[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

PM urges ADB to help Bangladesh implement blue economy

Prime Minister Sheikh Hasina yesterday sought cooperation from the Asian Development Bank in implementing blue economy and extract every resources from country's maritime boundary

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PM urges ADB to help Bangladesh implement blue economy

Prime Minister Sheikh Hasina yesterday sought cooperation from the Asian Development Bank in implementing blue economy and extract every resources from country's maritime boundary

She made the request while visiting ADB vice president Yingming Yang called on her at her office in Sangsad Bhaban.

PM's press secretary M Nayeemul Islam Khan briefed reporters afterwards.

Hasina also sought help in agricultural research. She mentioned that the per capital income and purchasing capacity of the people of Bangladesh needed to be improved.

"We want to develop Bangladesh as a big market particularly for our own products," she said.

She put emphasis on the production of the agricultural products as she mentioned that ensuring food security is the priority for the government.

Hasina also sought logistic support from the ADB to strengthening Bangladesh's competitiveness for its export items after the graduation from the LDC status in 2026.

She briefly described various short, medium and long term programmes of the government to improve the country in to a developed one by 2041.

The prime minister asked the ADB to assist Bangladesh in integrated river management including river training, capital dredging and maintenance dredging.

Yingming said ADB has decided to increase their support in urban and water policy from 13 percent of the total support to 26 percent.

He mentioned that ADB wants to assist Bangladesh in health project and digital technology apart of collaborating in agricultural research in longer version.

He said ADB wants to help Bangladesh in primary education and healthcare skills development in their new five year plan.

The ADB vice president said ADB wants to develop a city master plan for Bangladesh to better usages of available resources.

In this connection, the premier asked them to consider upazilas in Bangladesh for their project.​

 

[Saif]

Net reserves now $16.77b, BB releases data for the first time

The central bank has shared data of the net international reserves (NIR) of Bangladesh for the first time.

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Net reserves now $16.77b, BB releases data for the first time
The central bank has shared data of the net international reserves (NIR) of Bangladesh for the first time.

The NIR now stands at $16.77 billion, Bangladesh Bank Spokesperson Md Mezbaul Haque told reporters yesterday.

The net reserves represent readily-available cash derived from gross reserves.

It is calculated by excluding short-term liabilities from the gross reserves in line with the International Monetary Fund's BPM6 formula.

The central bank usually calculates the foreign exchange reserves using two methods.

One is as per the Balance of Payments and International Investment Position Manual (BPM6), the method used by the IMF, while the other is produced using the central bank's own calculation method.

As per the BPM6 method, the gross reserves stood at $21.83 billion on June 30, up from $19.4 billion on June 26, the spokesperson said.

As per the central bank's own method, gross reserves stood at $26.88 billion on June 30.

Bangladesh's monthly import bill is around $5 billion, which means Bangladesh will be able to cover at least three months of import bills using the NIR.

Bangladesh also achieved the targeted foreign exchange reserves set by the IMF for the first time since agreeing to a $4.7 billion loan programme, which has also played a big role in tackling the forex crunch.

The target was set at $14.7 billion for June.

The reserves also received a boost on June 24, when the IMF approved $1.15 billion in the third tranche of the loan.

The country's foreign exchange market has been volatile because of higher dollar outflow despite the government's austerity measures, including controlling import payments.

Since August 2021, the forex reserves have fallen by $24 billion.​

 

[Saif]

Bangladesh eyes longer-term loans at fixed rates to manage debt better

The government aims to borrow more from the domestic sector at fixed rates and for longer periods and cut reliance on Treasury bills with a view to keeping debt risks lower and avoiding exchange rate volatility.

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Bangladesh eyes longer-term loans at fixed rates to manage debt better

The government aims to borrow more from the domestic sector at fixed rates and for longer periods and cut reliance on Treasury bills with a view to keeping debt risks lower and avoiding exchange rate volatility.

Although the risk posed by the ballooning debt is still moderate for Bangladesh, the exchange rate risk has heightened over time owing to its growing reliance on foreign loans, a government paper said.

This has prompted the government to rethink about its borrowing strategy.

According to the government's Medium Term Debt Management Strategy, the risk emanating from the existing debt portfolio is moderate primarily because most loans are denominated in the local currency while external loans have a long maturity period.

The domestic debt is, however, more expensive than external loans, it said. In the last financial year that ended on June 30, the weighted average cost of funds was 1.4 percent for external loans and 9.6 percent for domestic credits.

The data on Bangladesh's debt portfolio from the fiscal year of 2006-07 to 2022-23 highlights the shift in the composition of the total debt and the factors influencing it.

The total debt as a percentage of gross domestic product decreased from 35.9 percent in FY07 to 26.2 percent in FY17. There has been an upward trend since then, reaching 36 percent in FY23.

At the end of the just-concluded fiscal year, domestic debt is projected at 56 percent while the remaining is external debt.

The higher refinancing risk associated with domestic debts due to its shorter average time to maturity (ATM) and a higher percentage of debt maturing within a year (30.7 percent) indicates the necessity to further extend the maturity profile.

ATM is defined as the average remaining time to maturity for each security or contract composing a debt instrument, a commonly used measure for assessing interest rate sensitivity.

While a substantial portion of the debt has been secured at fixed rates, the shorter average time to refixing is 3.8 years for domestic debts compared to 8.8 years for external debts.

"This suggests that domestic debt is more vulnerable to interest rate fluctuations," said the document. The average time to refixing is a measure of weighted average time until all the principal payments in the debt portfolio become subject to a new interest rate.

"Strategies should, therefore, aim to increase the proportion of longer-term fixed-rate domestic debt."

Bangladesh's economy has grown at a faster pace over the past decade and a half, and the government plans to accelerate it.

In order to achieve the goal, the pace of investment in soft and physical infrastructure needs to pick up. Since revenue collections are not enough to cover the much-needed investments, Bangladesh has resorted to deficit financing, in line with standard practices around the world.

Sourcing this necessary financing through external as well as domestic sources is always competitive, the document said.

It said due to the terms of trade deterioration because of the war in Ukraine, Bangladesh's foreign currency reserve has come under severe pressure.

The gross reserves stood at $21.99 billion on Thursday, down from $41.7 billion in August 2021.

"The need to keep financing the growth-inducing investments and continue the reform in the fiscal sector with a keen focus on maintaining the debt sustainability is an imperative now," the document said.

The government has identified four alternative financing strategies, and they are being considered to cover the financing needs from FY24-25 to FY26-27.

Strategy 3 is the most preferred considering the cost and risk of new debt as it puts more emphasis on domestic market development, it said.

It examines an expansion in the issuance of medium-term and long-term T-bonds, consistent to support the development of the securities market.

The government has targeted to bring down the external debt to 16.7 percent of the total loan in FY27 from 22.9 percent in FY25. On the other hand, it aims to raise domestic debt to 83.3 percent in FY27 from 77.1 percent in FY25.

The share of T- bonds in gross financing needs to increase from 21.9 percent in the new fiscal year to 48.3 percent in FY27. The stake of T-bills will go down from 39.3 percent to 22.2 percent during the period.

The government is aware that as the liquidity position in the financial market remains tight, there will be some challenges to implement the strategy.

"The government will pursue external investment in the domestic debt market to alleviate the pressure," the paper said.

As per strategy, the government does not plan to issue any international sovereign bonds.

"The government's objective is to maintain the reforms already in place and plan and implement others as and when practicable."​

 

[Saif]

A bright spot: Govt project costs Tk 100cr less than estimate

There is a common allegation that the actual implementation costs of government projects inevitably exceed the estimated costs due to a number of reasons, including time extensions and unnecessary expenditures.

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A bright spot: Govt project costs Tk 100cr less than estimate

A view of the Bangabandhu Sheikh Mujib Shilpa Nagar, the biggest economic zone in Bangladesh. Built on about 33,800 acres of land in Chattogram, the BSMSN is located 200 kilometres away from Dhaka and 70 kilometres from both Chattogram port and Shah Amanat International Airport. Photo: Star/file

There is a common allegation that the actual implementation costs of government projects inevitably exceed the estimated costs due to a number of reasons, including time extensions and unnecessary expenditures.

However, the Implementation Monitoring and Evaluation Division (IMED) of the Ministry of Planning has found a project standing out as an exception, for which the implementation cost was Tk 100 crore less than estimated.

The gas pipeline construction and distribution project of the Bangabandhu Sheikh Mujib Shilpa Nagar (BSMSN) lays claim to this achievement, according to an IMED assessment.

The assessment said Karnaphuli Gas Distribution Company implemented the project between May 2017 and June 2019 at a cost of Tk 305.98 crore against an estimate of Tk 406.93 crore.

Initially, Tk 367.10 crore was approved before a revision for "river crossing by Horizontal Directional Drilling etc" increased the cost by about Tk 40 crore, or 11 percent, to Tk 406.93 crore.

Due to various reasons, progress has been achieved in some aspects of the project without any additional expenditure and in some cases at a lower cost, the IMED said.

The report said in terms of land acquisition and requisition, the Bangladesh Economic Zones Authority (Beza) provided land for free for a valve station.

Besides, land previously acquired by Beza was used for construction of a 20 feet wide pipeline of Karnaphuli Gas Distribution Company and Gas Transmission Company, which meant no funds were required for land acquisition, it said.

"Besides, in case of river crossing and installation of cathodic protection system under horizontal directional drilling method on Engineering, Procurement, and Construction (EPC), the actual work required is less than the project plan estimated," it said.

Another reason behind the costs being lower is the absence of detailed feasibility studies by independent consulting firms, said the report.

Under the project, a gas distribution pipeline has been constructed up to Mirsarai industrial area or BSMSN, the report added.

As a result, infrastructure for gas supply has been created in the area and gas connections have already been provided to three industrial customers in that industrial area, it said.

Against this backdrop, the aims of the project have been achieved, the IMED said.

It also said as new industries would come under gas connection as a result of the implementation of the project, the positive impact of the project would increase.

However, the IMED said the estimated costs of various procurement packages of the project were not in line with market rates as the contractor submitted bids significantly higher than the estimated costs.

As a result, tenders had to be floated again and again, it said.

Besides, there was no feasibility study by a third party before the project was undertaken, hence the cost estimation and scope of work of various parts of the project was not proper, it said.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said it was a good example that the entity implementing the project could save government revenue as the Beza did not charge anything for land.

The money saved can be used for other projects, which is important during an economic crisis, he said.

However, the funds were not saved by virtue of efficiency of the implementing entity, rather it was due to Beza's generosity, he said.

He believes such a scope was available for a number development projects, which could have led the implementing entities to save funds.​

 

[Saif]

Financial account turns positive as govt adjusts data as per IMF advice

The financial account has turned positive after more than a year, yet it might not be good news for Bangladesh since it is the result of the revision of national data in line with IMF prescription and does not indicate improvement in the health of the economy.

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Financial account turns positive as govt adjusts data as per IMF advice

The financial account has turned positive after more than a year, yet it might not be good news for Bangladesh since it is the result of the revision of national data in line with IMF prescription and does not indicate improvement in the health of the economy.

During July to April of the just-concluded fiscal year, the financial account stood at $2.23 billion, which was negative for more than a year, data from the Bangladesh Bank showed.

A key part of the balance of payments, the financial account covers claims or liabilities to non-residents concerning financial assets. Its components include foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investments, and reserve assets.

On the other hand, the balance of the current account, which records a nation's transactions with the rest of the world, slipped to negative territory in the first 10 months of 2023-24. It stood at $5.72 billion in negative, BB data showed.

A senior official of the central bank told The Daily Star that the change in the BoP had occurred due to the change in accounting method.

He explained the gap between the figure provided by the Export Promotion Bureau (EPB) and the BB has been adjusted. "That's why, the current account balance turned negative while the financial account became positive."

For a long period, there was more than a $10 billion gap between the export data provided by the EPB and the BB, with the former showing a higher shipment compared to the latter, raising questions.

This prompted the International Monetary Fund (IMF) to come up with the observation in December last year that Bangladesh might have experienced capital flight in 2022-23 evidenced from the unusual outflow of funds as well as unrealised export proceeds.

It said the financial account experienced an outflow of 0.5 percent of GDP in 2022-23, compared to inflows historically averaging about 2.5 percent of GDP, signaling capital flight.

Yesterday, officials of the central bank said the EPB publishes figures based on the data from the customs department. Due to procedural reasons, the customs department took into account the same export data more than once in many cases, which is known as double or triple counting.

They said that even when shipments were rejected by the customs, they were still considered while preparing the export data. As a result, the EPB data showed higher exports than the actual sales in the global markets by local exporters.

The gap has been adjusted as per the recommendation of the IMF's $4.7 billion loan programme.

Following the revision, export earnings fell 6.8 percent to $33.67 billion in July-April of 2023-24. It rose 3.93 percent year-on-year to $47.47 billion when the EPB disclosed the data for the same period in May.

Speaking to The Daily Star, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said that the revision in the BoP is the result of the change in accounting methodology.

"The financial account turned positive due to the change," he said, adding that it does not indicate that the economy's health has improved.

Bangladesh has been facing an economic crisis for the past two years owing to a sharp fall in foreign currency reserves, driven by higher outflows compared to inflows.

Inflation has surged while the local currency has lost its value by a third.

The economist said that there are some positive signs in the economy, but it will take some time to bring down higher inflation.

BB data showed that trade credit stood at negative $1.68 billion in July-April against a positive $2.43 billion during the same period of FY23. Net FDI rose 0.7 percent to $1.36 billion.

Imports fell 12.3 percent to $52.37 billion and the trade gap was $18.69 billion, down from $23.60 billion a year ago.

The overall balance was $5.56 billion, again a decrease from $8.80 billion.​

 

[Saif]

Rise in remittance: Momentum needs to be maintained

After a period of two years marked by sluggishness, the inflow of remittance has finally rebounded, offering a glimmer of hope for the economy. This is undoubtedly positive development at a time when the economy is under pressure due to high inflation and fast depletion of the foreign exchange rese

thefinancialexpress.com.bd

Rise in remittance: Momentum needs to be maintained
Published :
Jul 03, 2024 21:38
Updated :
Jul 03, 2024 21:38

After a period of two years marked by sluggishness, the inflow of remittance has finally rebounded, offering a glimmer of hope for the economy. This is undoubtedly positive development at a time when the economy is under pressure due to high inflation and fast depletion of the foreign exchange reserve. According to provisional statistics available with the Bangladesh Bank (BB), Bangladeshi expatriates sent a total of U$$23.92 billion as remittances through official channels in the just-ended fiscal year (FY24), marking an increase of 10.70 per cent over the previous year's modest 2.76 per cent growth. It's worth noting that the inflow of remittance had sharply declined in FY22, by 15 per cent, after a record growth of 36 per cent in FY21.

A big depreciation of the local currency, around 9 per cent, against the US dollar is one of the critical factors that has contributed to the increase in inward remittance flow. However, it needs to be reviewed with caution. In FY23, the local currency depreciated by 11.84 per cent against the greenback when the growth of inward remittance was a modest one. So, a big depreciation of local currency only temporarily incentivises expatriates to send money in bigger volumes home. Depreciation of Taka coupled with increase in cash incentive from 2.5 per cent to 5.0 per cent might have encouraged a greater number of expatriates to send their earnings using formal channels. Besides, a notable rise in the number of outbound workers could be another reason for a modest surge in remittance earnings, although the same is yet to match the growth in the number of migrant workers during the last couple of years. For instance, there was a 15 per cent rise in manpower export in FY23, as per the Bureau of Manpower, Employment & Training (BMET), whereas the annual inflow of remittance registered less than 3 per cent growth in the year.

At least three factors contribute to the weak link between remittance earnings through the formal channel and manpower export. First is the primacy of informal money transfer channels, triggered by exchange-rate-related challenges in the domestic economy, as mentioned by the World Bank's Migration and Development Brief 40 released last month. It pointed out that the parallel market exchange rate premium affects the flow of remittances. So, there was also a diversion of remittances from formal to informal channels in Bangladesh. Second, a large number of outbound workers receive a tiny amount as compensation that may compel them to send a small amount of remittance. Third, the growing cost of remitting money home makes it more difficult for many wage earners abroad. The World Bank report showed that from the United Arab Emirates (UAE) to Bangladesh remittance corridor, the cost increased by 172 per cent from 5 per cent, the sharpest increase in all the corridors in South Asia.

In this situation, the government must put rigorous efforts into supporting the formal banking channel to bring more remittance and support the country's overall balance of payments. The recent surge in remittance inflow is a positive sign amidst a tight reserves situation. The government must do the needful not only to maintain the momentum but also to give it a greater push.​

 

[Saif]

$14b export data puzzle is unnerving

You can lie with data or illuminate the truth with data. And there’s something in between -- half-truths.

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$14b export data puzzle is unnerving

You can lie with data or illuminate the truth with data. And there's something in between -- half-truths.

A $14 billion correction in export figures by the central bank is necessary because it addresses one economic half-truth.

But half-truths are unnerving.

The data revision that came on Wednesday through a regular update on the balance of payments raises disturbing questions about the country's economic performance and the policy that revolved around it.

The shocking revelation has sent economists scrambling for answers, but there are more questions than answers as the authorities are almost silent.

What's clear is that the discrepancy in export figures again underscores the importance of accurate macroeconomic data. A lack of statistical accuracy can upend many indicators. The calculation of gross domestic product is one of them.

Such a big discrepancy is "unbelievable", said MK Mujeri, an economist and former director general of the Bangladesh Institute of Development Studies.

Export and import data calculation is a simple task, but big mistakes such as this by officials raise questions over the authenticity of other components of the economy. "Entire GDP estimates should be revisited," said Mujeri.

His stance concurs with the views expressed by other economists.

"If the ratio of this discrepancy has significantly increased over time, then that should necessitate revisiting the growth estimates," said Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh.

With the disclosure, some other issues came to a head as well.

The statistical revision suggests that Bangladesh Bank and the finance ministry have finally accepted that no significant export earnings are retained abroad as exporters have claimed for years. That means the trade deficit is much larger than originally presumed. That also indicates that the target of reaching $110 billion in exports by 2027 is far from realistic.

"In other words, we should now formulate a more realistic export strategy and identify what exact constraints are hindering our export performance," Ashikur said.

The difference between export figures calculated by the Export Promotion Bureau and Bangladesh Bank persisted for at least 12 years, with the gap crossing $12 billion in fiscal 2022-23.

Economists have long been referring to the puzzle. Finally, the central bank woke up and reconciled the mismatch for the July-April period of fiscal 2023-24. As a result, exports fell 6.8 percent during this period, a sharp contrast with a 3.93 percent growth shown in the EPB's figures released earlier.

What's more, Bangladesh runs the risk of reputational damage abroad. The country's image as a garment powerhouse defined by the sheer volume of shipments will be seriously dented. Clothing exports, which make up about 10 percent of the economy, are an important indicator that sets the country apart from its peers.

SOME ESTIMATES ARE OBSOLETE NOW

It is going to create serious data chaos. Whatever Bangladesh has estimated in the past has now become "mostly irrelevant", said Fahmida Khatun, executive director of the Centre for Policy Dialogue.

The EPB publishes figures based on the data from the customs department. Apparently, for procedural reasons or otherwise, the customs department took into account the same export data more than once in many cases, known as double or triple counting.

As per the EPB data, exports were $47.47 billion in the July-April period of fiscal 2023-24. However, the amount stood at $33.67 billion after the correction, according to data released by the central bank on Wednesday.

But it's not clear for how long such wrong data entry has been going on.

Good policy framing depends on authentic data. Poor quality data gives wrong signals to the policymakers.

"If policymaking is done based on unreliable data, then policies become irrelevant and defunct," Fahmida said. Unfortunately, citizens have been misled about the real economic situation due to such anomalies perpetuated by government organisations, she said.

These errors show the extent of data governance or a lack of it in Bangladesh. Without quality information, informed policy-making is difficult, said MA Razzaque, chairman of the Research and Policy Integration for Development.

The export data mismatch will have an impact on GDP estimates because value addition from exports is included in the GDP calculation. The ratio of value addition is nearly 60 percent. So, the GDP impact will be as much as $6 billion, Razzaque said.

Md Deen Islam, associate professor of economics at Dhaka University, said this correction would lower the GDP growth rate, with exports contributing less to overall economic output, GDP growth rates for the period will need to be revised downward, and future projections for economic growth will need to be adjusted to reflect the more accurate export figures, potentially leading to more conservative growth estimates.

The significant revision could create temporary confusion and mistrust among stakeholders, including businesses, investors and international partners, he said.

"Revisions might lead to questions regarding the credibility and reliability of economic data published by national agencies," he added.

Deen Islam said policymakers may need to reassess their strategies to stimulate economic growth and stabilise the macroeconomic environment as the revised export figures indicate a significant decline.

However, the reconciliation of export data provides a more accurate picture of Bangladesh's economic landscape, which is crucial for effective policy-making and strategic planning, said Deen Islam.

Birupaksha Paul, a professor of economics at the State University of New York, said it was a positive move toward a proper accounting of the balance of payments.

A senior official of the EPB said it does not produce export data. The agency compiles export data based on numbers it receives from the customs wing of the National Board of Revenue and the central bank.

"We only see export data once the goods are shipped. If any consignment is returned, the EPB does not have the chance to find that out," he said, adding that it is monitored by the BB and NBR.

"Still, if we need to correct any data, we will do it," said the official. There is a committee comprising representatives from the EPB, the BB, the NBR and other agencies.

The EPB is yet to release data for the July-June period of FY24 although it usually publishes the figures early every month.

Saiful Islam, executive director of Bangladesh Bank, said from now on, the central bank will base the calculation on the corrected export data.

Asked about the previous mismatch in data between the BB and the EPB, he said there was no problem with the past data. There was a problem with the method of reporting. He did not elaborate.

Despite the big reset, the economy's health remains unchanged. The correction addresses anomalies but does not fundamentally alter the economic landscape.

[Refayet Ullah Mirdha and Md Mehedi Hasan contributed to this report]​

 

[Saif]

Making sense of revisions in balance of payments

Bangladesh Bank's latest data on the balance of payments has remarkably altered the narrative on the drivers of external stress without changing the signal on the overall stress. The bottom line on persistent external imbalance remains pretty much the same but the composition is palpably different

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Making sense of revisions in balance of payments

Chittagong Port. File photo

Bangladesh Bank's latest data on the balance of payments has remarkably altered the narrative on the drivers of external stress without changing the signal on the overall stress. The bottom line on persistent external imbalance remains pretty much the same but the composition is palpably different. The corrections made by the BB were long overdue. Hopefully, BB would appropriately correct the entire historic series to make sure the BOP data remain comparable over time.

The most significant correction is in the merchandize export data. The Export Promotion Bureau numbers on monthly exports in FY24 showing significant growth have been raising eyebrows among the exporters. The media did several stories highlighting the discrepancy between EPB, NBR and BB data. Stories on multiple counting of exports and discrepancies between data from different customs documentations proliferated. It appears BB has finally made a laudable attempt to present export values plausibly close to reality.

Surplus is deficit

Contrary to what was hitherto believed, merchandize exports declined 6.8% in July-April FY24 relative to the same period in FY23, driven primarily by a 6.7% decline in RMG exports. Note that EPB reported 3.9% growth in exports during the same period, driven by 5% growth in garments. Exporters as well as economists tortured their hairs trying to explain such growth amidst weak global demand and severe gas shortage, loadshedding and import controls. The corrected BB numbers may not restore the lost hairs, but they have alleviated the head aching puzzles.

The correction has dramatically altered the lay of the land on the subcomponents of external balance. The most remarkable is the transformation of the current account surplus into a large current account deficit. BB's previous data release reported a current account surplus of $5.8 billion during July-March of FY24. The latest data release shows a current account deficit of $4.1 billion during the same period, a correction of nearly $10 billion, reflecting almost entirely the difference in export data between the corrected and uncorrected data releases.

So much for the complacent claims of having resolved the current account deficit problem through import compression. The latter helped reduce the current account deficit that exceeded $10 billion in July-March FY23, but the deficit, which grew to over $5.7 billion in July-April, is still large. It would not have been worrisome if driven by a surge in investment induced imports. But the deficit came from a decline in exports, notwithstanding a 12.3% decline in merchandize imports. The decline in imports in turn reflected not just a 6.3% decline in RMG related goods but also 20.7% decline in import of capital goods. Weaknesses in both exports and investments make the current account deficit a big concern.

Deficit is surplus

The correction in export data had a countervailing effect on the financial account. It transformed the previously reported $9.25 billion financial account deficit in July-March FY24 to $653 million surplus! How did that happen?

The answer is in the trade credit line in the financial account. The standard practice is to treat the excess of the shipment value of exports over the payments received against exports as a debit entry in the trade credit account. The over-reporting of the shipment value of exports resulted in huge debit entries in the trade credit account, amounting to $12.2 billion (net outflows) during July-March. The correction in exports has reduced this to slightly over $2.1 billion (net outflows), a decrease of about $10 billion that closely matches the size of the correction in exports.

The cumulative net outflows via trade credit narrowed to $1.68 billion during July-April as exports in April amounted to $2.72 billion, well below the nearly $3.4 billion monthly average in the first ten months of FY24. Exports receipts in April may have exceeded export shipments. Additionally, import shipments--$5.67 billion in April (above the monthly $5.24 billion average during July-April)—may have exceeded import payments. Both result in outflow reducing credit entries in the trade account.

Deficit is deficit

The opposing changes in the current and financial account balances washed each other, leading to virtually no change in the overall deficit in the balance of payments. It increased slightly from $4.44 billion in the uncorrected to $4.75 billion in the corrected BOP during July-March, FY24. The overall deficit increased to over $5.5 billion during July-April, compared with $8.8 billion during the same period of FY23. The decrease relative to the previous fiscal year is attributable entirely to the decrease in the current account deficit.

Does this mean that all the hue and cry about the external payment pressures and capital flight were just statistical artifacts? The answer is both yes and no.

It is yes in that the size of the problem pertaining to the non-repatriation of export receipts is a lot less than previously thought. The 6.6% increase in net aid flows despite a 21.7% increase in amortization payments also helped cutting the overall BOP deficit.

The answer is no because the $2.4 billion net inflows on account of trade credit in July-April FY23 morphed into net outflows of $1.68 billion in July-April FY24. So, the problem of non-repatriation of export proceeds has not disappeared. Net outflows on account of other short-term loans remained large and slightly higher in FY24, indicating the drying out of new short-term loans. Unaccounted outflows have remained persistently large at around $2.4 billion, symptomatic of capital flight.

Implications

The most pressing implication of the correction of the shipment value of exports is for the GDP growth estimate. Recall that BBS has projected GDP growth at 5.8% for FY24. In making this calculation, they projected 5.63% growth in the real exports of goods and services. According to the corrected BOP data, the fob value (in US dollars) of the exports of goods and services declined by 7.5% during July-April in FY24 relative to the same period in FY23. If the decline in the real value of export of goods and services equals the decline in dollar value, and remained at 7.5% for the entire FY24, it means GDP growth is about 1 percentage point lower than BBS's preliminary estimate. Thus the 5.8% GDP growth could be 4.8% due to the shortfall in actual export growth relative to the export growth projected, other things equal.

There is also the possibility of under invoicing for exports motivated by capital flight and/or undervalued official rate for export dollars. The best way of detecting under invoicing is to check the data from the export destination countries.

According to the US Census Bureau data, the dollar value of US imports from Bangladesh during January-April 2024 was 13.7% lower than the corresponding period of 2023. US imports from Bangladesh was 23.8% lower in 2023 relative to 2022. One suspicion is that more apparel imports came into the US through the de minimis (the minimum value of goods below which no duties are charged by customs). According to Euromonitor, about 40% of US apparel retail sales were achieved through e-commerce in 2023, a substantial increase from 9.4% in 2010. However, US customs tightened controls on "small package shipments leading to entering through the standard procedure in recent months.

I could not readily find similar data on EU imports from Bangladesh except that their imports from Bangladesh declined 21.2% in FY23. Imports of textiles and clothing into the EU from countries outside the EU declined in value and volume in 2023 calendar year as well, according to Textiles Intelligence. There is therefore no patently obvious evidence of export under invoicing. Capital flight may nevertheless have happened through other channels and the exporters are likely to have managed the exchange rate undervaluation problem through other means. The point is BB's corrected export data seem quite credible.​

 

[Saif]

How we entered the era of digital money

Rahman Ali, a 68-year-old retired primary school teacher, begins his day in a serene village in the northwestern district of Bogura with a routine he has perfected over the decades.

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How we entered the era of digital money
A Bangladeshi tale of transition from money orders to electronic payments

Photo: PALASH KHAN

Rahman Ali, a 68-year-old retired primary school teacher, begins his day in a serene village in the northwestern district of Bogura with a routine he has perfected over the decades.

He methodically prepares tea, reads the newspaper, then walks around the locality, visiting the school premises or taking a stroll through the market.

Today, however, he has a different purpose. He is going to the local post office to send a money order to his daughter in Dhaka, just as he has done countless times before. But when he goes there nowadays, something feels different -- the once bustling post office has only a few people.

THE COMFORT OF TRADITION

For Rahman, the process of sending a money order is more than a mere transaction – it is a ritual.

He meticulously fills out the form, carefully counts the notes, and hands them over to the postmaster with a familiar nod.

"I trust this method," he says with a sense of nostalgia. "It's reliable. I know my daughter will receive the money safely."

In contrast, Ayman Siddique, a 25-year-old entrepreneur, runs a handicraft business from his small office in Dhaka. He is busy with orders and payments. For him, time is of the essence.

"I used to hate the wait at the post office," he recalls. "But now, thanks to mobile financial services, I can send and receive money in seconds. It's a game-changer."

A GENERATION GAP

The contrasting experiences of Rahman and Ayman highlight the generational divide in Bangladesh's financial landscape. While the older generation continues to hold onto the familiarity of money orders, the younger generation has swiftly adapted to the convenience of digital payments.

According to the Bangladesh Bureau of Statistics, the heyday of money orders came over a decade ago in 2011-12, when 2,218 transactions, totaling Tk 625.92 crore were conducted. These figures illustrate the significant reliance on this traditional method at the time.

But by 2015-16, the number reduced by nearly two-thirds as only 796 money orders amounting to Tk 197.91 crore were dispatched. This represents the initial phase of digital adoption.

Fast forward a few years, the decline became even more apparent: by 2019-20, transactions plummeted 62.19 percent to 301 worth Tk 114.34 crore.

In July-December of 2023-24, the last fiscal year, only 99 money orders were booked, involving Tk 22.76 crore, underscoring a near-complete transition to digital methods.

Also reflecting the increasing reliance on digital financial transactions has been the significant growth of the mobile financial service (MFS) sector in Bangladesh over the years. The number of cash-out transactions and the money involved have consistently increased.

In January 2019, the total amounted to Tk 13,282 crore. It skyrocketed to Tk 42,230 crore by March 2024, according to Bangladesh Bank data. This reflects both higher frequency and larger individual transaction values.

The remarkable transition of Bangladesh from traditional money transfer methods to digital payments through internet banking is also worth showcasing. Over the years, the number of internet banking customers has steadily risen, hitting over 85 lakh in April.

Simultaneously, the volume and value of internet banking transactions have significantly increased, with the total transaction amount surpassing Tk 97,100 crore in April, a substantial leap from Tk 3,790 crore in December 2018.

Sayema Haque Bidisha, research director at the South Asian Network on Economic Modeling, and a professor of economics at the University of Dhaka, said technologies are more advanced nowadays, allowing technological adoption to take place for both senders and receivers.

Digital systems have increased convenience as there is no need to drive home or face traffic to get services. Covid-19 was also a big push towards adoption of digital services as people needed to get everything without going outside.

Speaking of the challenges, Prof Bidisha highlighted that the whole cashless economy system depends on electricity and internet, which are not always available in rural areas.

"A lack of digital and financial literacy is another barrier as the full process is self-administered. For example, sharing your PIN code can harm customers because they can be tricked, but many do so due to a lack of awareness."

The digital money transfer system impacts the economy since the more money is transacted, the more money spreads and circulation increases. Also, people, especially females, who are out of the market system, can get involved through such services, which fosters an inclusive economy, she added.

The Directorate of Posts has an electronic money transfer service (EMTS) at a very low cost, said Farid Ahmed, postmaster general for metropolitan circle in Dhaka.

"But the facility must be strengthened at the union level to make it more effective by including rural parts of the country. Notably, sub-post offices of upazilas provide EMTS effectively."

EMBRACING CHANGE

Sharifa Oishee, a third-year university student, shared her experience.

"Managing finances was always a hassle. I remember my parents sending money orders to my grandparents before festivals. It was a slow process."

"Nowadays, I never use money orders. With bKash and Nagad, I can pay tuition, buy books, and even split bills with friends instantly. I even get the tuition from the students who receive lessons privately."

Oishee's story echoes those of millions of young Bangladeshis who have embraced digital wallets. These platforms offer unprecedented convenience – no long waits, no need for physical currency, and the ability to handle transactions anytime, anywhere.

Muhammad Zahidul Islam, vice-president and head of media and communications at Nagad Ltd, opined that the maximum utilisation of technological advancement has been possible in the last 13 to 14 years regarding digital money transfer.

"Sending money now takes a fraction of a second. If we can ensure the benefits of digital banking, rural communities will easily adapt to the process."

Awareness must be raised to make the rural people more knowledgeable about these facilities and systems, he added.

THE STRUGGLE TO ADAPT

However, not everyone finds the transition easy.

Yasmin Ara, a 55-year-old, struggles with the technology-based service. "I have always trusted the post office," she confesses. "This digital system feels complicated and confusing. I once sent money to the wrong number, and it was a nightmare to get it back."

Her experience is not unique. Many older Bangladeshis find digital payments intimidating and worry about security. They also miss the personal interaction and assurance that comes with traditional methods.

Yasmin, with the help of his tech-savvy younger son, recently started to make payments through digital transactions. "It was easier than I thought," she admitted, though still wary of abandoning her trusted money orders entirely.

As Bangladesh continues to innovate, the future of financial transactions looks increasingly digital. The decline in money orders is not just a statistic but a reflection of a broader shift towards a more connected, efficient, and inclusive financial ecosystem.

For Ayman, Oishee, and millions like them, digital payments are a testament to progress and convenience. For Rahman and Yasmin, they represent a challenging but inevitable transition.

The journey from money orders to digital payments is a story of adaptation, resilience, and the promise of a better, more efficient future. In the heart of the bustling city and the quiet corners of rural villages, the echoes of this transition resonate.

Ali Ahmmed, chief commercial officer of bKash, added: "If time-befitting guidance from the regulator continues along with support from stakeholders, it won't be hard to strengthen the country's digital financial ecosystem with continuous innovation in the MFS sector."

There are 22.6 crore MFS accounts in the country, of which 56.21 percent are owned by people living in rural areas. Women account for 57.07 percent of rural MFS users.

These numbers indicate that people living in the countryside are ahead in terms of owning MFS accounts compared to urbanites. Such financial inclusion, especially for women, through MFS has multifarious impacts on rural communities.

At its heart, it is a tale of two generations, each navigating the changing tides of technology in their own way. As Bangladesh steps boldly into the digital age, this transformation promises to bring greater convenience and financial inclusion to every corner of the nation.

Tahira Shamsi Utsa​

 

[Saif]

Bangladesh has been ‘fantastically successful’

An eminent development economist has termed the more than five decades of development journey of Bangladesh as a ‘fantastically successful’ despite its terrible political leadership. In a long interview with the Financial Times (FT) regarding the success of developed and developi

thefinancialexpress.com.bd

Bangladesh has been 'fantastically successful'
FE ONLINE REPORT
Published :
Jul 04, 2024 12:53
Updated :
Jul 04, 2024 12:53

Sir Paul Collier

An eminent development economist has termed the more than five decades of development journey of Bangladesh as a 'fantastically successful' despite its terrible political leadership.

In a long interview with the Financial Times (FT) regarding the success of developed and developing nations, Sir Paul Collier, referred Bangladesh as a great example of advancement from the bottom.

"My favourite example of bottom-up is Bangladesh" he told FT. "If we go back to 1971, it was the epicentre of global poverty. Now it's just on the cusp of middle income."

"It's been fantastically successful," added the professor at the Blavatnik School of Government in UK. "And political leadership in Bangladesh has been terrible throughout."

Paul was of the view that the bottom-up in Bangladesh is world famous.

"It's BRAC, which is the biggest NGO in the world. It's [social entrepreneur] Muhammad Yunus. It's a bottom-up movement, which is functioning with these amazing NGOs," he continued.

Terming the just spawned Youth Policy Forum as 'a marvellous NGO,' he added that it is growing very fast.

"It is trying to create a cadre of young, Bangladeshi civil servants who are learning from examples elsewhere," said Paul. "That's so exciting because the vital characteristic of a society trying to catch up is the capacity to learn fast."

The economist was of the view that we learn from others where possible and we also learn by trying things out — from failures as well as from successes.

"But we need experiments in parallel," he added.​

 

[Bilal9]

No visible progress in signing Cepa with India

Bangladesh and India are yet to begin the formal negotiation to sign the Comprehensive Economic Partnership Agreement (Cepa) although nearly two years have passed since both countries agreed to kick off the talks.

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No visible progress in signing Cepa with India
View attachment 6680

Bangladesh and India are yet to begin the formal negotiation to sign the Comprehensive Economic Partnership Agreement (Cepa) although nearly two years have passed since both countries agreed to kick off the talks.

Dhaka needs to pen bilateral deals with trading partners in order to retain preferential market access in the post-LDC era since duty-free export facilities end once the country becomes a developing nation.

Bangladesh and Bhutan signed a preferential trade agreement (PTA) in December 2020, the first bilateral trade pact for the former. The deal came into effect in July 2022, much ahead of Bangladesh's scheduled graduation from the group of the least-developed countries (LDCs) in November 2026.

There has not been visible progress when it comes to inking trade deals with other countries, including India.

Dhaka needs to pen bilateral deals with trading partners in order to retain preferential market access in the post-LDC era since duty-free export facilities end once the country becomes a developing nation

No specific timeline to begin the talks about the Cepa was cited in the joint statement issued after the meeting of both Bangladeshi Prime Minister Sheikh Hasina and her Indian counterpart Narendra Modi in New Delhi in the third week of June.

Both prime ministers talked about the Cepa during the meeting, State Minister for Commerce Ahasanul Islam Titu told The Daily Star.

After the meeting, the Indian Ministry of External Affairs, in a statement, said Bangladesh and India agreed to strengthen trade and investment ties, including through an early commencement of negotiations for a Cepa.

The statement also talked about an early operationalisation of two special economic zones offered by Bangladesh to India in Mongla and Mirsharai, the opening of new border haats, trade facilitation to enhance bilateral commerce, and improving road, rail, air, and maritime connectivity, and trade infrastructure.

Both Hasina and Modi welcomed the findings of a joint study on the Cepa in a statement in September 2022 and agreed to start the negotiations, saying a Cepa would be beneficial for both countries.

The Bangladesh Foreign Trade Institute and the Centre for Regional Trade of India conducted the study based on trade data between 2015 and 2020.

Titu said Bangladesh is ready to hold the first formal dialogue with India.

He is optimistic that the inaugural dialogue will be held this year. "Our team is ready."

"The political signal for beginning the formal Cepa negotiation is important," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.

He said perhaps both countries are taking more time to begin the talks. Had there been strong political commitment, the process would have fast-tracked.

Also, maybe, the negotiators are taking more time to study further before signing the Cepa, he said.

Inking a trade deal would be important for both countries because they are increasingly becoming an important trade partner for each other.

India is the second-largest import source for Bangladesh after China.

Imports from India stood at $9.49 billion in the fiscal year of 2022-23 while exports to the country amounted to $2.13 billion, figures from Bangladesh Trade Portal and Bangladesh Bank showed.

Bangladesh mainly imports textiles and fabrics, industrial raw materials and intermediate goods, food items, cotton and chemicals for industrial use.

If Bangladesh can sign bilateral deals, it would be able to access LDC-induced benefits for three more years after graduation.

"Bangladesh's strategy should be enjoying the LDC scheme as long as possible. Simultaneously, we should be well-prepared for the Cepa," said Rahman.

Bangladesh might not make a large gain from the Cepa since it would lose the duty-free market access as an LDC, said the joint study. On the other hand, India will make a larger gain primarily through the removal of existing high tariff rates.

"The fear of losing the revenue from import duties may be another factor for the delay in launching the formal negotiation," CPD's Rahman said.

Bangladesh, however, has the potential to benefit from trade in services in tourism, transport and educational cooperation, and also through the creation of jobs by attracting Indian investments.

The Cepa is expected to boost Bangladesh's exports by 190.15 percent, and even more, if transaction costs are reduced through improved connectivity, according to the study.

India's exports to Bangladesh are expected to surge by 188 percent.

The Cepa will expand the size of Bangladesh's GDP by 1.72 percent and India's by 0.03 percent, the study found.​

We should let CEPA with India stay on paper only and let it die its well-deserved natural death.

No country wins in trade with India.

We should diversify our import sources and move away from trade with India altogether. Period.

We have seen what has happened in the last fifty years. No give, only take, take and take.

#IndiaOut

 

[Saif]

The large cracks in Bangladesh that IMF missed

The high incidence of corruption, some of which have erupted openly in the public domain.

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The large cracks in Bangladesh that IMF missed

VISUAL: SALMAN SAKIB SHAHRYAR
In January 2023, Bangladesh entered into a $4.7-billion IMF programme, spanning over 42 months, to fight the pressures on the macroeconomy and arrest the associated economic downslide. These pressures, triggered by a series of external shocks emerging from Covid-19, global inflation and the Ukraine War, had accumulated over a number of years owing to weak economic management. The policy corrections, therefore, involve macroeconomic adjustments, structural reforms and institutional strengthening.

The core IMF programme was broken down into six reviews, and the associated policy reforms were designed to become progressively more challenging. The government should take some comfort in successfully negotiating the release of the second review on June 24. While the government succeeded in ticking many of the conditionalities for the first and second review and convinced the IMF to be more flexible on some others, in substance, the two most important policy reforms implemented so far are the flexibility of the exchange rate and interest rate. However, fiscal correction has not happened, and the structural reforms in taxation, subsidies, state-owned enterprises, trade policy, and the banking sector have not made adequate progress.

Against this backdrop, the IMF has identified nine specific risks and uncertainties that could jeopardise progress with implementation of the IMF programme and constrain the ability of Bangladesh to successfully stabilise the macroeconomy and resume the growth process on a sustainable path. Five of these risks are global in nature and four are domestic.

The global risks include intensification of regional conflicts, commodity price volatility, abrupt global slowdown, systemic financial instability, and deepening geoeconomic fragmentation. The domestic ones relate to failure to maintain a market-based flexible exchange system, failure to address banking sector reforms, insufficient international support in resolving the Rohingya crisis, and higher frequency and severity of natural disasters related to climate change.

The global risks are well identified. It is hard to quarrel with them. Regional conflicts and deepening geoeconomic fragmentation are of particular concern. Yet, it is fair to say many of these risks have prevailed over the decades. The main policy implication of these risks is to make an all-out effort to stabilise the macroeconomy and resume the momentum of sustainable growth as quickly as possible. Growing economic resilience is the best way to absorb external shocks and take corrective actions in the future.

The list of domestic risks is way too conservative and misses out some big-ticket items. Regarding the Rohingya crisis, this is more in the nature of an external risk. Bangladesh is doing its best to drum up international support. Progress with fiscal reforms will help create more space to fund Rohingya needs.

Concerning climate-related natural disasters, this is more a long-term challenge, although admittedly, Bangladesh's response in instituting policies and programmes to build greater climate resilience so far has been weak. It is not clear whether the IMF programme's $1.4-billion climate resilience component has been very effective in strengthening this policy response, especially in regards to mainstreaming climate change policies in planning, budgeting, incentives and institutional capabilities. I would like to throw the ball back at the IMF's court and ask it to reassess this component to see if the programme design was adequate to secure substantial climate reforms with potential long-term benefit.

The two remaining domestic risks are both very relevant and fall in the high risk category. It has now been 18 months since the IMF programme was approved, and little progress has been achieved in the banking sector. If anything, downside risks have increased. The volume of non-performing loans and distressed assets continues to increase, and there is little sign that a reversal is coming anytime soon. Without meaningful progress on banking reforms, the overall quality of the IMF programme will suffer.

On the exchange rate, an encouraging beginning has been made with the reform on May 8. The unification of the exchange rate and adoption of the interim crawling peg regime is a sound reform. Steps must be taken to quickly move to a fully flexible market-based exchange system. The risk of slippage is high, but the IMF must remain vigilant in monitoring this risk and engage with the government to stay on track.

Several substantial domestic risks have not been identified in the IMF risk matrix. These risks are not only high but present more immediate adverse consequences for the macroeconomy and resumption of growth momentum than the seven other risks noted by the IMF (the five global, the Rohingya, and the natural disaster ones).

First and foremost is the weakness of fiscal policy. This is the Achilles heel of Bangladesh's development strategy, and progress has been faltering for a long time. The 18 months of the IMF programme has brought in some marginal progress, but most of the institutional and structural aspects of the tax reform programme have not been addressed.

Of immediate concern is the consistency of the FY2025 budget with monetary policy for inflation control. At 4.6 percent of GDP, the budget deficit is way too high to allow the credit tightening that is needed to control inflation. There is a high risk that the budget will either crowd out private credit or cause a loosening of monetary policy thereby jeopardising inflation control.

A big missing item in the budget is the absence of reform of the state-owned enterprises (SOEs). The financial return on investments in SOEs is very low and net budgetary transfers to sustain these poorly performing SOEs are way too high. Reform of SOEs is an easy win and surprisingly not emphasised in the IMF programme.

On the spending side, the budget subsidy target is too high while the allocations for health, education, training, agriculture, water, and social protection are too low. At a time when job creation is constrained, the economy is slowing down, and inflation is high, the low level of spending on social protection (0.8 percent of GDP excluding civil service pensions) is very disturbing and must be corrected.

Another major structural reform where very little progress has been made concerns trade protection. This again is a long-standing challenge. The tax revenue's excessive dependence on customs duties, including supplementary and regulatory duties, has prevented any meaningful progress with trade reforms even after 18 months of the IMF programme. Consequently, the anti-export bias of trade policy prevails, which constrains export diversification and growth of non-RMG exports. Indeed, the slowdown in export growth to a mere 2 percent in FY2024 is a hugely worrisome development for both the sustainable management of the balance of payments and recovery of the growth momentum.

The final missing risk area is governance and institutions. The high incidence of corruption, some of which have erupted openly in the public domain, especially at a time when inflation is high and the economy has slowed, is a huge threat to social and economic stability. The government has adopted a policy of zero tolerance for corruption. This is comforting to know but it must now act decisively to implement its policy of zero tolerance. It must dig down to the root causes of corrupt practices and implement the required institutional and regulatory reforms that eliminate/minimise the scope for rent seeking.

Dr Sadiq Ahmed is vice-chairman of the Policy Research Institute of Bangladesh (PRI).​

 

[Saif]

Increased export earnings, remittance, FDI needed to increase forex reserve: experts

Experts at a seminar on Sunday stressed on boosting revenue collection by expanding the tax net which would enable the government to borrow less from the...

www.newagebd.net

Increased export earnings, remittance, FDI needed to increase forex reserve: experts
Bangladesh Sangbad Sangstha . Dhaka 07 July, 2024, 22:50

Experts at a seminar on Sunday stressed on boosting revenue collection by expanding the tax net which would enable the government to borrow less from the market as foreign borrowing increases vulnerability to external conditions and potential currency depreciation.

To increase reserves, they also said that increased export earnings, remittance and FDI were important to stabilise the exchange rate side by side austerity in expenditure, increasing revenue collection and promoting fiscal reforms was a must to maintain fiscal discipline.

The speakers said this at a seminar on 'Salient Features of Finance Act 2024: Investment Perspective' organised by the Institute of Chartered Accountants of Bangladesh at its auditorium on the day, said a press release.

AKM Badiul Alam, member (tax policy), National Board of Revenue spoke at the seminar as chief guest. Nasiruddin Ahmed, former chairman of the NBR, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, and Md Farid Uddin, ex-member of customs and VAT of the NBR, were the panel speakers and were connected through online zoom with the seminar.

Snehasish Barua, partner, Snehasish Mahmud & Co, Chartered Accountants presented the keynote paper while ICAB president Mohammed Forkan Uddin delivered the address of welcome.

Mohammed Humayun Kabir, chairman, TCLC, council member and former ICAB president, moderated the session while Md Johirul Islam, vice-president (technical and regulatory affairs), ICAB gave the closing remarks.

In the seminar, the keynote presenter provided an overview of the changes brought in the Finance Act 2024 and the SROs issued thereafter.

With the detailed examples of impacts on businesses by the changes provisions of the Finance Bill 2024, the paper presenter Snehasish Barua aimed to provide accurate and updated facts and figures citing from the Bill.

About inflationary pressure, he said that the increased money supply and demand could push prices up. 'However, demand for consumption must be contained and price must be monitored to keep the current trend of inflation stable,' he added.

The speakers at the seminar also said that the government's borrowing might raise interest rates, deter private investment, which needed to be addressed prudently.

They said that the provision in the finance bill stating all receipts and income must be transacted through bank transfer for every single transaction above Tk 5 lakh and annual transaction over Tk 36 lakhs of expense and investment would bring a positive impact on the economy.

They said that under the new finance bill TDS on payment to non-residents should not be applicable for the cases like payment made to any authority of the foreign country, payment for subscription fee of professional body, expenses of liaison office, international product development and marketing expense, tuition fees and any type of security deposit.

Therefore, it will reduce hassle in making outward remittance and reduce tax burden as well. They also suggested widening further the tax net by introducing a new withholding entity.

The speakers also said that the government employees and individuals having total assets more than Tk 50 lakh needed to submit assets and liabilities statements which will enhance transparency and accountability within the public sector and give some relief for the individual taxpayers other than the government employees.

They also mentioned that mandatory PSR submission for obtaining and renewing licenses of hotels, restaurants, motels, hospitals, clinics and diagnostic centres located within the city corporation areas will widen further the tax net.​

 

[Saif]

BB rolls out generous exit policy to borrowers

The Bangladesh Bank today unveiled the latest iteration of its exit policy that offers borrowers the option to close off their loan account within three years by paying only 10 percent as down payment and no interest

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BB rolls out generous exit policy to borrowers

Photo: Star/File

The Bangladesh Bank today unveiled the latest iteration of its exit policy that offers borrowers the option to close off their loan account within three years by paying only 10 percent as down payment and no interest.

The move, which comes at a time when interest waiver facilities are being widely criticised in the parliament, is aimed at window-dressing the country's bad loan scenario.

At the end of March, defaulted loans soared to a record Tk 182,000 crore -- which is 11.11 percent of total outstanding credit -- much to the displeasure of the International Monetary Fund. The exit policy is expected to make the situation more palatable.

"The financial condition of clients has been adversely affected by various uncontrollable factors -- that's why an exit policy is needed to recover the loans from them," the BB said in a notice yesterday.

The exit policy applies to defaulted loans, loans with a low probability of recovery and loans taken by defunct companies.

Borrowers will have to provide a minimum of 10 percent down payment in cash by the borrowers and in return, they will get an interest waiver under the policy.

However, the interest waiver facility cannot be extended to loans created by forgery and wilful defaulters, as per BB's notice.

Clients can repay the loans in one instalment or more than one instalment but the maximum repayment tenure will be two years. However, banks can extend the tenure by another year, read BB notice.

Under the facility, borrowers will not be eligible to get new loans until they have adjusted the full loan amount.

The central bank said that this facility would not be considered as rescheduling or restructuring of loans.

BB asked banks for proper provisioning against the loans and taking security before adjustment of the loans, it added.

Banks will have to take legal action to recover the loans if the borrowers fail to repay the loans after getting the facility.

Earlier in May 2019, the central bank introduced a one-time exit policy for defaulters to bring down the high bad loans in the country's banking sector. The bad loans then amounted to Tk 110,873 crore.

"The exit policy should have been left to the banks' discretion," said Monzur Hossain, research director of the Bangladesh Institute of Development Studies (BIDS).

This policy will affect the banks' profitability, while the loan defaulters will be tempted by the facility, he said.

Mohammad Nurul Amin, former chairman of the Association of Bankers of Bangladesh, echoed the same. "Defaulters are likely to be encouraged to not repay loans due to the facility."​

 

[Saif]

PM asks AIIB to lower interest rates of loan

Prime Minister Sheikh Hasina today asked the Asian Infrastructure Investment Bank (AIIB) to further cut the interest rates on its loan for Bangladesh

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PM asks AIIB to lower interest rates of loan

Photo: BSS

Prime Minister Sheikh Hasina today asked the Asian Infrastructure Investment Bank (AIIB) to further cut the interest rates on its loan for Bangladesh.

She made the request when the Beijing-based bank's President Jin Liqun, along with its high officials, paid a courtesy call on her at her place of residence in Beijing.

During the meeting, the financing for infrastructure building, river dredging and the climate sector of Bangladesh, particularly building climate resilient houses in the country's coastal areas came up for discussion.

Foreign Minister Hasan Mahmud briefed reporters about the outcome of the meeting on the second day of the prime minister's official visit to China.

The PM said AIIB played a very important role for Bangladesh in the past.

She said the multilateral development bank and lender can also play a significant role in the future in the development journey of Bangladesh and help fulfil the dream to transform it as a developed and prosperous country by 2041.

"The PM requested the AIIB to reduce its loan interest further for Bangladesh," said the foreign minister.

In response, the AIIB officials said Bangladesh is one of the biggest borrowers from AIIB. The bank has given Bangladesh a special concession in case of the interest rate.

The issue of giving a special concession for Bangladesh in future was discussed with importance, according to the foreign minister.

Finance Minister AH Mahmood Ali and PM's Press Secretary M Nayeemul Islam Khan were present at the briefing.​