[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Govt measures will tame rising inflation

Finance Minister Abul Hassan Mahmood Ali yesterday expressed hope that the government would be able to curb high inflation on the back of budgetary measures and the central bank’s steps.

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Govt measures will tame rising inflation
Says finance minister at post-budget briefing

Finance Minister Abul Hassan Mahmood Ali yesterday expressed hope that the government would be able to curb high inflation on the back of budgetary measures and the central bank's steps.

"I would like to remind you that after we assumed power in 2009, inflation was at a high level, but we brought it under control. I want to assert that inflation will fall this time too.

"We have taken several steps to control inflation through the tax structure. For example, duties have been reduced for the import of daily necessities."

The minister was speaking at the post-budget media briefing at the Osmani Memorial Auditorium in Dhaka.

Bangladesh has been seeing more than 9 percent inflation for the past two years. Though many countries have successfully brought it down, Bangladesh is struggling to contain it owing to a lack of adequate measures at the right time.

Mahmood Ali tried to allay fears that higher bank borrowing, targeted for the upcoming fiscal year, will stoke inflation.

"There is nothing to worry about," he said, adding that the government did not go for a bigger budget with an aim to rein in inflation.

"Since controlling inflation is our top priority now, contractionary policy remains the focus for a while. However, we will keep an eye to ensure our growth does not suffer too much from this."

In the budget speech, the finance minister said the goal is to increase government spending gradually in the second half of 2024-25, and this will be possible if the revenue collection increases.

Md Khairuzzaman Mozumder, secretary of the finance division, said there is distortion in the supply chain of essentials and the government is trying to address it.

"The policy rate has been increased to 8.5 percent, and it will take a while to see its impact."

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[Saif]

Bangladesh: a breakout economy or another LDC crash landing?

What Bangladesh achieved in the last five decades, more so over the last 30 years or so, has been more than impressive. We have been stepping up our gross domestic product (GDP) growth rates every decade consistently since the independence, culminating to 6-7 per cent pre-pandemic. If we take the f

thefinancialexpress.com.bd

Bangladesh: a breakout economy or another LDC crash landing?
ZAVED AKHTAR
Published :
Jun 04, 2024 23:25
Updated :
Jun 04, 2024 23:25

What Bangladesh achieved in the last five decades, more so over the last 30 years or so, has been more than impressive. We have been stepping up our gross domestic product (GDP) growth rates every decade consistently since the independence, culminating to 6-7 per cent pre-pandemic. If we take the first 50 years since independence, we have seen massive acceleration in the last 30 years with GDP doubling every 10 years, an unmatchable feat for any least developing country (LDC). During the period, Bangladesh has also seen strong acceleration of the Human Development Index (HDI), well ahead of India, Pakistan, and Nepal (albeit lower than Sri Lanka, Maldives & Bhutan) and is currently placed as Medium Human Development Category. In this connection, a quote from The World Bank Country Economic Memorandum, Change of Fabric, may be relevant. Regarding the reforms, it states: "In the mid-1980s, markets and public investment were strengthened, including for infrastructure. Further reforms in the early 1990s allowed for more private sector participation in trade, finance, and land ownership. These reforms were accompanied by complementary reforms in agriculture ((e.g., liberalization of agricultural input markets, seed sector reforms), and in social sectors (e.g., mandatory primary school, a female stipend program for secondary schools, and family planning programs). The rise of ready-made garments exports during that period evolved from a combination of private investment and public policy support. Structural improvements provided strong impetus to inclusive growth especially between the early 1990s and mid-2000s but major reforms have not been sustained since then. Bangladesh has yet to move to the next phase of economic transformation."

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[Saif]

New budget designed for plunderers: Fakhrul

New arrangements have been made in the proposed budget for fresh looting of the nation's wealth, said BNP Secretary General Mirza Fakhrul Islam Alamgir today

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New budget designed for plunderers: Fakhrul

New arrangements have been made in the proposed budget for fresh looting of the nation's wealth, said BNP Secretary General Mirza Fakhrul Islam Alamgir today.

Speaking at a discussion, he also criticised Prime Minister Sheikh Hasina's comment where she described the provision for whitening black money as "using bait for catching fish"

"How long will you (PM) be able to deceive people by creating a smoke screen with such statements?" he asked.

"Just by looking at the budget, you can understand that arrangements have been made for another feast of big fishes," the BNP leader said.

He said the new budget will do nothing but harm the country.

Fakhrul said the growing inflation is the biggest crisis for the common people as the skyrocketing prices of commodities have made their lives unbearable.

Jatiya Samajtantrik Dal (JSD-Rob) arranged the programme at Jatiya Press Club, marking the first death anniversary of Serajul Alam Khan, one of the key organisers of the Liberation War.​

 

[Saif]

Who will actually have to pay 30 percent income tax?

What is a progressive tax system? Well, it means that the income tax rate climbs up as the income increases. But that still doesn't mean that the raised income tax rate will apply for the entirety of someone's income

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Who will actually have to pay 30 percent income tax?

In the budget proposal on Thursday, finance minister Abul Hassan Mahmood Ali proposed that the marginal tax rate for the highest income slab would be 30 percent. While 30 percent income tax is a relatively high figure, as the tax rate for the highest income slab previously was 25 percent, it is important to consider the fact that Bangladesh has a progressive tax system, which means that in practice, most people will actually not be paying their income taxes at an effective rate of 30 percent.

What is a progressive tax system? Well, it means that the income tax rate climbs up as the income increases. But that still doesn't mean that the raised income tax rate will apply for the entirety of someone's income.

In this year's budget, it has been proposed that the first Tk 3,50,000 income any individual makes will be tax free. For the next Tk 1,00,000 that they make, the tax rate will be five percent. It will be 10 percent for the next Tk 4,00,000, 15 percent for the next Tk 5,00,000, 20 percent for the next Tk 5,00,000, 25 percent for the next Tk 20,00,000, and finally, 30 percent for whatever a person makes beyond this.

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[Saif]

Widening tax net urgent to raise tax-GDP ratio: ICAB

The Institute of Chartered Accountants of Bangladesh on Saturday said that widening the tax net was the demand of time to increase the country’s tax-gross...

www.newagebd.net

Widening tax net urgent to raise tax-GDP ratio: ICAB
Staff Correspondent 08 June, 2024, 23:23

The Institute of Chartered Accountants of Bangladesh on Saturday said that widening the tax net was the demand of time to increase the country's tax-gross domestic product ratio.

In a post-budget press conference organised by ICAB in the capital Dhaka, accounting professionals said that they appreciated the reduction of tax on private companies and one person companies, essential items and making tax rates applicable for two years in the proposed budget for the 2024-25 financial year.

Finance minister Abul Hassan Mahmood Ali placed the proposed budget for the 2024-25 financial year at Jatiya Sangsad in the capital Dhaka on June 6.

The institute said that the proposed budget gave an opportunity to legalise undisclosed money with a 15-per cent tax, but did not provide a distinction between legitimate and illegitimate incomes.

Mohammed Forkan Uddin, president of ICAB, said that the institution appreciated the emphasis put on online document verification system in the proposed budget.

The ICAB president also said that borrowing from internal sources to meet the budget deficit could fuel the already rising inflation.

He also said that ICAB appreciated the changes in the VAT and supplementary duty.

ICAB chief executive officer Snehashish Barua said that if the government took more loans from banks, investment in the country could reduce and higher revenue collection target might be disrupted.

Former ICAB president Md Humayun Kabir, among others, was present in the press conference.​

 

[Saif]

Import duty cut for LDC graduation: Long way to go for readiness

The government has proposed removing and reducing import duties and supplementary duties on 282 products in fiscal year 2024-25 as it continues its efforts to prepare the nation for its graduation out of the Least Developed Country grouping.

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Import duty cut for LDC graduation: Long way to go for readiness

Visual: Biplob Chakroborty
The government has proposed removing and reducing import duties and supplementary duties on 282 products in fiscal year 2024-25 as it continues its efforts to prepare the nation for its graduation out of the Least Developed Country grouping.

Experts, however, say the moves are inadequate and the government is leaving a lot to do before the country graduates in 2026.

In the current fiscal year, it withdrew import duties on 191 products and supplementary duties on 234 products.

Next year, it wants to withdraw supplementary duties on 19 more products and reduce supplementary duties on 172 and withdrawal duties on 91 others.

Once Bangladesh graduates in November 2026, it may lose yearly $8 billion worth of exports to erosion of trade preferences.

Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), said the measures for dealing with the post-graduation challenges were inadequate.

He said the government was cutting supplementary duties, regulatory duties and has recommended further duty cuts on a few products and their number was not big.

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[Saif]

What are we doing wrong in attracting FDI?

What can we do better? Why is Vietnam successful and not us?

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What are we doing wrong in attracting FDI?

Foreign Direct Investment (FDI) is the holy grail of this century. Every country seeks to draw FDI and increase its share of this rare commodity. Readers need no reminder that FDI is a limited resource and is traded in a competitive market since all countries, including the significant players—Ireland, India, China, and the USA—are contenders in this chase.

Vietnam, which broke out of the clutches of foreign control only in 1975, has emerged as an economic powerhouse thanks to the influx of FDI. We can learn a lot from the path it charted out for itself since Bangladesh is strategically located in the same region with the potential to leverage not only its domestic market potential but also its proximity to India and China to become the next hub of the international supply chain, including electronics, textiles, IT, and pharmaceuticals. Once they relocate to Bangladesh, these industries could export from here, serving global markets in pharmaceuticals, technology services, medical devices, food and beverages, and financial services.

The question on everyone's mind is whether the recent troubles in our economic front will hurt our chances of attracting FDI. The recent budget has incorporated no new measures to make FDI more attractive to investors. The Fitch ratings downgraded Bangladesh's sovereign credit rating (SCR) to B+ from BB-. That will impact FDI, in addition to driving up the cost of borrowing.

The SCR downgrade did not surprise anyone, but I wanted to know what factors caused this downgrading. Does it matter to us? And how consistent have the ratings been in identifying the potential risk to investors? I wanted to find out if these credit rating agencies have considered all the information available, including political, social, economic, environmental, and financial issues. As I was exploring, I discovered that a lot of emphasis, or weight as they call it in technical jargon, is assigned to the foreign exchange balance, financial stability, and, of course, the mood of the investors in the country itself. It is also known that building stronger FDI links with the local economy through supplier development programmes and FDI linkage initiatives help decrease information gaps for investors and boosts local business opportunities.​

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[Saif]

Economic immorality called out

Bangladesh is heading towards an economic system devoid of moral values, which is causing a breakdown in financial discipline, spoiling the business climate, and discouraging honest taxpayers, said noted economist Wahiduddin Mahmud.

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Economic immorality called out
Economists paint a grim picture for Bangladesh at discussion

Bangladesh is heading towards an economic system devoid of moral values, which is causing a breakdown in financial discipline, spoiling the business climate, and discouraging honest taxpayers, said noted economist Wahiduddin Mahmud.

He was one of the speakers who took part in a discussion on the proposed budget for the fiscal year 2024-25 at a city hotel yesterday.

The Editors' Council and the Newspaper Owners' Association of Bangladesh (Noab) organised the event.

Wahiduddin observed, "We are talking about being a Smart Bangladesh. If smart people have no values, it becomes horrifying.

"How we can restore the values in the economy should be analysed and focused on."

Citizens too have a responsibility, as many engage in corruption to evade taxes or get benefits by bypassing rules and procedures, he added.

Wahiduddin, also a former finance adviser to a caretaker government, said the main source of this economy devoid of values is the political power system. When the power illegally goes to the loyal people and vested groups, it is used for immoral activities.

In the interest of the economy, the government must keep some sectors free from corruption and irregularities, he said.

The administration lacks accountability, and corruption is deeply rooted there, which wastes public funds, said Wahiduddin, also a former professor of economics at Dhaka University.

He said the Bangladesh Financial Intelligence Unit (BFIU) has failed to play its due role in curbing money laundering. "Recently, we have seen that a former government official kept hundreds of crores of taka in banks and then withdrew it too. But nobody was caught."

He said if Tk 10 lakh is transferred via banks, the BFIU notices it and is supposed to detect the source.

"The atmosphere for confidence has not been created. We see unbridled circulation of black money in the economy and capital flight."

Wahiduddin said when the economic indicators were strong, the irregularities, mismanagement, and waste were covered up. "It [the economy] had the capacity to absorb those. At present, it has no capacity to absorb this mismanagement."

The current economic crisis is not temporary, and mid- and long-term strategies are needed, he warned.

Citing mega projects, the economist said those were built with loans. He said some of them could have been built with equity sharing. "Then, it might have eased the pressure of debt repayment."

Wahiduddin said the economy is facing the challenges of stubborn inflation; erosion of foreign exchange reserves; lower revenue collection; lukewarm growth in remittance and export earnings; capital flight; indiscipline in the banking sector; massive corruption; and waste of public funds.

"In this situation, the budget was as usual … which can be termed a sacrificial lamb that has no significant scope to do the many things that are required."

Due to lower revenue earnings, there is no scope for a budget with high expenditure, which the country requires. Considering the high inflation, the government had to contain the deficit too, he said.

In overall macroeconomic management, some basic weaknesses have been exposed.

He said low revenue collection was a big weakness, but the government has not taken any strong corrective measures.

Another weakness is the huge loans taken from internal and external sources. "If the government continues to borrow, the budget may fall into a debt trap."

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[Saif]

Bangladesh economy to grow 5.7% in FY25: WB

The World Bank's prediction is much lower than govt projection of 6.75%

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Bangladesh economy to grow 5.7% in FY25: WB
The World Bank's prediction is much lower than govt projection of 6.75%

Bangladesh's economy is likely to grow 5.7 percent in 2024-25 fiscal year, much lower than the government's projection, supported by increased private consumption for easing inflation and a pick-up in overall investment for implementation of large investment projects, the World Bank said today.

"Shortages of inputs and imported goods are expected to ease gradually. A more flexible exchange rate policy is envisaged to help increase remittance inflows and reduce balance of payments pressures," the multilateral lender said in its Global Economic Prospects released today.

The outlook by the WB comes couple of days after the government, in the budget for FY25, projected a 6.75 percent growth of the gross domestic product -- the final value of goods and services produced in an economy in a certain period -- for FY25.

The WB's forecast is roughly one percentage point lower than the government's target for the year. The Washington-based agency in April predicted 5.7 percent growth for Bangladesh's economy for next fiscal year and it kept the projections unchanged in the latest report.

The agency said overall output would expand 5.6 percent in the FY24 ending this June.

The Bangladesh Bureau of Statistics (BBS) provisionally estimates GDP growth at 5.82 percent for FY24.

The WB said industrial activity was disrupted in Bangladesh partly due to ongoing import restrictions, which have caused shortages of materials and intermediate goods.

"The government consumption and investment have supported activity, while elevated inflation has dampened real wage growth and the purchasing power of households, and weighed on private consumption," it said in its Global Economic Prospects.

"Additionally, higher borrowing costs have weighed on demand. High levels of non-performing loans in the banking sector dampened investor confidence."

The multilateral lender raised its global growth outlook on Tuesday on the back of resilient consumer spending in the United States, but warned that growth remains weak by historical standards, reports Reuters.

In updated forecasts, the Washington-based development lender said it now expects the world economy to grow by 2.6 percent this year in real terms, up 0.2 percentage points from its last update in January.​

 

[Saif]

Govt’s overreliance on banking sector will create disorder in financial sector

The government’s overdependence on the banking sector to finance its budget deficit will affect the financial sector as well as hurt private sector investment and employment generation, according to experts.

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Govt's overreliance on banking sector will create disorder in financial sector
Experts say in post-budget discussion at Dhaka University

VISUAL: SALMAN SAKIB SHAHRYAR

The government's overdependence on the banking sector to finance its budget deficit will affect the financial sector as well as hurt private sector investment and employment generation, according to experts.

"Again, like every year, the government's overdependence on the banking sector to finance the budget deficit will create chaos in the financial sector," said M Abu Yusuf, director of the Centre on Budget and Policy at the University of Dhaka.

The centre organised the event on the campus premises.

While presenting a keynote paper, titled "Review of Proposed Budget 2024-25: Macroeconomic Reintegration, Education and Employment", he said the deficit in this year's budget stood at Tk 256,000 crore, which is 4.6 percent of the GDP.

To finance the budget deficit, the government has set a domestic loan target of Tk 160,900 crore, of which Tk 127,200 crore will come from the banking sector, he said.

However, if the budget deficit is financed by money collected from savings certificates or pension schemes, it will provide financial security to the middle class and provide safe credit facilities for the government, Yusuf added.

Although inflation is above 9 percent, food inflation is about 15 percent to 18 percent, he said.

"Reducing the double-digit inflation rate will be the biggest challenge for the government. It is having a direct impact on people's lives and causing social and political instability."

Yusuf added that some more measures could have been taken to tackle inflation.

The social and financial impact of inflation could have been controlled by reducing the size of the budget and lowering the value-added tax (VAT) and import duties on various commodities as an emergency measure, he said.

Moreover, the income tax ceiling could have been increased to give some relief to people from lower and middle-income backgrounds.

He added that 14 percent of the budget would be spent on interest payments, almost equal to the total allocations for the education and health sectors.

"This is a matter of concern for us as our reserves have dwindled a lot," he observed.

Former planning minister MA Mannan, Dhaka University Vice-Chancellor Prof ASM Maksud Kamal, and Research and Policy Integration for Development Chairman MA Razzaque were among others who spoke at the event.​

 

[Saif]

Three major barriers to economy’s progress

Strategic inefficiency, institutionalisation of corruption, and a lack of accountability are the three major barriers blocking the smooth progress of the economy, said economists, entrepreneurs and politicians yesterday.

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Three major barriers to economy's progress
Speakers say strong political will needed to address inefficiency, corruption and a lack of accountability

Strategic inefficiency, institutionalization of corruption, and a lack of accountability are the three major barriers blocking the smooth progress of the economy, said economists, entrepreneurs and politicians yesterday.

"To solve the existing problems of the economy, the country needs strong political will," said Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre, a think-tank.

The political will faces barriers such as an environment of no accountability, inefficiency in taking overall strategic steps, and institutionalisation of corruption, he said.

"These barriers need to be broken down for the development of the economy."

His comments came at a dialogue on budget at the Lakeshore Hotel in Dhaka. The Centre for Policy Dialogue (CPD) organised it.

Rahman, a former caretaker government adviser, said the country has a huge deficit in ensuring governance and development strategy.

For instance, job creation has not received the expected focus in the development strategy in the last one decade. "This is an important deficit as it is creating unemployment, and the younger generation is becoming disappointed," he said.

In a survey, the government itself has found that most of the youths are pessimistic about their future, he said.

"The country needs to raise the budgetary allocation for the education and health sectors and strengthen focus on the implementation of the budgetary plans."

Rahman, also the chairman of BRAC, said Bangladesh is trapped by inefficiency. "Ministries are showing their inefficiencies in implementing their budget."

Speaking about the quality of services, the noted economist said education and health-related investments don't just refer to infrastructural development alone. "The quality of education and health services should be upgraded."

He cited hard-working entrepreneurs and economic agents as the two golden geese of Bangladesh's economy. "Do we nurture them?"

"Entrepreneurs need a favourable business climate and reduced bureaucratic red tape.

However, the reality is they are prevalent. In order to solve these problems, a strong political will is essential."

While chairing the dialogue, Syed Manzur Elahi, a noted industrialist and a former caretaker government adviser, said governance is an important issue for the country, and if it can be ensured, 90 percent of problems of the economy will be tackled.

He said there is a leakage in both income and expenditure sides. "If these can be solved, the economy will benefit."

About the inefficiency in the energy sector, Anisul Islam Mahmud, deputy leader of the opposition in Parliament, said the capacity payment is not the main problem of the electricity sector.

"Mismanagement is the main problem. For instance, around 40 percent of power generation capacity has remained unused. Why should I pay for your mismanagement?"

He mentioned the latest chaos related to sending migrant workers to Malaysia. "People have suffered because of a syndicate."

Leakages and corrupt practices should be eliminated, and syndicates should be dismantled for the greater interest of economic development, he said. "Accountability and transparency are key to ensuring good governance in all spheres of society."

Workers and farmers have been offering much-needed lifelines to the economy year after year, but they were not given due importance in the budget, said Razekuzzaman Ratan, assistant general secretary of the Bangladesher Samajtantrik Dal.

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[Saif]

Forex reserves rise by $538m in a week

Bangladesh's foreign currency reserves have reached $19.2 billion, an increase by $538 million from a week ago

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Forex reserves rise by $538m in a week
The improvement comes a month after the central bank relinquished its control over the rate-setting mechanism and introduced a more flexible exchange rate regime.
forex reserves of Bangladesh.

Bangladesh's foreign currency reserves have reached $19.2 billion, an increase by $538 million from a week ago.

The improvement comes a month after the central bank relinquished its control over the rate-setting mechanism and introduced a more flexible exchange rate regime.

The reserves were $18.67 billion a week earlier, Bangladesh Bank data showed. It was $19.82 billion on May 8. It has been calculated on the basis of the formula of the International Monetary Fund (IMF).

Central bank officials say the forex reserves are on the rise thanks to several reasons, including the flexible exchange rate known as crawling peg.

The banking regulator on May 8 introduced the Crawling Peg Mid-Rate (CPMR) for buying and selling foreign currencies and allowed banks to buy and sell US dollars freely at around Tk 117.

On June 13, the highest inter-bank exchange rate stood at Tk 118 per dollar.

Bankers are charging importers more than Tk 118 per USD. It is also offering the same rate to remitters, industry insiders said.

The relaxed rules governing offshore banking have been another reason behind the pick-up in the reserves, they added.

In March this year, the parliament passed the Offshore Banking Act 2024 to give a much-needed boost to the country's desperate efforts to improve the US dollar supply.

The reserves have been declining sharply since the beginning of the Russia-Ukraine war as the conflict sent the prices of commodities such as oil and gas higher, hurting import-dependent nations like Bangladesh.

However, mismanagement in the forex market, frequent policy changes by the central bank, and the gap between the official exchange rate and the unofficial one are also to blame, according to bankers.

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