support.

Officials said Bangladesh would lose different benefits, including concessional loans and tariff benefits, once it graduates from LDC status.

However, graduation will create other opportunities. To utilise those opportunities, Bangladesh must remove obstacles to smooth business activities and take steps to attract more foreign direct investment (FDI), they said.

Bangladesh must implement various reform programmes under the ADB-arranged loan so that the country does not have to face challenges following graduation from LDC status, they added.

Officials said a WB mission was expected to visit Dhaka in the second half of this month to discuss the power and energy sector reform programme.

"We are hopeful of getting support from the World Bank and ADB within December this year," a finance ministry official said.

Meanwhile, preliminary discussions for an additional $3 billion loan will begin with the IMF when its mission arrives in Dhaka in around two weeks.

Bangladesh Bank Governor Ahsan H Mansur had earlier requested the loan during a virtual meeting.

Finance Adviser Salehuddin Ahmed also held separate meetings with the IMF and stressed the need for additional loan support.

IMF officials informed the finance ministry and central bank that they were assessing how much it could lend to Bangladesh.

The IMF has so far released $2.3 billion under the ongoing $4.7 billion loan programme.

A finance ministry official said the upcoming IMF staff mission would mainly try to conduct a preliminary assessment of the reform measures that the interim government would undertake.

However, a meeting detailing the loan arrangement could be held on the sidelines of the World Bank-IMF annual meetings in Washington in October. The finance adviser and the central bank governor are likely to take part in the meeting.

Gayle Martin, WB's Acting Country Director for Bangladesh, said during a meeting with the Power and Energy Adviser that discussions have been held with the Bangladesh Bank governor and the finance adviser regarding the budget support. Martin also expressed optimism about providing the support for the energy and power sector by next December.

After taking charge as Bangladesh Bank Governor, Mansur created a list of priorities, one of which is to improve the condition of the foreign currency reserves.

For this, alongside increasing exports and remittance earnings, the government has been looking for budgetary support from various lenders, including the IMF.

A senior Bangladesh Bank official said the government has debts of over $2 billion in the energy sector. Besides, the country requires about $1 billion each month to meet various demands, including that for power and LNG.​

 

[Saif]

Forex reserves stand at $19.46b after ACU pay

The gross foreign exchange reserve in Bangladesh, according to the guideline of the International Monetary Fund, has dropped to $19.46 billion after the payment of import bills...

www.newagebd.net

Forex reserves stand at $19.46b after ACU pay
Staff Correspondent 10 September, 2024, 22:14

A file photo shows a man counting US dollar notes in the capital Dhaka. | New Age photo

The gross foreign exchange reserve in Bangladesh, according to the guideline of the International Monetary Fund, has dropped to $19.46 billion after the payment of import bills worth $1.37 billion to the Asian Clearing Union for July and August.

Before the payment, the foreign exchange reserve was $20.8 billion.

The payment is made in every two months.

However, according to conventional valuation by the Bangladesh Bank, the foreign exchange reserve dropped to $24.53 billion on Monday from $25.87 billion in the previous day.

The Asian Clearing Union is a payment settlement forum whereby the participants settle payments for intra-regional transactions through the participating central banks on a net multilateral basis.

Payment obligations of transactions among Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are settled through the ACU payment system.

Following the political changes in Bangladesh since August 5, the central bank stopped selling dollars from its reserve, BB officials said.

Therefore, the decline will not affect the reserve as it would revive soon, they said

The reserve came down to the current level following continued sales of dollars in the past three years.

The foreign reserve was $20.39 billion on July 31 which increased to $20.8 billion on Sunday due to increased remittance flow after the fall of Awami League-led government.

Sheikh Hasina resigned as prime minister and fled to India on August 5 amid a student-led mass uprising.

The BB sold about $34 billion from its reserve in the past three financial years, which contributed most to depletion of reserve.

The Bangladesh Bank adheres to the IMF’s Balance of Payments and International Investment Position Manual, 6th edition (BPM6), for calculating both the gross international reserve (GIR) and the net international reserve (NIR).

The Bangladeshi taka weakened against the US dollar, reaching Tk 120 for a dollar, driven by a dollar shortage and a pressure on banks to settle import payments.

The exchange rate per dollar was Tk 84.81 in June 2021, Tk 93.45 in June 2022 and Tk 106 in June 2023.

The ongoing dollar crisis has substantially affected banks’ capacity to settle import payments and open letters of credit, posing challenges for businesses.

To address the dollar shortage, the government and the Bangladesh Bank had jointly introduced measures to curtail imports.

These initiatives involve restrictions on luxury and non-essential imports.​

 

[Saif]

IMF to assess Bangladesh’s need for fresh loan

An International Monetary Fund (IMF) delegation due to arrive later this month will assess Bangladesh’s potential financial needs as the country sought a fresh $3 billion loan from the multilateral lender.

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IMF to assess Bangladesh’s need for fresh loan

An International Monetary Fund (IMF) delegation due to arrive later this month will assess Bangladesh's potential financial needs as the country sought a fresh $3 billion loan from the multilateral lender.

The delegation is likely to arrive in Dhaka on September 24 and stay till September 30, said a finance ministry official.

"As part of the upcoming mission [to Dhaka], the team will be assessing all of the economic developments and any potential financing needs," Julie Kozack, director of IMF Communications Department, told a press briefing in Washington DC on Friday.

"From the IMF side, we are working closely with the interim government [of Bangladesh]," she said, according to a transcript of the briefing published on the IMF website.

"We remain fully committed to working with Bangladesh and to support the people within the context of the IMF programme, we will continue to work closely with the authorities to help advance the reform agenda," she added.

Further details about the visit will be communicated in due course, she said.

Kozack also expressed her deep sorrow over the loss of lives and injuries during the recent protests in Bangladesh.

"It was very distressing to hear about those losses of lives," she said.

Addressing the nation on Wednesday, Professor Muhammad Yunus, chief adviser to the interim government, said budgetary support has been sought from development partners to enhance the country's foreign currency reserves.

The $3 billion loan was sought by Finance Adviser Salehuddin Ahmed and Bangladesh Bank Governor Ahsan H Mansur during separate virtual meetings with the IMF earlier.

The IMF has an ongoing $4.7 billion loan programme for Bangladesh, which was approved in January last year.

Over the past two years, Bangladesh's foreign currency reserves have been dwindling, having barely enough to cover import payments of a couple of months, which is the IMF's minimum benchmark.

In recent months, the reserves have been hovering around $20 billion, as per the IMF's calculations. On September 11, there was $19.44 billion.

In the energy and power sector alone, the government has outstanding dues of more than $2 billion, according to the central bank officials.

On top of that, the government requires about $1 billion each month for import bill payments for this sector.

Against this backdrop, the interim government has been seeking budgetary support from the development partners, alongside looking to bring in increasing amounts in remittance and export earnings.​

 

[Krishna with Flute]

After the ouster of shaikh Hasina, BD should forget about economic development. Economic development does not happen in political instability particularly when the radical Islamist have taken over. BD should come back to normalcy as soon as possible by arranging far elections.

 

[Saif]

The critical challenges facing the economy

How did the elite and the politicians manage to evade the rule of law and siphon billions out of the country?

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The critical challenges facing the economy

Visual: STAR

The head of the interim government, Prof Yunus, recently formed a committee to prepare a "white paper on the state of Bangladesh economy." The terms of reference for the committee are very broad, but the key task is to present the true state of the economy, outline key weaknesses (and, if possible, identify the sources), and, most importantly, provide a roadmap for the interim government.

One cannot overstate the white paper's role in shaping the new administration's policies and forthcoming reforms. Fortunately, the committee has already invited public input, and I am confident that the committee and the competent support staff will accomplish their mission.

It is tempting to throw my hat into the ring and write a long email to the committee and offer my professional view on the cardinal issues facing the country along with my ideas on curtailing corruption, stabilising the foreign exchange sector, reducing income inequality or alleviating poverty. But I will resist for two reasons. First, I have complete faith in the competence of the committee members, with some of whom I have exchanged opinions and thoughts in various forums. Secondly, the experts in the group—and outside—have voiced their learned opinions in professional journals and social and print media over the last few years on the goals of this nation, its progress, and the roadblocks. In other words, the research is already there. The nation is waiting with bated breath for this august body to practice due diligence, given the resources provided at its disposal, and come up with its own prognosis and suggest some best practices to help the new government achieve its economic goals before the latter hands over power to elected leaders.

Professor Yunus in his first speech to the nation last month identified three areas that deserve utmost priority: banking, corruption, and undue emphasis on GDP growth. The data from the past Household Income and Expenditure Surveys carried out by the Bangladesh Bureau of Statistics (BBS) over the last two decades clearly indicate the trend pointing to the rising levels of income and wealth inequality. Whether we take the well-known measure, the Gini coefficient, or an alternative measure, such as the Palma ratio, and compare the income share of the top 10 percent with the income share of the bottom 40 percent, the signs are clear. We are heading towards a very unequal society. The committee must address this issue and debunk the previously held trickle-down theory.

Another important aspect of the white paper is a thorough diagnosis of the economic malaise of the country. What role did the various irregularities play in inflating the cost of megaprojects, the collapse of the financial infrastructure, and the economic hardship of the average person? Did the previous regime fudge the data and paint a rosy picture of the condition of the masses? How did the elite and the politicians manage to evade the rule of law and siphon billions out of the country?

But then after all the diagnosis is done, the committee needs to prioritise the issues to inform the interim government's next steps. Obviously, the interim government does not have to promise any miracles. Our people understand that we went through some rough patches and the interim government and all the wise men and women involved in rebuilding our political system, economy, and the administrative structure face serious odds. Nonetheless, it is worth reminding ourselves of the immediate and long-term problems that will be with us regardless.

The country witnessed food price increases in the double digits for months in a row, and there are still no signs of prices cooling down. These increases leave their mark on the budget since, even if there is a deceleration of inflation, recent inflationary hikes have already hit consumers' pockets hard. According to one BBS study at the end of 2023, one in every five households in Bangladesh experienced food insecurity.

To ensure success of the above initiatives, the state must effectively identify vulnerable people and thereby determine the nature and duration of the support they will need, ensure that the genuinely poor and vulnerable people receive support, and monitor the channels to ensure efficiency, transparency, and accountability in the distribution chain.

The previous government was overthrown because of its economic mismanagement, so if the interim government promises that it will try to manage it well and avoid corruption and greed as much as possible, based on the recommendations of the white paper and allow a task force to implement policies in order of priorities, that itself will be a first.

The white paper committee must also be mindful of its audience. Who are they? There are three: policymakers, the general public, and to a lesser degree, the experts. The people need to know the actual state of the economy. Experts already have a good understanding of the former regime's misdeeds. It is the policymakers in the interim government who urgently need a roadmap.

Dr Abdullah Shibli is an economist and works for Change Healthcare, Inc., an information technology company. He also serves as senior research fellow at the US-based International Sustainable Development Institute (ISDI).​

 

[Saif]

The steep economic challenges that the interim government faces

It is crucial for the interim government to focus on setting a strong foundation for future changes.

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The steep economic challenges that the interim government faces
economic challenges for interim government

FILE VISUAL: STAR

The political upheaval in Bangladesh is having a profound impact on the country's economy. For the country to recover and stabilise, the interim government must prioritise political stability and the restoration of law and order. These steps are critical to setting the stage for economic recovery.

The ongoing political crisis can significantly slow down economic growth. Political instability breeds uncertainty, which in turn undermines investor confidence. As a result, both domestic and foreign investors can become more cautious, leading to reduced private investment. Political instability also affects the broader economic environment by disrupting business operations and creating an unpredictable financial climate.

Bangladesh has been experiencing high inflation since early 2022, with inflation rates reaching 11.66 percent in July 2024—highest in 13 years. Food inflation has been even more severe, hitting a record 14.10 percent. The ongoing supply chain disruptions and shortages are likely to keep inflation elevated, which disproportionately impacts low-income households. For many families, the rising cost of living is a significant burden, further straining their financial resources.

Unemployment, especially among educated youth, remains a pressing issue. Around 41 percent of young people aged 15-24 years are neither in education, employment, nor training (NEET), nearly double the global average. This high rate of NEET youth exacerbates social and economic challenges, contributing to a sense of disenfranchisement and economic frustration among the younger population.

The country has been facing a worsening macroeconomic situation since the beginning of 2022, manifested by the decline in foreign exchange reserves and slow growth in exports and remittance earnings. During the ongoing political turmoil, small businesses and production units are particularly vulnerable to these challenges, facing disrupted operations, decreased productivity and, in some cases, forced closures. This affects the business owners and has a ripple effect on employees and suppliers, further compounding the economic difficulties.

The interim government's role is crucial in navigating these economic challenges and laying the groundwork for a stable transition to a permanent government. Immediate economic priorities should include combating inflation and restoring macroeconomic stability.

Addressing high inflation requires a coordinated approach involving monetary, fiscal and tariff policies. Effective market management is essential to stabilise prices. The appointment of a new central bank governor has raised expectations for better use of monetary policy tools to control inflation and stabilise the economy.

The government must work to stabilise the macroeconomic environment by improving forex reserves, increasing remittance inflows through formal channels, and boosting exports despite the political crisis. These measures are crucial for restoring confidence in the economy and ensuring sustainable growth.

However, to address the country's structural economic challenges, comprehensive reforms are essential in several key areas:

Banking sector: Reforms are needed to tackle high levels of non-performing loans, poor governance, corruption, inadequate risk management, and regulatory weaknesses within the banking sector. Strengthening transparency, enhancing regulatory oversight, and ensuring sound financial practices are vital for restoring confidence in the financial system.

Taxation system: Bangladesh's tax-GDP ratio is notably low, standing at 7.8 percent in December 2023. Reforms should focus on broadening the tax base, improving compliance, and enhancing the efficiency of tax collection. Administrative and institutional reforms are necessary to strengthen the tax collection authority, curb corruption, and ensure a more equitable and effective tax system.

Trade and investment policies: To foster a more favourable environment for export diversification and foreign direct investment (FDI), reforms should address the heavy reliance on ready-made garments and the challenges in attracting FDI. As Bangladesh approaches its graduation from Least Developed Country (LDC) status in November 2026, it is crucial to liberalise trade and investment regulations, remove structural barriers, and improve the ease of doing business.

Public expenditure: With public expenditure at around 15 percent of GDP, significantly lower than its comparators, reforms should aim to improve allocation efficiency and enhance spending in key social sectors. Prioritising investments in education, healthcare, and infrastructure will help address critical needs and support long-term economic growth.

Institutional capacity: Strengthening state capacity is essential for effective governance and service delivery. Institutional reforms should focus on improving efficiency and accountability within government institutions. This includes enhancing the capabilities of public servants, streamlining bureaucratic processes, and combating corruption to ensure that government actions are effective and transparent.

Addressing Bangladesh's economic challenges requires not only political stability, but also a robust and comprehensive approach to reform. The interim government must focus on both immediate economic priorities and long-term structural reforms to foster a stable and prosperous economic environment. By taking decisive action in these areas, the government can set the stage for sustained recovery and growth.

While the interim government may face limitations in implementing all desired reforms within its term, it is crucial to focus on setting a strong foundation for future changes. Establishing effective and robust frameworks for reform can ensure that progress is sustained beyond the interim period. By mobilising support from key stakeholders—including political leaders, civil society, and the private sector—the interim government can foster a collaborative environment that drives reform forward. This strategic groundwork will help pave the way for a more comprehensive and successful implementation of reforms in the long term, even if the immediate results fall short of expectations.

Dr Selim Raihan is professor at the Department of Economics at the University of Dhaka and executive director of South Asian Network on Economic Modeling (SANEM).​

 

[Saif]

Tax reform imperatives for the interim government

Historically, revenue efforts in Bangladesh have been seriously inadequate, which has constrained public expenditure.

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Tax reform imperatives for the interim government

Illustration: Star

Bangladesh is at a crossroads on several fronts. The expectations from the current interim government are enormous, particularly regarding the implementation of bold and radical reforms in key areas, including the economy. The key economic challenges facing the interim government include controlling inflation, preventing the depletion of foreign reserves, restoring discipline and public trust in the banking system, and overhauling the revenue mobilisation system. Historically, revenue efforts in Bangladesh—measured by the revenue-to-GDP ratio—have been seriously inadequate, which has constrained public expenditure.

This weak revenue effort has limited Bangladesh's ability to finance critical expenditures on physical infrastructure, human development, and pro-poor initiatives—thus restricting economic growth and employment. Additionally, it has strained the government's ability to fund social sector programmes, including social protection initiatives. Therefore, raising more revenue is essential for the government, and especially so for the interim government, given the heightened expectations from it for meaningful and positive changes.

Note: *Per capita GDP in Panel B refers to constant 2015 US dollar. Source: Panel A is based on NBR and BBS Data and Panel B based on World Bank

Generally, in countries, there is a positive relationship between income growth (i.e., GDP, per capita GDP) and revenue mobilisation. In Panel A of the figure provided, revenue efforts are compared against per capita GDP between 2010 and 2023. And the trend in per capita GDP is rising, indicating that incomes—and thus the tax base—are increasing, which should lead to higher revenue generation, even if tax rates remain unchanged. However, contrary to this, the declining revenue-effort trend suggests an inefficient revenue system in Bangladesh. Revenue efforts, which were around 11 percent in 2011, dropped to 8.3 percent in 2023—a decline of 2.7 percentage points over 12 years, during which per capita GDP increased by approximately 200 percent. This large negative association between per capita income growth and revenue efforts is both undesirable and unsustainable.

Furthermore, Bangladesh's performance in revenue mobilisation is dismal compared to its peers. Both Nepal and Cambodia, with lower per capita GDP than Bangladesh, have significantly higher revenue efforts—more than double Bangladesh's 7.4 percent. Even Uganda, with half of Bangladesh's per capita GDP, managed to raise 12.5 percent in revenue—5.1 percentage points higher than Bangladesh. These comparisons further highlight the inefficiencies in Bangladesh's revenue system.

The two most important taxes in Bangladesh are value added tax (VAT)—an indirect tax—and personal and corporate income taxes, which are direct taxes. In FY23, these two taxes together accounted for 72 percent of total tax revenue. VAT, which makes up about 40 percent of tax revenue, has one of the lowest productivity rates in the world. This means that Bangladesh collects less VAT revenue at existing VAT rates compared to other countries with similar or lower rates.

When considering other indirect taxes such as import duties, supplementary duties, and excise taxes, the total share of indirect taxes is around 66 percent, while the share of direct taxes is only 34 percent. The inability to raise a higher proportion of tax revenue from direct taxes is another striking weakness of our system. The income tax system is based on an outdated 1984 ordinance, leading to complex tax forms and burdensome filing requirements, which discourage voluntary compliance. As a result, there were only 2.5 million taxpayers, or 1.52 percent of the total population in FY22. Low compliance and a narrow tax net have kept income tax revenue low, increasing reliance on indirect taxes, which disproportionately burden the poor.

A paradox of our tax system is the high tax-expenditure ratio despite dismal tax efforts. Tax expenditures are special provisions in the tax code—such as exclusions, deductions, deferrals, credits, and tax rates—that benefit specific activities or groups. These provisions result in forgone revenue. According to an NBR report ("The Tax Expenditure in the Direct Tax of Bangladesh: Estimation and Review," March 2024), tax expenditures in direct taxes amounted to 3.56 percent of GDP in FY21. While some of these may be justified on merit, such high tax expenditures alongside low revenue efforts are clearly unsustainable.

The assessment above suggests that Bangladesh's revenue system is both inefficient and inequitable. The dismal state of the revenue system is largely due to the lack of meaningful reforms over the past three decades since the introduction of the VAT system in 1991. Therefore, future reforms must focus on improving both the efficiency and equity of the system. Having a clear reform roadmap with specific targets is crucial. Bangladesh should aim to increase its revenue effort to 13.5 percent within the next two years and to 16.5 percent within the next five years. Although ambitious, these targets are feasible, as evidenced by the performance of other countries. Additionally, revenue from direct taxes must increase to 40 percent within two years and 60 percent within five years.

Strategic recommendations

Implementing the 2012 VAT law is likely to improve VAT revenue collection, address inefficiencies in the system, and enhance overall revenue through: i) eliminating the complexity of having multiple tax rates on the same products at different stages of production; and ii) reducing tax evasion, boosting revenues, and discouraging vertical integration, which will support the SME sector through subcontracting by large enterprises.

Increasing revenue from the direct tax system

Bangladesh needs to mobilise more revenue from direct taxes to align with countries at similar income levels by: i) simplifying the personal income tax system by eliminating wealth and income-expenditure statements, which contribute to corruption; ii) implementing electronic filing and payment systems while eliminating direct interactions between taxpayers and tax collectors; iii) lowering corporate tax rates to a maximum of 25 percent over the medium term with minimal exceptions—all sectors, including ready-made garments (RMG), should be treated equally; iv) replacing the wealth tax with a proper property tax system, based on realistic valuations of personal and commercial properties, with revenues earmarked for local governments; and v) reducing rebates, discounts, exemptions, and reduced rates of taxation, and introducing a tax-expenditure tool to clearly show the benefits and costs of tax policies.

Improving tax administration

Bangladesh must: i) automate its tax administration; ii) establish a modern, computer-based audit system to identify audit candidates based on pre-determined red flags and focusing on revenue productivity and genuine tax evaders; iii) create a separate tax policy division within the Ministry of Finance, staffed with tax policy experts to ensure tax changes are effective, efficient, and equitable; iv) incorporate alternative dispute resolution in income tax, VAT, and customs legislation to collect unpaid revenue; v) strengthen the research and administrative capacities of the National Board of Revenue through international technical assistance and partnerships with local research institutions—all tax data should be computerised, and online tax filing should be facilitated; and vi) introduce a redistributive fiscal policy tool (in line with SDG 10) to assess the impact of tax and expenditure proposals.

Bazlul Haque Khondker is chairman of South Asian Network on Economic Modeling (SANEM) and director at Policy Research Institute (PRI).​

 

[Saif]

IsDB to give $4-5b in three years

Islamic Development Bank (IsDB) will likely provide an overall support of around $4 billion to $5 billion to various sectors in Bangladesh within the next three years under its “Member Country Partnership Strategy” (MCPS).

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IsDB to give $4-5b in three years

Islamic Development Bank (IsDB) will likely provide an overall support of around $4 billion to $5 billion to various sectors in Bangladesh within the next three years under its "Member Country Partnership Strategy" (MCPS).

Muhammad Nassis Sulaiman, head of the IsDB regional hub in Dhaka, informed journalists about this development while replying to their queries after meeting with Salehuddin Ahmed, finance and commerce adviser to the interim government.

The meeting was held at Ahmed's office at Bangladesh Secretariat in Dhaka yesterday.

"As a part of the MCPS, the plan for the next three years is to give support of $4-5 billion," Sulaiman said.

Asked whether there had been any discussion about International Islamic Trade Finance Corporation (ITFC) increasing its lending limit to Bangladesh for fuel oil purchases, he said it was included in their overall talks with the interim government.

The ITFC is a trade financing arm of IsDB Group.

The IsDB's MCPS needs to be framed in detail for the next couple of years to fix their support, including the ITFC's support to Bangladesh, said Sulaiman.

"So, we really look forward to providing support in infrastructural development and address some of the issues related to climate change in the country," he added.

He also talked about the IsDB Group's interventions.

"Of course, the interim government is also looking forward to seeking support for overall engagement, particularly we will discuss it with the ITFC about how the support can be further developed and moved forward," he said.

Sulaiman mentioned that the IsDB would continue working for the socioeconomic development of Bangladesh.

"Considering the IsDB's strategies and the interim government's priorities, we will hopefully be able to give the required support in terms of resources and collaboration," he said.

Salehuddin Ahmed said since the IsDB was a multilateral development partner of Bangladesh, they were providing various kinds of assistance to the country, such as in the health sector and for building cyclone shelters.

He informed that the interim government has requested them to support in rebuilding the damaged rural roads affected by recent devastating floods in the country.

He also said they have already conducted a survey in Sylhet, one of the worst affected areas, to this end.

"Overall, the IsDB will support us in rebuilding damaged rural roads. They are already supporting us in the health sector, constructing bridges, physical infrastructures and so on," Ahmed added.

Regarding support in purchasing fuel oil, the finance adviser said the IsDB would explore possibilities for boosting existing cooperation through consultations with other development partners.

"We've requested them to provide us funds and they would assess the possibilities. Until it is finalised, nothing can be said as the IsDB board meeting will be held in December," he added.

Ahmed also said the Jeddah-based lending agency would provide long-term support to Bangladesh in line with the country's demands.

"Overall, the IsDB will support us," he said.

Regarding the MCPS, he informed that the government would assess potential projects for which funds would be sought and the IsDB would then consider whether to move forward with those.

The MCPS for 2024-2026, titled "Supporting Sustainable Economic Growth and Resilience", was launched on April 29.

The Bangladesh MCPS provides broad strategic directions and focuses on sectors for the IsDB's engagement in the country.

The MCPS focuses on building sustainable infrastructure for energy, transport, information and communications technology, water and sanitation.

It seeks to enhance future competitiveness of Bangladesh through support for education, health, agriculture and nutritional security.

It also aims to provide complementary cross-cutting support on climate change mitigation and adaptation, women and youth empowerment, capacity development, and enhancing financial market depth and access to finance through Islamic finance.​

 

[Bilal9]

Islamic Development Bank to provide Bangladesh with $5bn support over next 3yrs​

Funding for infrastructure, climate change adaptation, and socio-economic development

https://www.dhakatribune.com/358748


Representational image of dollar. Photo: Collected

UNB
Publish : 17 Sep 2024, 06:45 PM
Update : 17 Sep 2024, 06:45 PM

The Islamic Development Bank (IsDB) has announced plans to provide Bangladesh with financial support totaling $4-5 billion over the next three years under its Member Country Partnership Strategy (MCPS) for 2024-2026.

This funding will be directed towards key sectors including infrastructure, climate change adaptation, and socio-economic development.

Muhammad Nassis Sulaiman, head of the IsDB Regional Hub, disclosed this information on Tuesday after a meeting with Finance Adviser Dr Salehuddin Ahmed at the Bangladesh Secretariat.

“As part of the Member Country Partnership Strategy (MCPS), we plan to provide around $4 to $5 billion in support over the next three years,” Sulaiman said.

Sulaiman highlighted that the bank’s strategy would address critical issues such as infrastructural development and climate change.

“We look forward to providing support in infrastructural development to tackle the climate challenges facing Bangladesh,” he said.

When asked about the possibility of increasing the lending limit for purchasing fuel oil through the International Islamic Trade Finance Corporation (ITFC), a trade financing arm of the IsDB Group, Sulaiman confirmed that this was part of ongoing discussions with the government.

Finance Adviser Dr Salehuddin Ahmed emphasized the importance of IsDB’s role as a multilateral development partner, particularly in the health sector and disaster recovery efforts.

The government has requested support for rebuilding rural roads damaged by the recent devastating floods, Dr Salehuddin noted, adding that the IsDB had already conducted a survey in the Sylhet region.

Regarding the financing for fuel oil, the finance adviser mentioned that while discussions were ongoing, any final decision would depend on the outcomes of the IsDB Board meeting scheduled for December. “We’ve requested funds, and they will assess the possibilities. Until then, nothing is finalized,” he said.

Sulaiman reiterated IsDB’s long-term commitment to supporting Bangladesh’s socio-economic development, stressing the importance of aligning their efforts with the country’s strategic priorities. “Considering the IsDB’s strategies and the government’s priorities, hopefully we will be able to support in terms of resources and collaboration with other development partners as well.”

Bangladesh Member Country Partnership Strategy (MCPS) (2024-2026), titled “Supporting Sustainable Economic Growth and Resilience” was launched on April 29, 2024.

The MCPS provides broad strategic directions and sectoral focuses for IsDB’s engagement in Bangladesh.

The MCPS focuses on building sustainable infrastructure for driving industry through support for energy, transport, information and communications technology (ICT), water and sanitation, and enhancing future competitiveness of Bangladesh through support for education, health, agriculture and nutritional security with complementary cross-cutting support on climate change mitigation and adaptation, women and youth empowerment, capacity development, and enhancing financial market depth and access to finance through Islamic finance.

Source: https://www.dhakatribune.com/358748

 

[Saif]

WB to provide $2.3b this fiscal year

The World Bank (WB) will provide Bangladesh with $2.3 billion in the current fiscal year (2024-25) to facilitate reforms in the country’s financial sector and its economic recovery from recent floods.

www.thedailystar.net

WB to provide $2.3b this fiscal year

The World Bank has appointed Martin Raiser, an economist and development expert, as its new vice president for the South Asia Region. Photo: Courtesy

The World Bank (WB) will provide Bangladesh with $2.3 billion in the current fiscal year (2024-25) to facilitate reforms in the country's financial sector and its economic recovery from recent floods.

Martin Raiser, vice-president of the World Bank for South Asia, discussed the details of the loan programme at a meeting with Professor Muhammad Yunus, chief adviser to the interim government, at his office in Tejgaon, Dhaka yesterday.

Raiser said the World Bank is ready to be a part of the key economic reforms planned by the interim government, according to a press release from the chief adviser's office.

"Count on us. We're ready to help," Raiser said in response to Yunus's call for broader support for the interim government in its move to fix the economy

"Count on us. We're ready to help," Raiser said in response to Yunus's call for broader support for the interim government in its move to fix the economy by cleaning up corruption and undertaking reforms in key sectors, including judiciary.

The visiting World Bank vice-president also said they will support reforms in the country's banking, taxation and customs sectors, while also facilitating efforts for digitisation at various local industries.

Welcoming the World Bank's support, Yunus said the interim government has got a broader mandate from the people to get rid of corruption and give Bangladesh a new start.

"This is the season of reforms. We want to start now," he said, adding that the student-led mass uprising in July-August prepared the ground for big reforms in the existing system.

He also said the government would implement conventions of the International Labour Organization (ILO) in labour reforms to boost foreign investors' confidence and help local manufacturers expand their international foothold.

"We want to get it done," he said while adding that Bangladesh should be a global player in sectors other than garments.

Raiser appreciated the move to woo foreign direct investment (FDI), saying the annual FDI in Bangladesh is worth about half of the country's gross domestic product (GDP) in terms of percentage, making it one of the lowest in South Asia.

After the meeting, Planning Adviser Wahiduddin Mahmud said large amounts of foreign loans in the pipeline remain underutilised. The government has assessed the $1 billion worth of projects being funded by the World Bank, and those projects are now almost at a standstill.

He said the government could instead utilise these funds for budget support in December.

According to a statement from the World Bank, Bangladesh has the opportunity to implement critical reforms that were long overdue.

"Through existing and new investments, we are focusing on improving economic governance and creating more and better jobs for the 2 million Bangladeshi youths entering the job market each year," Raiser said.

Raiser also met with the finance adviser, energy adviser, and Bangladesh Bank governor to discuss critical reforms aimed at helping the country build economic resilience, safeguard financial sector stability, and improve governance, transparency and accountability.

Raiser also expressed his condolences for the tragic loss of lives in July and August.

He informed that the World Bank is in discussion with the health ministry to provide urgent support for the treatment of critically injured students and affected individuals.

Furthermore, the multilateral lender will support the rehabilitation and restoration of livelihoods among people in flood-affected districts.

Raiser also conveyed appreciation for Bangladesh's generous decision to continue providing shelter to about one million displaced Rohingya people fleeing violence in Myanmar.

The World Bank recently approved a $700 million programme for the displaced Rohingyas and their host communities.

After meeting with Finance Advisor Salehuddin Ahmed at his office at the Bangladesh Secretariat in Dhaka yesterday, Raiser told reporters that they would also provide budgetary support for Bangladesh during the current fiscal year.

Finance and Commerce Adviser Ahmed said the World Bank will provide support in implementing reforms in banking and other sectors.

The adviser also said they discussed various other issues with Raiser and his team, including the need for budget support in areas such as the energy sector, fertiliser imports, food security and post-flood aid.

The World Bank was very positive about all the proposals they presented, and provided concrete responses.

"They [the World Bank] assured us that they, along with other stakeholders, would coordinate to this end and there would be no hesitation in providing necessary funding or assistance," Ahmed added.​

 

[Saif]

Good news about forex reserve

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitment

thefinancialexpress.com.bd

Good news about forex reserve
Published :
Sep 19, 2024 21:35
Updated :
Sep 19, 2024 21:35

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitments from development partners --- would make things easier for payment of letter of credit (LC) liabilities soon. The governor made the remarks at a virtual meeting with members of the Association of Bankers Bangladesh (ABB) and representatives from more than 120 corresponding banks across the globe.

The online meeting took place at a time when many corresponding banks had either halted credit support or reduced credit limits for Bangladeshi commercial banks, believed to be due to a lack of trust in view of the depleting forex reserves. He explained that government liabilities had accumulated on account of letters of credit (LCs) for importing essential commodities like fertilisers, power, and petroleum products against prolonged foreign exchange crunch. He informed the corresponding banks that the government's total LC-related liability stood at $2.0 billion, of which $800 million had already been cleared, and the remaining amount would be settled within the next 5-6 months. Assuring the corresponding banks was of paramount importance as these foreign financial entities assist the local commercial banks in LC confirmation, offshore banking unit (OBU) loans and usance payable at sight (UPAS) LC financing.

The country's foreign-exchange reserves had been declining rapidly since the beginning of 2022 as the fallout of international crises, including the war in Ukraine. High import costs, driven by increased commodity prices on the international market, also contributed to this decline. Against this backdrop, the key challenge for the interim govern has been to ensure a stable forex reserve as well as adopt prudent policies for meeting expenditures in foreign currency. What transpires from the remarks of the central bank governor is a clear shift from the stagnating state of the reserves in the recent months. There had been a surge in remittance inflows in August compared to July this year, to $2.215 billion. In the first 14 days of this September, remittance inflows amounted to $1.167 billion. Central bank data show that the reserves increased by more than 15 per cent in the fiscal year 2023-24 on a year-on-year basis. Currently, the reserve stands at $24.30 billion, which in IMF calculation (called BPM-6), is approximately $20 billion --- a considerable improvement from less than $14 billion two months ago.

Presentation of the actual health of forex reserves and the future course of action for paying dues to the overseas corresponding banks is expected to remove the trust deficit in conducting foreign trade. Over and above, this is sure to bolster confidence of the local bankers as well as the common citizens. In this context, let it be underscored that effective steps are required to stop money laundering for strengthening the forex regime. The interim government since assuming office has time and again made its intention clear to do so. Import austerity in case of non-essential and luxury products can also help sensible spending of hard-earned foreign exchange.​

 

[Saif]

Attracting higher FDI still a ways off

In order to narrow or meet the investment gap and more so, to abide by employment generation obligations, every country needs foreign direct investment (FDI).

www.thedailystar.net

Attracting higher FDI still a ways off

In order to narrow or meet the investment gap and more so, to abide by employment generation obligations, every country needs foreign direct investment (FDI).

FDI along with technology transfer ensures the migration of global best practices.

Along with the existing macroeconomic crisis and resulting foreign exchange shortage, recent violence centring the quota reform movement, a subsequent five-day internet blackout and countrywide curfews have naturally shaken foreign investors' confidence in Bangladesh.

Not only should this be addressed with immediate effect, it comes with the need for a clear or semi-clear roadmap for the country's transition to democracy.

Global investors put a lot of focus on political and economic stability as well as potential growth prospects in their destination of choice.

My long association with facilitating large FDI in the country tells that all large investors, who get into any emerging countries, base their decision on some common indicators of investment attractiveness.

This includes the scope for returns on investments, availability of unencumbered land, policy continuity, logical foreign exchange and interest rates, guaranteed repatriation of income -- be it principal, profit or dividends -- and volume of skilled manpower in investment destinations.

According to various media reports, Bangladesh needs to attract FDI equal to 1.66 percent of its annual GDP to become an advanced economy by 2041. But in 2022, the country's FDI inflow amounted to just 0.75 percent of its GDP.

Bangladesh Bank data shows that net FDI inflow fell to $3 billion in 2023, down by some 14 percent year-on-year.

Against this backdrop, the investors' confidence crisis caused by recent events becomes even more concerning. Whether we like it or not, people are yet to get clarity on what is happening in Bangladesh and how far the impacts may reach.

Investors already had a number of issues with Bangladesh in this regard.

Problems like corruption, bureaucracy, anti-competitive government procurement practices, contract and intellectual property right violations, weak judicial system, and inconsistent policy shifts were all previously identified as barriers to Bangladesh attracting higher FDI.

And the recent issues and backlash did little to help the country's image, with several international rights organisations and foreign countries having identified a number of human rights violations during the government's brutal crackdown on protesters in July and August.

The modern nature of business is such that all business activities around worldwide have become tremendously dependent on internet usage. So, the five-day internet blackout had a massive impact on all local businesses and showed how easily the country can be disconnected from the world. Although the country has since slowly recovered in regards to online and physical connectivity, the local businesses' delayed return to full operations amid recent turmoil in industrial belts forced some off-takers to shift a few of their orders to other countries.

Some factories had to go for costly air shipments to make up for the production delay and meet lead times. Besides, the uncertainty that many businesses and investors faced during the internet outage has made them particularly antsy, with many foreign investors raising questions about Bangladesh's political stability.

And even though the interim government remains confident about the country's ability to attract FDI, we believe there is a lot that can and should be done to regain investors' trust. First, the interim government must urgently restore their confidence by cracking down on disturbing elements and reinstating normalcy by lowering tensions within society at large.

It also needs to take all the necessary steps to ensure a positive business environment that is conducive to attracting investment, and that can largely mitigate the losses businesses suffered.

There should be no more confusing statements on the country's liquidity and foreign exchange levels from the central bank. Also, pending bills should be paid at the earliest convenience or the contracts extended mutually.

But amid all these challenges, there is hope. Bangladesh as a country has a long history of bouncing back from crisis and remains an attractive destination for its growing consumer spending.

However, the country needs strong leadership and coordinated efforts now more than ever.

The author is chairman of Financial Excellence Ltd​

 

[Saif]

Forex market on the mend as remittances rebound

After a prolonged period of crisis, the foreign exchange market in Bangladesh, especially the interbank forex market, is showing signs of recovery, driven by a rebound in remittance receipts and key policy interventions by the central bank.

www.thedailystar.net

Forex market on the mend as remittances rebound

After a prolonged period of crisis, the foreign exchange market in Bangladesh, especially the interbank forex market, is showing signs of recovery, driven by a rebound in remittance receipts and key policy interventions by the central bank.

The interbank forex market, which is crucial in facilitating international trade, had been under huge pressure lately owing to a crisis of US dollars, which was triggered by a combination of high import bills, lower-than-expected remittance inflows, and dwindling foreign exchange reserves.

However, the recent rebound in remittance inflows and some key policy decisions, such as the adoption of a crawling peg exchange rate system, are helping normalise the interbank forex trade.

"The interbank forex market is moving towards a stable phase riding on the strong rebound of remittance inflows," said Md Shaheen Iqbal, head of treasury and financial institutions at BRAC Bank Limited.

He added that the foreign exchange crisis is easing and the interbank forex market is functioning more smoothly.

Remittance inflows, a major source of foreign currency for Bangladesh, fell to a 10-month low in July, when the Awami League government imposed a five-day internet blackout to quell protests centring the students' quota reform movement.

However, receipts began to pick up again after former prime minister Sheikh Hasina fled to India on August 5 as many expatriates started campaigns to send money through formal channels to build the country.

Remittance receipts climbed 16.10 percent in August compared to the month prior, hitting $2.2 billion.

In the first 14 days of September, remittance receipts reached around $1.17 billion, as per central bank data.

Riding on higher remittance inflows, the country's foreign exchange reserves are now showing signs of recovery. The foreign exchange reserves stood at nearly $20 billion as of Tuesday, according to the BPM-6 calculation standard of the International Monetary Fund (IMF).

Another benefit of increased inflows is that banks can now trade among themselves smoothly in the interbank forex market, Husne Ara Shikha, spokesperson of the Bangladesh Bank, told the media last week.

The price of the US dollar will also stabilise as the interbank forex transactions are active, she added.

Apart from rising remittances, some measures adopted by the central bank, including the introduction of the crawling peg, have also had a positive impact on the interbank forex market, said Mohammad Shams-Ul Islam, former managing director of Agrani Bank.

The Bangladesh Bank introduced the crawling peg, which allows the currency to adjust exchange rates based on demand and supply, on May 8 this year.

This move has reduced volatility in the market and helped narrow the gap between the US dollar price in the formal banking sector and the kerb market, Islam said.

Currently, the difference in US dollar prices between banking channels and the kerb market stands at about Tk 1 to Tk 2. Each dollar is sold for Tk 118-120 on the interbank forex market while it fetches Tk 120 to Tk 121 in the open market, according to market insiders.

Besides, after taking charge as the Bangladesh Bank governor, economist Ahsan H Mansur has taken some steps such as by reconstituting the boards of different crisis-hit banks.

He also stopped providing liquidity support to banks from the foreign exchange reserves.

These moves have restored the confidence of depositors, remitters and businesses in the banking sector, thereby improving the overall flow of interbank foreign exchange within the country, said Islam, former managing director of Agrani Bank.

As an example, he said, banks like the Bangladesh Krishi Bank, which receive a good amount of remittance but do not face pressure to open letters of credit (LCs), are supplying dollars to the interbank market, reducing the pressure on banks that deal with dollar-based trading.

As a result of sufficient dollar flow to the interbank market, the pressure on LC openings has reduced drastically, he added.

BRAC Bank's Shaheen Iqbal said now there is some surplus in the interbank market after meeting the demand for LCs.

"This is a significant positive trend," he said, estimating that daily transactions in the interbank forex market stood between $30 million and $90 million.

The interbank market will be fully operational after the government clears its outstanding import bills, Iqbal added.​

 

[Saif]

Paradigm shift in ADP planning

The interim government has initiated a radical shift in annual development plan (ADP) implementation. The current five-year plan that forms the basis of ADPs has been suspended and the new focus is now on skill development of country's human resources, which is a major shift from several previous A

thefinancialexpress.com.bd

Paradigm shift in ADP planning
Published :
Sep 21, 2024 22:52
Updated :
Sep 21, 2024 22:52

The interim government has initiated a radical shift in annual development plan (ADP) implementation. The current five-year plan that forms the basis of ADPs has been suspended and the new focus is now on skill development of country's human resources, which is a major shift from several previous ADPs that had prioritised infrastructure development. To term the plans radical would be an understatement. For instance, with a view to quicker decision-making and implementation, the current administration has empowered individual ministries to approve projects. It has become abundantly clear that the top-down decision-making approach whereby projects were undertaken whimsically, while wholly or partially disregarding a need-based approach had resulted in very poor ADP implementation. This had been a major bone of contention with bilateral and multilateral foreign development partners who committed billions of dollars in grants and loans only to see partial implementation. Since there was hardly any need felt at the top for either transparency or accountability, it is interesting to note that a taskforce has been set up to deliver direction of the economy and submit a report within the next three months so as to give current policymakers a bird's eye view about the state of the economy.

It is good to know that finally, the dire needs of the massively unemployed educated youth are being addressed. The economy had become overly dependent on foreign workers and since the youth were graduating from a broken education system that failed to equip young people with requisite technical knowhow or with knowledge that industry needed, they found no employment. No exact figure exists on how many foreign workers are employed in Bangladesh, but it is more than a million people. They don't pay taxes here and this is why the human resource development has been prioritised to bring young people up to speed on various emerging opportunities like information technology. There is also realisation that the bulk of our expatriate workers are employed in the unskilled category. Hence, remittance value remains low which could be reversed if more technical hands could go abroad to work and whose pay would be many times more than that of unskilled workers. A qualitative improvement is needed and this is very much possible through vocational and IT-education development.

Previous government had opted to go for some projects which had bypassed the planning commission. This was done deliberately to favour select companies that opened the door wide for graft on epic proportions. Irregularities happened at the sole discretion of the former prime minister. As far as a number of mega projects are concerned, the country has ended up with a huge foreign debt, the servicing of which has become a burden the economy can ill-afford. These grandiose projects were taken to showcase the "development" made possible by the erstwhile government which were not based on any economic need but to serve the hubris of one person.

The current administration is having to repair the damage done over the last 15 years. It had become modus operandi that mega-projects mean mega-corruption. One instance of such graft can be cited here. The former roads and highways minister had claimed that it would require one year and Tk 1.5 billion to repair the damage caused by miscreants to two metro rail stations. One of the vandalised station at Kazipara was reopened on Friday last. The repair of the station was completed at a paltry amount of Tk 2.0 million under the new metro rail administration. Had the previous administration remained in power, a substantial amount would have ended up lining the pockets of corrupt politicians and contracting company. Let these be lessons learnt for the new administration. Hopefully, the mistakes of past regimes will not be allowed in the present. Transparency and accountability must become the guiding principles of today's political and economic decisions.​

 

[Saif]

On new export earnings target

After a predictable setback in the country's export earnings in the last fiscal year, the interim government has set a fresh target for the current fiscal year (FY25). The new total export target is set at US$57.50 billion, a figure that carries significant weight as it is 13.30 per cent higher tha

thefinancialexpress.com.bd

On new export earnings target
The first quarter of the current fiscal year is marked by a notable economic slowdown in the country. And, the reasons are obvious....
Asjadul Kibria
Published :
Sep 21, 2024 22:46
Updated :
Sep 21, 2024 22:46

After a predictable setback in the country's export earnings in the last fiscal year, the interim government has set a fresh target for the current fiscal year (FY25). The new total export target is set at US$57.50 billion, a figure that carries significant weight as it is 13.30 per cent higher than the actual receipt of FY24. Of this, $50 billion is targeted as earnings from exports of goods and the rest from services.

It is to be noted that the country fetched $44.48 billion in exports of goods in the last fiscal year, which was 4.34 per cent lower than the earnings of exports in FY23. Again, the actual receipt in the previous fiscal year missed the original target of $62 billion by 39 per cent. Overambitious targets, coupled with the manipulation of data to artificially inflate the export earnings by the ousted autocratic government, result in a big gap between the targeted and actual figure. The manipulation of data on export earnings also provided a distorted scenario of the country's external trade and overall balance of payments (BoP).

After adjusting the export data, initially provided by the Export Promotion Bureau (EPB), which counted export earnings in some cases inflating the figure, it was found that there was an overestimation of around $9 billion in FY23. This underscores the crucial need for accurate and honest reporting, as the EPB data put the export earnings at $55 billion in FY23, which came down to $46.50 billion after the adjustment. Thus, there was an overestimation of around 16 per cent of the export receipt.

However, the new export target is fixed taking into consideration the adjusted figure of the export earnings. So, the figure was low compared to the indicative target set by the Hasina regime. The Cabinet Committee on Economic Affairs (CCEA) in May last approved the draft of the Export Policy 2024-2027, eyeing a $110 billion export target in FY27 based on an inflated figure.

A valid question in this connection is how feasible the new merchandise export target of $50 billion, set by the interim government in the second week of this month, is. This piece will try to find the answer, taking both external and internal factors into consideration.

To understand the external factor, a quick look at the current trend of global trade is necessary. Around three months ago, UN Trade and Development (UNCTAD) released its global trade update, which showed that the current international trade trends have turned positive. This positive trend, with trade in goods increasing by around one per cent quarter over quarter (QoQ) in the first quarter of 2024, and services trade growing at approximately 1.5 per cent on the same count, brings a sense of optimism. The UNCTAD predicted a stronger positive trend for Q2 in 2024, projecting an approximate 2 per cent increase for the first half of 2024.

The UN body also estimated that the growth would add around US$250 billion to trade in goods and about US$100 billion to services trade in the first half of the current year compared to the second half of 2023. Moreover, if positive trends persist, global trade in 2024 could reach almost US$32 trillion, though it is unlikely to surpass its record level seen in 2022.

Now, in the first week of this month, the World Trade Organization (WTO) released the latest reading of its Goods Trade Barometer, which is a composite leading indicator for world trade. It revealed that global merchandise trade has been picking up in the third quarter of 2024 after demand for traded goods stalled in 2023 amid high inflation and rising interest rates. In other words, global trade in goods is on the rise in the current year, as predicted by UNCTAD earlier. The reading of the WTO trade barometer also showed the possibility of continuing the rising trend. Taking a cue from these projections, there is hope for Bangladesh, no doubt, as the last half of the current calendar year is also the first half of the current fiscal year.

Nevertheless, according to the WTO barometer, the outlook for trade remains highly uncertain due to four downside factors. These are: rising geopolitical tensions, ongoing regional conflicts, shifting monetary policy in advanced economies, and weakening export orders. All these may severely subdue Bangladesh's export potential in the first half of the current fiscal year.

The Russia-Ukraine war has been continuing for two and half years. Israel continues to pound the Gaza Strip to uproot Hamas militants for almost a year, killing more than 41,000 Palestinians. Though its goal is yet to be achieved, the Zionist state is now going to launch a big offensive in Lebanon to fight Hezbollah, meaning the Middle East will become more volatile. These two key regional conflicts have already disrupted the global supply chain, and continuing the conflicts at a bigger scale will make things worse soon.

The looming presidential election in the United States (US) has become a matter of tension across the world, especially when Donald Trump is the candidate from the Republican camp. Winning Trump would mean escalating geopolitical tension and proliferating a trade war.

On the domestic front, the first quarter of the current fiscal year is marked by serious disruption of economic activities in the country for obvious reasons. The anti-discrimination movement launched by the students in July to reform the quota system in the public sector turned into a mass uprising against the Hasina regime. The movement forced Sheikh Hasina to step down and flee the country to take shelter in India.

Though an interim government under the leadership of Nobel Laureate Professor Muhammad Yunus has taken charge, the overall situation is still volatile. Several ready-made garments (RMG) and other factories were vandalised and faced labour unrest. Production has not fully resumed in all the industrial units. Imports are also slow, as many banks have been short of funds due to gross irregularities. Some big corporate entities, known for their strong affiliation with the ousted prime minister and mobilised big funds from the banks bypassing the rules, are in trouble now. So, the overall economic activities, including exports in the current fiscal year's first quarter, are undoubtedly dull. However, the situation is expected to start to recover in the second quarter, leading to a gradual rise in exports.

Thus, export earnings in the first half of the current fiscal year will grow moderately under the current trend in global and local factors. This will make achieving the target by the end of the fiscal year challenging.​

 

[Saif]

Can Bangladesh achieve SDGs by 2030?

On the other side of unremitting inflation, a product of no-holds-barred free market economy, is decline in purchasing power of people ---only more so of the low- and fixed-income groups. If shrinking purchasing power is not compensated by corresponding rise in income, the inevitable consequence is

thefinancialexpress.com.bd

Can Bangladesh achieve SDGs by 2030?
Published :
Sep 23, 2024 22:05
Updated :
Sep 23, 2024 22:05

On the other side of unremitting inflation, a product of no-holds-barred free market economy, is decline in purchasing power of people ---only more so of the low- and fixed-income groups. If shrinking purchasing power is not compensated by corresponding rise in income, the inevitable consequence is deepening poverty. At a time Bangladesh economy was about to witness a turnaround early in the post-Covid-19 period, the Russo-Ukraine war not only halted the process but also threw the prospect of an economic recovery into uncertainty. The main culprit was the sudden price hike of fuel oils for which Bangladesh has to overwhelmingly depend on import. The wind taken out of its sails, the country, like many others with little or no domestic energy sources, discovered itself in a critical situation. Under a system of kleptocracy of the lumpen moneyed and business class unduly served by their bureaucratic cohorts, outrageously unequal wealth distribution only pushed more people to get marginalised.

So when a public meeting held under the title "Eliminating Poverty and Inequality and Strengthening Social Security" on Saturday last comes up with the disclosure that poverty rate in the country has gone up to 20.5 per cent from 18.7 per cent over the past two years, there is nothing to be surprised. Add to this, the urban poverty that saw a rise from 14.7 per cent to 20.5 per cent. Read between the lines, this indicates that urban employment and income have either shrunk or remained static for the low-income people who can barely save for the rainy days. Even if income does not fall, families can suffer income erosion when prices of essentials skyrocket. This has been happening for the past two years or so and there is no sign yet market volatility will ease soon.

There are two aspects of this reverse journey on the road to economic progress for a significant portion of the population. One is the financial vulnerability of this segment of population to unrelenting inflation often driven by intriguing market players; the other is either such people's failure to raise their income from self-employment or from employers who employ them for a pittance. Exploitation of both opportunities and labour explains the atrocious inequality. Otherwise, the national wealth generated annually should not have widened the economic disparities so grossly. Bhutan is a good example of smaller GDP which has been judiciously used, particularly in ensuring rational distribution of its wealth, for alleviation of its poverty. When businesspeople can make rampant profit and the unduly privileged close to the kleptocratic circle can loot and launder billions of Taka, it tells a different story of deprivation on the one hand, and filthy affluence on the other.

Now the deliberation of the Saturday's public meeting aired concern about Bangladesh's attainment of the much hyped Sustainable Development Goals (SDGs) by 2030. It is a genuine concern, no doubt but if the macroeconomic health and wealth creation are taken into account, the country should not miss the target. But if the microeconomic situation in relation to rising poverty comes into consideration, the path may be tortuous but the goals not quite unachievable. The key issue here is economic reform with special emphasis on ensuring greater share of created national wealth for the marginalised in order to ameliorate the lot of the poor during the next six years.​

 

[Saif]

A game changing model for boosting remittance

Bangladesh has been experiencing a severe forex crisis for the past two years. Our two main sources of foreign currency are exports and remittances. While we have devoted significant attention to increasing exports, we have largely neglected the potential of remittances. In the past fiscal year...

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A game changing model for boosting remittance

Bangladesh has been experiencing a severe forex crisis for the past two years. Our two main sources of foreign currency are exports and remittances. While we have devoted significant attention to increasing exports, we have largely neglected the potential of remittances. In the past fiscal year, exports have been in the range of $47 billion.

If we consider a value addition of around 50 percent, the net forex earnings is around $23 billion. Meanwhile, judging the current trends, this year the remittances could be between $27 billion and $30 billion.

Workers, especially unskilled labourers abroad, often face cumbersome processes when using formal channels. This drives them to informal options like hundi, which are easier but deprive the country of vital foreign currency. To increase formal remittances, we must understand that, beyond financial needs, wage earners are driven by higher aspirations for esteem and respect.

So, to foster their loyalty and encourage remittance through formal channels, we must adopt a dual strategy addressing their immediate and long-term needs for dignity and recognition.

SHORT-TERM SOLUTIONS

Wage earners' elite club: The government can introduce a "Wage Earners Elite Club," offering tiered membership (platinum, gold, silver and bronze) based on remittance volumes. Benefits for club members could include VIP airport services, meaning that elite members would enjoy dedicated immigration counters and transportation. Additionally, platinum, gold, and silver members could be given access to exclusive lounges at airports, ensuring more comfortable travel.

Recognition and awards: High contributors would be publicly recognised, invited to national events and treated as Commercially Important Persons.

Free travel benefits: Platinum and gold cardholders would be eligible for free round-trip tickets, further incentivising formal remittance channels.

Annual membership upgrades: Elite club membership would be reassessed yearly, with additional perks for top remitters, such as upgraded travel benefits.

Also, the government should develop a remittance app to simplify the process of sending money. Features could include payment gateway integration, transparent currency conversion rates, strong security measures and real-time transaction tracking.

LONG-TERM SOLUTIONS

Sustaining esteem and incentivising remittances: To maintain long-term engagement, the government should offer healthcare and educational benefits. Doing so would allow wage earners and their families to receive healthcare coverage and priority access to schools, thereby improving their social safety net.

Dignity and respect: Embassies and airports must adopt a customer-service approach, ensuring wage earners are treated with the respect they deserve. Special training programmes for embassy staff could be implemented to this end.

Social safety net: Offering wage earners access to pension schemes, scholarships for their children and government-backed housing loans would create loyalty and trust, incentivising formal remittances.

By treating wage earners as valued contributors to the economy and recognising their need for dignity, respect, and belonging, the country can significantly boost remittance inflows. These measures will not only alleviate the foreign currency crisis but also improve the lives of those who sacrifice so much for their families and the nation.

The author is chairman of Unilever Consumer Care Ltd and chief adviser of the board at Crown Cement Group​

 

[Saif]

IMF mission inquires about slow growth of revenue receipts

The fact-finding mission from the International Monetary Fund (IMF) inquired about the slow growth of direct tax collection under the National Board of Revenue (NBR).

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IMF mission inquires about slow growth of revenue receipts

The fact-finding mission from the International Monetary Fund (IMF) inquired about the slow growth of direct tax collection under the National Board of Revenue (NBR).

A four-member delegation from the Washington-based lender, led by Mission Chief Chris Papageorgiou, raised the issue during their scheduled closed-doors meeting with NBR officials at the tax authority's headquarters in Agargaon.

"The delegation asked why we failed to meet the IMF's revenue collection target in the previous fiscal year and what measures to increase revenue collection have been taken for FY25 and FY26," a top NBR official who attended the meeting said on condition of anonymity.

"It's a form of taking accountability," he told The Daily Star yesterday.

"We explained our real situation to them and said what we have done in recent times, including measures to increase tax return submissions."

The IMF mission also underscored the need to increase the tax-GDP ratio, which is one of the lowest in the world, by a minimum of 0.5 percent in each of the coming years, the official said.

The IMF mission arrived in Dhaka on Monday as part of a weeklong visit to assess Bangladesh's potential financial needs after the country sought an additional $3 billion loan.

The multilateral lender emphasised revenue mobilisation, especially as Bangladesh witnessed an 11 percent drop in revenue collection in the first two months of this fiscal year.

The tax authority logged Tk 42,106 crore in revenue in the July-August period, which is Tk 15,000 crore short of the revenue collection target for the period.

The target for the entirety of FY25 has been set at Tk 480,000 crore.

The NBR official further said that the mission had enquired about the tax expenditures and various reform measures, including automation of the taxation system and processes.

"We have been asked to reduce tax exemptions in a rational way," the official added.

The IMF team also agreed to extend their assistance for automation.

On a positive note, the team expressed satisfaction over the state of indirect taxation.

Md Bodruzzaman Munshi, second secretary of VAT Act and Rule at the NBR, said: "The fact-finding mission was pleased with the value-added tax collection.

"Last fiscal year, we crossed the IMF's VAT collection target, gathering over Tk 150,700 crore."

He added that the delegation asked to submit both medium- and long-term revenue strategies by December this year as well as provide an update on the progress of the digital transformation process.

The IMF mission held four meetings with the NBR yesterday, including the three wings for income tax, value-added tax and customs.​

 

[Saif]

Interest payments surpass Tk 100,000cr for first time

The government’s interest payments against foreign loans surged 24.5 percent in fiscal year 2023-24, exceeding the Tk 100,000 crore mark for the first time in history, thanks to higher borrowing costs for loans from both domestic and foreign sources.

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Interest payments surpass Tk 100,000cr for first time

The government's interest payments against loans surged 24.5 percent in fiscal year 2023-24, exceeding the Tk 100,000 crore mark for the first time in history, thanks to higher borrowing costs for loans from both domestic and foreign sources.

According to the finance ministry's fiscal report released yesterday, over Tk 114,000 crore was spent on interest payments in FY24, representing more than one-sixth of the national budget.

While spending on subsidies decreased slightly, the government missed the revenue targets set by the International Monetary Fund (IMF) for its ongoing $4.7 billion loan programme.

Initially, the government allocated Tk 94,376 crore for interest payments in FY24. However, this figure rose to over Tk 105,000 crore in the revised budget.

However, the actual figure even overshot the revised mark, indicating the government's dependence on borrowing to finance budget deficits.

Interest payments for foreign loans increased 60.53 percent to Tk 15,150 crore last year while rising 20.48 percent to Tk 99,606 crore for domestic loans.

In FY23, total interest payments amounted to Tk 92,110 crore.

A finance ministry official said the government's annual borrowing to finance budget deficits had led to a growing stock of outstanding loans.

As of March 2024, the government's total outstanding debt stood at Tk 1,697,415 crore, which is equivalent to 33.78 percent of the country's gross domestic product (GDP).

The Finance Division's Medium-Term Macroeconomic Policy Statement (MTMPS) said that interest payments would continue to rise gradually in the coming years.

The report mentioned that the proportion of external interest payments as a percentage of the national budget would rise to 2.6 percent in FY27 from 0.9 percent in FY22, reflecting the growing impact of external debt on the budget.

The report also said two major factors contributed to the increase in interest payments for foreign loans.

It further anticipated that reference rates in advanced economies, which serve as benchmarks for setting other interest rates, would remain elevated for some time.

Besides, Bangladesh's graduation from least developed country status in 2026 will gradually limit access to concessional loans from external sources, increasing borrowing pressure.

"This increase is attributed to a higher proportion of borrowing through floating and semi-concessional rates, which are more sensitive to market fluctuations compared to fixed-rate financing," said the report.

Moreover, the depreciation of the local currency taka against the US dollar has inflated the value of external debt when measured in terms of the local currency.

Regarding domestic borrowing, the banking sector has been the main source of funds. The Bangladesh Bank's recent policy rate increases have contributed to rising interest payments on domestic loans.

SUBSIDY EXPENDITURES DECLINE SLIGHTLY

The government has also been facing a new challenge due to significantly increased subsidy expenditures in recent years.

As such, the IMF has been pushing the government to reduce these expenditures by raising power and fertiliser prices.

In FY24, the government spent less on subsidies than allocated in the revised budget. In the revised budget, the total subsidy allocation was Tk 85,906 crore, but actual spending amounted to Tk 72,497 crore.

IMF TARGET MISSED AGAIN

After the IMF approved a $4.7 billion loan programme in January last year, the government struggled to meet the targets set for revenue and foreign currency reserves. In most cases, it has failed to achieve the targets.

As a result, the government had to seek a waiver for disbursal of three tranches of the loan so far.

For the fourth tranche, the IMF has set the target for tax revenue collection at around Tk 394,000 crore by June this year.

At the end of the last fiscal year, the government's tax revenue collection was Tk 369,000 crore, meaning it missed the target by Tk 25,240 crore.

BUDGET IMPLEMENTATION FALLS FLAT

Despite announcing large annual budgets, the government consistently fell short in implementation.

In the last fiscal year, the budget size was initially set at around Tk 761,000 crore before being revised to Tk 714,000 crore. However, total budget spending reached only Tk 602,000 crore.

The spending in the previous fiscal year was around Tk 574,000 crore.

Last year, the government allocated Tk 245,000 crore for the Annual Development Programme (ADP) in the revised budget but spent only Tk 188,000 crore.

In FY23, the ADP spending was Tk 192,000 crore.​

 

[Saif]

Progress slow in signing preferential trade deals with trading partners

There has been little progress regarding the signing of preferential trade deals by Bangladesh with major trading partners amidst the change in government following the anti-discrimination movement in July.

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Progress slow in signing preferential trade deals with trading partners

There has been little progress regarding the signing of preferential trade deals by Bangladesh with major trading partners amidst the change in government following the anti-discrimination movement in July.

Bangladesh wants to sign the free trade agreements (FTAs), comprehensive economic partnership agreements (CEPAs) and economic partnership agreements (EPAs) to continue enjoying zero-duty benefits once it graduates from the least developed country (LDC) status to that of a developing nation in 2026.

Initiatives had been taken for signing FTAs with China, Indonesia and members of the Association of Southeast Asian Nations (Asean), a CEPA with India and an EPA with Japan.

In this regard, Bangladesh has already conducted joint studies individually with India, China and Japan.

Formal negotiations were supposed to be launched soon but the fall of the Sheikh Hasina-led government on August 5 has led to the suspension of schedules.

"A meeting with Japan was supposed to be held in August in Dhaka…but this meeting is rescheduled for November and the date is yet to be confirmed," said a senior commerce ministry official asking not to be named.

Similarly, dates for formal talks with India and China could not be confirmed yet, the official also said.

There has been a slowdown in progress for the change in government, he added.

However, the official is hopeful that the interim government would start the negotiations soon.

Till date, Bangladesh has been able to sign only a preferential trade agreement (PTA) with Bhutan in December 2020 involving 100 goods of Bangladesh and 34 items of Bhutan.

The trade deals are necessary as higher duties will be imposed on Bangladesh after the LDC graduation.

Currently, Bangladesh as an LDC has been enjoying zero-duty benefits to 38 countries, including the 27 European Union (EU) nations.

However, after the LDC graduation, the local exporters will have to face duties on the shipment of goods and their competitiveness in global trade may wane.

However, the EU has announced plans to extend the trade facilities to the graduating LDCs for three more years to prepare for the status transition.

That means, Bangladesh will continue to enjoy the LDC trade benefits of the EU till 2029.

Moreover, Bangladesh and other LDCs have been negotiating under the World Trade Organization (WTO) for the extension of the trade benefits.

This prompted global leaders at the 13th WTO ministerial conference in Abu Dhabi to agree to extending the LDC trade benefits for three more years.

However, the countries need to undertake bilateral negotiations to enjoy the benefits.

The progress in negotiations has slowed and these should be reviewed, said Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID).

Primarily, the government should know whether it is prepared or not for launching the negotiation as capacity is a major factor in conducting trade deal negotiations with the trading partners, he said.

The preferential trade deals translate to tariff rationalisation as the partnering countries will always put pressure for reduction of tariffs for signing the final deals, he said.

Bangladesh should assess whether it is capable of rationalising the tariff structure as per demand of the partnering countries, said Razzaque.

Import duties are one of the major sources of revenue of the government as Bangladesh is one of the most protectionist countries with an average tariff rate of nearly 28 percent, he said.

One of the largest sources of import duty is China.

Bangladesh annually imports more than $20 billion worth of goods from China. From this, the government's revenue department earns more than Tk 25,000 crore.

Meanwhile, after the change in government, a section of businesspeople has been urging the interim government to review whether Bangladesh truly fits the criteria for LDC graduation.

There is a lot of mismatch in export and import data among different government bodies, for which questions remain over the country's actual economic potential, they say.​

 

[Saif]

Is decline in import concerning?

The moderate decline in the country's overall external trade with the rest of the world in the last fiscal year is not surprising. Both exports and imports dropped in FY24, leading to a fall in overall trade in terms of value. The decline in merchandise imports, which was much higher than that of e

thefinancialexpress.com.bd

Is decline in import concerning?
Asjadul Kibria
Published :
Sep 28, 2024 22:00
Updated :
Sep 28, 2024 22:00

The moderate decline in the country's overall external trade with the rest of the world in the last fiscal year is not surprising. Both exports and imports dropped in FY24, leading to a fall in overall trade in terms of value. The decline in merchandise imports, which was much higher than that of exports, indicates the sluggish internal demand and foreign exchange crisis in the country.

Statistics available with Bangladesh Bank showed that payment for merchandise import dropped by 11 per cent to US$66.73 billion in the last fiscal year from $75.06 billion in FY23. It was the second consecutive drop in import of goods in the country. In FY23, import value fell by 15.81 per cent from $89.16 billion in FY22. Again, the fall of imports in the last fiscal year was a decline for the third time in the past decade. During the decade, imports first dropped by 8.56 per cent in FY20, whereas the highest growth of imports was recorded at around 36 per cent in FY22. Payments for services import, however, almost unchanged at $10 billion in the last fiscal year. Merchandise exports declined by 4.35 per cent in FY24, reaching $44.48 billion, whereas services exports dropped by 9.78 per cent to around $6.30 billion.

The total value of external trade stood at $127.60 billion in the last fiscal year, a significant drop from $138.60 billion in FY23. This decline in trade is not just a number on a balance sheet; it has real implications for the country's national income. The trade-GDP ratio came down to 28.90 per cent in the last fiscal year from 31 per cent in FY23, according to the preliminary estimation of the Bangladesh Bureau of Statistics (BBS). This decrease in the trade-GDP ratio is a clear indicator of the impact of the trade decline on the country's economic health.

The requirements of higher import payments coupled with a gradual increase in external debt liability drove the rapid depletion of foreign exchange reserves since FY22. The gross forex reserve reached $41.82 billion at the end of FY22 from $46.40 billion in FY21. As it was not possible to suspend the debt repayments, the central bank started to allow currency depreciation and discourage luxury and less-essential imports of goods to contain the fast depletion of reserves. Nevertheless, the forex reserve further dropped to $31.20 billion at the end of FY23, and the declining trend continued till the end of FY24 when gross forex reserve came down to $26.71 billion while the net or disposable reserve slid to $21.69 billion.

In the meantime, the reduction in import payments continued due to various restrictive policy measures implemented by the central bank to curb import growth as well as to reduce the import-induced inflationary pressure. According to a brief analysis of the central bank, factors such as exchange rate depreciation and global price hikes also contributed to the downturn in the last two fiscal years. Specifically, the import cost of intermediate goods, constituting around three-fifths of the total import payments, declined by 20 per cent in FY23 and 9 per cent in FY24. Among the intermediate goods, the import cost of petroleum goods, however, increased by 6.10 per cent in the last fiscal year. The import of capital goods declined by 21.9 per cent, and the import of food grains declined by 20.80 per cent during the period under review.

The decline in imports is also linked to the country's aggregate demand, which also moderated slightly in the last fiscal year. In constant price, domestic demand increased by 4 per cent in FY24, which posted only 2 per cent growth in FY23 but 14 per cent in FY22.

Globally, Bangladesh is now the 51st largest country in terms of merchandise import, according to the World Trade Statistics 2023. Released by the World Trade Organization (WTO) in July last with a new interactive tool, it also showed that the country's annual merchandise import was 0.28 per cent of the global import trade last year. In 2022, the country ranked 47th having 0.34 per cent share in the world import trade. Bangladesh is also the second largest importer in South Asia, after India which ranked 9th in 2022 and 8th in 2023.

The WTO statistics also showed that in the last year, international trade in goods and commercial services dropped on average by 2 per cent to $30.5 trillion, on a balance of payments basis. Trade in goods declined by 5 per cent whereas services trade increased by 9 per cent. The situation in Bangladesh is also largely aliened with the global trend.

As Bangladesh used to import more than export, there is always a trade gap with the rest of the world. Bangladesh Bank data showed that merchandise trade gap stood at $22.43 billion in FY24 from $27.38 billion in FY23. This trade gap, while significant, is due to a slower decline in both exports and imports in the last fiscal year compared to FY23. It's important to note that a trade gap is not always a matter of concern, as it can be a result of strategic import decisions to support domestic industries and economic growth.

There is a misperception in the country that a decline in exports is always a matter of concern, whereas the same trend in imports is not an alarming issue. This is because exports bring foreign exchange from the outside world, and imports cause outflow of the foreign exchange. However, it's crucial to understand that the country's exports largely rely on imports, especially for various raw materials, intermediate goods and capital machinery. For instance, one-fourth of the gross export of ready-made garments (RMG) is the import of raw materials. In other words, the net export of RMG is around three-fourths of the gross export. Cotton, yarn, textile and fabrics are the four key components of RMG, largely imported from abroad. That's why Bangladesh was the fifth largest textile importer last year although the country ranked third as exporter of RMG. Again, the country also imports food grains and consumer items like wheat, edible oil, sugar, pulse, etc, to meet the domestic demand.

So, what is more challenging is importing at a relatively lower price and sourcing the products at a competitive rate. This will help reduce the cost of domestic production of many items and also exportable goods. To achieve this, the country could consider negotiating better trade deals, investing in domestic production capabilities, and improving trade infrastructure. Finally, a rebound in imports is necessary to attain higher economic growth.​

 

[Saif]

Restoring macroeconomic stability, law & order vital: Experts

Discussants at a seminar on Saturday said that restoring macroeconomic stability, law and order situation especially in industrial belts, and rebuilding confidence among entrepreneurs is now vital to streamline the country’s economy in the next development trajectory. They also put emphasis on...

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Restoring macroeconomic stability, law & order vital: Experts
BSS
Updated: 28 Sep 2024, 21: 56

Speakers addressing at a seminar on “Bi-annual Economic State & Future Outlook of Bangladesh Economy-Private Sector Perspective” held at Dhaka Chamber of Commerce and Industry (DCCI) auditorium in the capital on Saturday. BSS

Discussants at a seminar on Saturday said that restoring macroeconomic stability, law and order situation especially in industrial belts, and rebuilding confidence among entrepreneurs is now vital to streamline the country’s economy in the next development trajectory.

They also put emphasis on ensuring food security, containing inflation and boosting tax-GDP ratio among some of the key issues where the interim government should put urgent focus in the days ahead.

The speakers made the remarks at a seminar on “Bi-annual Economic State & Future Outlook of Bangladesh Economy-Private Sector Perspective” held at Dhaka Chamber of Commerce and Industry (DCCI) auditorium in the capital.

Former director general of Bangladesh Institute of Development Studies (BIDS) KAS Murshid, professor of Dhaka University and executive director for Research and Policy Integration for Development (RAPID) Mohammad Abu Eusuf and director (research), Chief Economist’s Unit, Bangladesh Bank Md Salim Al Mamun spoke as panel discussants.

DCCI president Ashraf Ahmed made the key-note presentation on the topic.

Speaking on the occasion, noted economist KAS Murshid said in the future, growth has to be broad-based while there is a need to think highly about education, health, and social justice.

“We’ve to be inclusive as only growth itself won’t be enough, rather quality of growth will make a sense,” he said.

Murshid, also the chief of the taskforce to reframe the development strategies, said that for attaining quality growth, there is a need to continue investment in food security as well as in energy security.

In securing energy security, he said that energy mix and pricing policy is very much vital as the pricing policy over the years was a total mess. “We need to streamline it so that it becomes beneficial economically. We also need to ensure that there is no decision taken arbitrary and on ad-hoc basis."

Besides, the former director general of BIDS suggested that the government needs to have a national upskilling policy where the thrust should be on technology.

He noted that over the next 10 years, AI and digital-based knowledge economy would transform production, employments and industrial ecosystem where the government needs to put urgent attention.

Noting that it would not be possible in the future to become competitive with the low-wage labour, he said that the country would have to go for generating more highly productive labour.

The noted economist also stressed on restoring law and order situation in the country as well as trust and confidence among the entrepreneurs and industrialists, focusing more on broad-based growth, undertaking some regulatory reforms, putting more focus on research and development, diversifying exportable items and markets and attracting more investment especially FDI.

Prof Mohammad Abu Eusuf said maintaining macroeconomic stability is now crucial than ever for the sake of overall economic development.

“Moreover, we’ve to have actual realistic data of number of population, GDP size and other statistical components to research the actual scenario of the economy,” he added.

Prof Eusuf termed three ‘R’ namely RMG, remittance and rice production as the most important issues now while underscored the need for product diversification for increased export growth.

He further said that if the leather sector of Bangladesh gets adequate support, then it can fetch at least $10 billion a year.

The RAPID executive director also urged for enhancing tax-GDP ratio, revenue from the direct tax, preparing a roadmap for 5 to 10 years and thus taking action plan.

Besides, he proposed for recognizing the expatriate Bangladeshis as ‘remittance warriors’ through providing them with extra facilities as the inward remittance flow is likely to hit $27 billion to $30 billion in this financial year.

He also underscored the need for better coordination among the monetary policy, fiscal policy and market management.

Besides, he proposed for recognizing the expatriate Bangladeshis as ‘remittance warriors’ through providing them with extra facilities as the inward remittance flow is likely to hit $27 billion to $30 billion in this financial year.

Salim Al Mamun said that holistic approach has been taken for the reforms in the financial sector.

“The Bangladesh Bank has also been trying to modernize policies concerned. To contain inflation, BB has taken few measures like policy rate hike, tightening monetary policy etc. which may bring positive results soon,” he added.

He also echoed that the main challenge is now to face the challenge of macroeconomic stability.

Regarding the central bank’s current strategy of higher interest rates and tighter liquidity management, DCCI president Ashraf Ahmed suggested that the strategy should be reversed as soon as inflation comes under control.

He expected that the balance of payment issues to be resolved soon, the trend of devaluation of taka will come down once US dollar rate falls which could help cut the energy prices as well.

He underscored the importance of mid-term reforms in various policies, investments and operating procedures of various government bodies for creating a better business environment and investment climate.

To control inflation, he suggested for strong domestic supply chain mechanism, minimizing wastages, improvement of age-old market logistic system and implementing modern market mechanism in place.
“We’re also witnessing few issues with NPL within a small segment of the banking system—reportedly only ten banks are badly affected, indicating that the remaining banks are in acceptable health,” he added.

Ashraf pointed out that due to high interest rate, higher exchange rate and increasing cost of capital, the actual effective credit flow to CMSME sector has been on a downward trend.

He requested to maintain the flow of loan disbursement in the CMSME sector so that they have enough working capital in hand.

To control inflation, he suggested for strong domestic supply chain mechanism, minimizing wastages, improvement of age-old market logistic system and implementing modern market mechanism in place.

Regarding the labour unrest in the industrial belt including in Ashulia, the DCCI president termed it as ‘fearful’ and said that such situation could not be allowed to continue. Otherwise, growth and employment generation will be affected, he added.

Ashraf also termed electronics and semiconductor sector as one of the most promising areas in the export basket after RMG.​

 

[Saif]

IMF reaffirms support in fighting economic challenges

The International Monetary Fund (IMF) has reaffirmed its support for Bangladesh’s interim government in overcoming the various economic challenges the country has been facing in recent times.

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IMF reaffirms support in fighting economic challenges

The International Monetary Fund (IMF) has reaffirmed its support for Bangladesh's interim government in overcoming the various economic challenges the country has been facing in recent times.

In a statement issued yesterday upon completion of its fact-finding mission's visit to Dhaka, the IMF said the country's financial sector vulnerabilities have become more pronounced.

"We support the authorities' efforts to initiate policy adjustments, including continued monetary tightening and rationalising non-priority capital spending, in response to these challenging circumstances," the lender said in the statement.

After assuming office, the interim government sought a fresh $3 billion loan from the IMF in addition to the ongoing $4.7 billion loan programme approved in January of last year.

Of the $4.7 billion, $2.3 billion has already been disbursed.

The multilateral lender said further discussions on renewed support would be held during the upcoming 2024 IMF-World Bank Annual Meetings in Washington DC from October 22.

From September 24 to 30, the IMF mission team, led by Chris Papageorgiou, visited Dhaka to discuss needs assessments and identify economic challenges.

After the visit, the IMF said that "economic activity has slowed markedly while inflation remains at double-digit levels owing to the recent turbulence and major floods.

"The deterioration in the balance of payments has put additional pressure on foreign exchange reserves. Concurrently, tax revenue collection has declined, while spending pressures have increased and domestic payment arrears have accumulated.

"Financial sector vulnerabilities have become more pronounced," the IMF said.

"In this context, the authorities and IMF staff have held open and productive discussions on the policies and reforms needed to address these emerging challenges," the statement continued.

"The IMF remains a steadfast partner, fully committed to supporting Bangladesh and its people," it added.

"Within the framework of the ongoing IMF-supported programme, we will continue to work closely with the authorities to advance Bangladesh's reform agenda, which aims to ensure macroeconomic stability, promote job creation, strengthen institutions, and foster strong, sustainable and equitable growth."

"We welcome the authorities' renewed commitment to implementing the reforms under the IMF-supported programme. Discussions on how to proceed with programme reviews will continue during the upcoming 2024 IMF-World Bank Annual Meetings," the statement added.

IMF Managing Director Kristalina Georgieva met with Chief Adviser Prof Muhammad Yunus in New York on the sidelines of the United Nations General Assembly last week.

At the meeting, the IMF assured the interim government of providing more loans on a "fast-track" basis.

Georgieva said the IMF "would fast-track financial support for the government" and that she had sent a team to Bangladesh "quickly".

The team will submit its report to the IMF management board this month.

Georgieva also said the IMF board could initiate a new lending programme for Bangladesh based on the team's report or could extend the existing loan program.

During their visit to Dhaka, the IMF team met with Finance Adviser Salehuddin Ahmed, Bangladesh Bank Governor Ahsan H Mansur and other senior officials.

They also met with representatives from the private sector, think-tanks, bilateral donors and development partners.

In the statement, the global lender expressed sorrow over the deaths during the student-led mass uprising.

"We are deeply saddened by the loss of lives and injuries during the recent public uprising and stand in solidarity with the people of Bangladesh during these difficult times," it said.

"The timely formation of an interim government has helped stabilise political and security conditions, fostering a gradual return to normalcy in the economy," it added.​

 

[Saif]

Sustaining higher remittance inflow

What amounts of remittance dollars the wage earners are sending home every month from abroad had never been so concerning as it is now. This is for the simple reason that remittance is the major source of hard currency to supplement the country's declining foreign exchange reserve. Notably, the res

thefinancialexpress.com.bd

Sustaining higher remittance inflow
Published :
Oct 04, 2024 22:02
Updated :
Oct 04, 2024 22:02

What amounts of remittance dollars the wage earners are sending home every month from abroad had never been so concerning as it is now. This is for the simple reason that remittance is the major source of hard currency to supplement the country's declining foreign exchange reserve. Notably, the reserve has been falling after reaching a peak in August 2021 at US$48 billion. At that time, inflow of remittance increased but the outflow of foreign currency reduced significantly as the economy came to a virtual standstill thanks to the Covid-19 pandemic. But from the following months the scenario began to change as economic activities resumed with increase in the expenditure of foreign currency to meet obligations of external trade such as footing the import bills, servicing debts, etc. In consequence, the net reserve started to shrink and the trend has shown no respite since despite the austerity measures like discouraging non-essential imports, restricting foreign travels and so on adopted by the previous government.

Amid this gloom, the report that the country recorded last month the third highest remittance receipt of US$2.40 billion in the last 50 years is indeed uplifting. In comparison with the remittance receipt of US$1.33 billion in September 2023, this is an 80 per cent increase year-on-year. Why was this sudden surge in remittance inflow without any Muslim religious festival when higher remittance is received? The higher amounts of remittance receipt of US$2.22 billion recorded in August and in September have left observers guessing what exactly prompted remitters to send more money. This may be a mark of the remitters' confidence in the interim government.

However, the highest ever remittance amounting to US$2.59 billion was sent by expatriate wage earners in July 2020 followed by the second highest at US$2.54 billion in last June, 2024. Now the question is, if this rising trend in remittance receipts would sustain in the long run. According to some central bank (Bangladesh Bank, BB) officials as reported in this paper, proactive measures taken by the BB under the new government like further depreciation of Bangladesh Taka against US dollar, increasing flexibility of BDT-USD exchange rate regime by expanding the so-called 'crawling peg mid-band', thereby bringing the exchange rate closer to the informal forex market, etc. have been behind this improved picture of remittance. These steps by BB definitely encouraged expatriate wage earners to send money through official banking channels as it proved more rewarding than before.

Now to sustain the trend of higher remittance inflow, praise for the remitters will not be enough. They don't get any effective protection from the government even when they seek employment through registered recruiting agencies. They are exploited, maltreated and cheated at every step of their journey abroad. Worse yet, as they are mostly manual labourers and do not have much education, officials at Bangladesh's diplomatic missions in the host countries often fail to cooperate at the expected level when expatriate workers approach them for any service. So, alongside a change in attitude on the part of officials, the focus should be more on sending trained and qualified workers and professionals abroad with better-paying jobs so that they may send higher amounts of remittance home. Sooner the government will take these measures, the better the prospect of remittance inflow for improving the reserve situation.​