[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

UAE emerges as top remittance source for Bangladesh

Bangladesh received the highest remittance from the United Arab Emirates in the first 10 months of the outgoing fiscal year, well ahead of traditional powerhouses such as Saudi Arabia and the United States, central bank figures showed.

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UAE emerges as top remittance source for Bangladesh
Experts cite incentives and money whitening attempts for the change

Bangladesh received the highest remittance from the United Arab Emirates in the first 10 months of the outgoing fiscal year, well ahead of traditional powerhouses such as Saudi Arabia and the United States, central bank figures showed.

The second-highest volume came from the United Kingdom, with the US was at third and Saudi Arabia at fourth.

The spike in the funds remitted from the UAE has been good news for Bangladesh since it gave a much-needed fillip to an economy reeling under the foreign currency reserves crisis for the past two years.

Experts, however, have raised questions about whether the smuggled money is returning in the form of remittance to enjoy incentives and legalise it.

UAE-based remitters sent $3.65 billion in July-April of 2023-24, which was 52 percent higher than the receipts of $2.41 billion in the same period of the previous fiscal year. It was third-placed in July-April of 2022-23.

The flow from the UAE constituted 19 percent of the $19.11 billion migrant workers transferred during the period, according to Bangladesh Bank data.

It comes as the Gulf nation has become a major hub for investments for Bangladeshis although how the financing to set up the ventures was mobilised could not be known immediately since only a handful of companies have received permission from the BB to invest abroad.

Many Bangladeshis have allegedly laundered money to the UAE illegally and invested there, according to media reports.

Dubai, the most populous city in the UAE, and the capital of the Emirate of Dubai, is currently one of the favourite destinations among the wealthy population in the world to siphon money, according to experts.

The fact that the UAE is not the largest destination for Bangladeshi expatriates has also deepened the suspicion.

Bureau of Manpower, Employment and Training (BMET) data showed 21.58 lakh people have gone to the country in search of jobs since 2004, which is 44.5 percent lower than the 38.85 lakh people who departed for Saudi Arabia, home to the largest number of migrant workers from the South Asian nation.

However, remittance receipts from the UAE were 40.8 percent higher than that of Saudi Arabia in the first 10 months of FY24. In July-April, $2.16 billion came from Saudi Arabia, down from $3.04 billion a year ago.

To read the rest of the news, please click on the link above.​

 

[Saif]

IMF sets 33 conditions for next two loan instalments

Bangladesh will have to comply with 33 new conditions by June next year in order to receive the next two instalments under the International Monetary Fund’s $4.7 billion loan programme.

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IMF sets 33 conditions for next two loan instalments

Bangladesh will have to comply with 33 new conditions by June next year in order to receive the next two instalments under the International Monetary Fund's $4.7 billion loan programme.

It came as the lender approved the third tranche of $1.15 billion yesterday in a boost to Bangladesh's foreign exchange reserves.

The fresh conditions are aimed at helping Bangladesh overcome four persisting challenges: depleting foreign currency reserves, rising inflation rate, lower revenue earnings, and a lack of governance in the banking sector.

In a letter to IMF's Managing Director Kristalina Georgieva, Finance Minister Abul Hassan Mahmood Ali said: "Bangladesh continues to face challenges as external shocks persist, which has made it difficult to restore macroeconomic stability."

"Considering persistently difficult external conditions, we commit to step up our efforts."

He elaborated on the steps, saying it will raise revenues to enable higher development and social spending, enhance fiscal governance, modernise the monetary policy framework, and increase exchange rate flexibility further.

He also said that his government would work to reduce financial sector vulnerabilities and develop capital markets, improve the investment climate and boost productivity, and establish an enabling environment to better adapt to climate change.

IMF's loan programme contains two types of conditions: seven are linked to performance criteria and the rest are related to structural benchmarks.

Of the seven, the country will have to increase its net international reserve (NIR) to $19.47 billion by next June. The revised target was $14.78 billion for June this year.

The primary budget deficit will have to be brought down to Tk 128,300 crore from the Tk 138,360 crore set for 2023-24, which ends on June 30. So, the government will have to tighten its belts in 2024-25.

The primary deficit is the difference between government revenues and expenses, excluding interest payments.

The government will have to raise its tax revenue to Tk 478,050 crore where the collection goal was Tk 394,530 crore for FY24. This means the country will have to mobilise more than 21 percent higher revenue, which could prove to be difficult since receipts averaged 15 percent in recent years.

The other three performance criteria are controlling reserve money, expanding social spending, raising capital investment of the government, and getting rid of external payment arrears.

Among the structural benchmarks, Bangladesh needs to fulfil five conditions this month and most of them are related to revenue collections.

As part of the condition, the country will prepare a report on tax exemptions given in the areas of personal income tax, corporate income tax, and value-added tax.

By September, the Bangladesh Bank will have to complete the first phase of the modernisation of its monetary policy framework in line with recommendations of the IMF in order to contain inflation.

"To address elevated inflation and falling foreign exchange reserves, we have realigned the exchange rate to the market-clearing level and simultaneously adopted a crawling peg with a band system as a transitional step toward greater exchange rate flexibility in line with the IMF recommendations," said the finance minister.

The government has also initiated measures to further safeguard the foreign exchange reserves buffer with IMF assistance, he said.

"We have also adopted a mechanism of readjusting the band to allow for additional exchange rate flexibility and to prevent excessive loss of FX reserves."

The country will have to fulfil five conditions by December. The National Board of Revenue (NBR) will have to adopt a tax compliance improvement plan covering VAT. It will finalise a medium and long-term revenue strategy covering indirect and direct taxes.

The planning ministry will formulate sector strategy papers and a multi-year public investment programme for five sectors.

The government will simplify organogram related to the supervision of each bank by a single team. It will issue an updated regulation to align the definition of non-performing exposures and forbearance in line with the Basel guidelines.

By June 2025, at least 50 percent of government transactions, excluding interest payments, subsidies, loans, equity, and liabilities will have to be carried out via electronic funds transfer.

The finance ministry will have to publish a report on state-owned enterprises (SOEs). This will also cover a detailed analysis of the financial health of at least 40 SOEs.

"In addition, we are committed to further tightening the monetary policy stance and recalibrating fiscal policy to support monetary tightening," the minister added.

In a press release, Deputy Managing Director Antoinette M Sayeh said near-term policies of the country should focus on rebuilding external resilience and bringing down inflation.

"The authorities' recent actions to realign the exchange rate and implement the new exchange rate arrangement are welcome."

"Periodic reviews of the crawling peg would be important to ensure its effectiveness. Continued monetary and fiscal policy tightening would help to rein in inflation."​

 

[Saif]

Foreign debt costs to spiral

Bangladesh’s interest payments on external borrowing are projected to soar by 65 percent within three years due to rising global interest rates and an expanded foreign loan portfolio, which will put further pressure on the dwindling foreign currency reserves.

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Foreign debt costs to spiral
Interest payments to surge 65pc to $2.21b by 2027

Bangladesh's interest payments on external borrowing are projected to soar by 65 percent within three years due to rising global interest rates and an expanded foreign loan portfolio, which will put further pressure on the dwindling foreign currency reserves.

According to a finance ministry report, the interest payments will rise to $2.21 billion or around Tk 26,000 crore by 2027 with the taka losing 35 percent of its value against the greenback over the last two years.

The principal amount is also forecast to jump by 28 percent to $3.17 billion in fiscal 2026-2027, compared to the current fiscal year.

Foreign loan repayments, including interest and principal amount, are projected to reach $3.82 billion in the current fiscal year. Foreign debt servicing already stood at $2.81 billion in the first 10 months of the fiscal year. The amount will rise to $5.38 billion by 2027.

"The impact of currency depreciation on external debt levels underscores the need for careful monitoring and management of external debt risks to maintain economic stability and resilience," said the report titled Medium-Term Macroeconomic Policy Statement (MTMPS).

The proportion of external interest payments in the budget is also expected to rise to 2.6 percent in FY27 from 0.9 percent in FY22, reflecting a growing impact of external debt on the budget, the report mentioned.

It further said two major factors are contributing to the increase in interest payments for foreign loans.

One factor is that the reference rates in advanced countries are expected to stay high, and the other is that Bangladesh's graduation from the category of LDCs will gradually narrow the window for getting concessional loans from external sources.

A reference rate is an interest rate benchmark that is used to set other interest rates. The Fed Funds Rate, the Secured Overnight Financing Rate (SOFR), and the prime rate are among the most common reference rates.

The report said the implicit interest rate on external borrowing exhibits a gradual increase over the period -- from 1 percent in FY21 to 2.6 percent in FY27.

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

It also mentioned that the depreciation of the taka has elevated the value of external debt when measured in local currency terms.

This highlights the influence of currency fluctuations on the debt portfolio and the importance of managing external debt exposure in the face of exchange rate volatility.

Referring to the gradual increase in foreign loan repayments, the report said that managing these debt service obligations is essential for ensuring financial stability and preventing liquidity crises.

"Despite the increasing amounts of external debt repayment, they are expected to remain within tolerable limits, supported by the government's efforts to diversify funding sources and build up foreign exchange reserves," it added.

Talking to this newspaper, Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh, said that given the ongoing forex crisis, Bangladesh has to be judicious about taking loans and choose projects that are of high social and economic importance.

"Many of the investments were good, but many were not, which is why our debt burden is rising. The government's capacity to borrow is decreasing due to the inability to expand revenue growth in line with economic growth."

He said projects such as the Dhaka Metro Rail and even an underground rail line in Dhaka will be beneficial.

However, the huge spending on the train line to Cox's Bazar, the Padma Rail Line, and the nuclear power plant in Rooppur will not yield expected outcome. They will add to the burden of foreign debt repayment, he said.

According to the report, Bangladesh's foreign loans are mostly made up of five currencies. The US dollar remains predominant, constituting 53 percent of the total, followed by the Japanese yen at 20 percent, the euro at 15 percent, the Chinese renminbi at 8 percent, the British pound at 3 percent, and other currencies making up 1 percent of the debt.​

 

[Saif]

Bangladesh's forex reserves near $22b as new funds arrive

The country’s reserves as per the calculation method used by the IMF stood at $19.47 billion on June 26. With the latest injection, the amount stands at roughly $21.89 billion.

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Bangladesh's forex reserves near $22b as new funds arrive

Bangladesh's foreign currency reserves rose to around $22 billion after the International Monetary Fund (IMF) and other lenders disbursed loans.

Today, the IMF disbursed $1.15 billion as the third tranche of a $4.7 billion loan programme. The country received around $900 million from other sources such as South Korea, the World Bank and the Islamic Development Bank, said Bangladesh Bank Spokesperson Md Mezbaul Haque.

"We are yet to finalise the account. We will get the final figure on the next (working) day," he said. Gross reserves would be around $26.5 billion.

The country's reserves as per the calculation method of the IMF stood at $19.47 billion on June 26. With the latest injection, the amount stands roughly at $21.89 billion. This is the highest level in nearly four months.

When Bangladesh began calculating its foreign reserves in line with the IMF's method on July 12 last year, the foreign reserves stood at $23.56 billion.

The reserves have been falling since the second half of 2022 due to higher outflow than inflow.

The gross reserves stood at $41.7 billion in August, 2021.​

 

[Saif]

All is not well

WITH a population of nearly 170 million in an area of 147,570 square kilometres, Bangladesh is the eighth most populated country in the world. It is still one of the least developed countries, poised to graduate to a developing country by 2026 and a developed country by 2041...

www.newagebd.net

All is not well
Hussain Imam 27 June, 2024, 22:23

| New Age/Mehedi Haque

WITH a population of nearly 170 million in an area of 147,570 square kilometres, Bangladesh is the eighth most populated country in the world. It is still one of the least developed countries, poised to graduate to a developing country by 2026 and a developed country by 2041.

The socio-economic indicators of the country are also impressive. Its per capita income, which was $91 at the time of our independence in 1971, is now $2,854. Its GDP growth, which was 3–4 per cent even in the early 90s, is now well above 6 per cent. The country's social indicators, such as infant and maternal mortality rate, life expectancy, school enrolment rate of children, and overall literacy, have shown phenomenal improvement over the years. The infant mortality rate has declined to 22.64 deaths per 1000 live births and maternal mortality has gone down by 38 per cent to 256 deaths per 100,000 in 22 years from 2000 to 2022.

The country can be proud of its literacy rate increasing to 74 per cent, school enrolment of children to above 96 per cent, and life expectancy of 73.82 years, an increase of 58.8 per cent compared to that of 2011.

Unfortunately, in spite of all those achievements mentioned above, all is not well in Bangladesh. Its economy is in shambles, to say the least. Education is in the doldrums. Healthcare is fragile. Corruption is at its highest peak. To start with, let us talk about the economy, leaving the other three for some other days.

As already mentioned, our economy is in shambles. Inflation has been persistently high over the years. The result is an abnormal rise in the cost of living, and this rise in the cost of living has been at a much greater pace than the increase in earnings. According to economists, the real income of people has remained either static or declined if we consider the rise in the cost of fuel, the sharp depreciation of local currency against the dollar, and the spiralling price hike of essential commodities.

The price hike has been a major problem for the ordinary people of this country. The high rate of inflation for a considerable period of time has drastically reduced the purchasing power of ordinary people. Every day they go to the market, only to be taken aback by the price hike of essentials. The price of potatoes is now Tk 60 a kilogram, onion Tk 90 a kilogram, and egg Tk 160 a dozen. There is hardly any item in the market, be it green papaya, green chilli, lentil, garlic, ginger or vegetable oil, the prices of which are not skyrocketing.

The vast majority of people are literally reeling to their knees in maintaining their livelihood. The unemployment rate is perennially high. The severe dollar crisis has drastically slowed down the import of raw materials and capital machinery for industries, mills and factories to operate. Foreign investment has been, for obvious reasons, dull over the years. The net result is that the job market in the country has remained almost shut.

A consistent rise in loan defaults has been a major cause of concern for the banking sector and economy. According to the Bangladesh Bank, as of March 2024, loan default stood at Tk 182,000 crore, which is an increase of Tk 36,000 crore since December 2023. In terms of percentage, the loan in default is 22 per cent of the total loan. It seems the so-called business icons of the country have been let loose to do whatever they wish.

They launder millions of dollars and buy properties in Malaysia, Singapore, Thailand, Australia, Dubai, England, Europe, Canada and America with the money borrowed from the banks almost 'free' of any liability to repay the loan. The result is the staggering amount of loan default to the tune of Tk 182,000 crore out of the tax payers' money. They were supposed to expand businesses, build industries and create jobs, but they did nothing of the sort except make their own fortune.

Money laundering has been another major concern for the economy in recent years. As revealed at a conference held on June 20, 2024, by the agro-economists' association of the country, $7–8 billion, equivalent to Tk 97,000 crore, are being transferred out of the country every year. This massive illegal transfer of money, either through money laundering or export-import manipulation, has resulted in a severe dollar crisis. This has, in turn, made the import of any item all the more costly. The result is a price hike for essentials beyond common men's reach.

No wonder millions of people, young or old, male or female, educated or uneducated, keep standing in the queue in front of the manpower export bureau or agencies for hours and days to go abroad for a job (any job), be it in the Middle East, Malaysia or Europe, knowing well the risk involved in terms of money and even life.

Although, officially, 24 per cent of people in this country live below the poverty line, in reality, the figure must be much higher than one can imagine. It could be as high as 50 per cent, if not more. It is not rocket science to understand that a huge number of people, from what we used to know as the middle-income group, have been pushed down to the low-income group by high inflation and a dull job market.

The term 'per capita income', so often talked about by economists and financial experts, has always been a puzzle for ordinary people. They don't understand how their country's per capita income of $2,854 could make any impression on them when they earn such a meagre income that they have to remain half-fed or ill-fed for days, months and years and when they cannot buy milk for their babies or pay for the medical care of their children, let alone other family members.

Who will tell them that the real answer lies in the stark inequality of wealth between the rich and the poor? Who will tell them that the income share of the poorest 10 per cent of the country's populace is 3.8 per cent compared to 26.92 per cent for the richest 10 per cent of the population? Who will tell the government that the ever-increasing inequality in the distribution of wealth and opportunities between the rich and the poor is bound to create social unrest leading to anarchy in the near future?

The government, the financial experts, the think tanks and the policymakers of the country ought to find ways to come out of this economic anarchy sooner than later so that people can breathe a sigh of relief and lead a life that is bearable, if not comfortable.​

 

[Saif]

LDC exit: A win for the nation, but a loss for trade

Bangladesh’s graduation from the group of least-developed countries (LDCs) to a developing nation in 2026 has become a point of national pride, underlining the substantial economic strides that the country has made.

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LDC exit: A win for the nation, but a loss for trade
Experts suggest more homework to offset potential losses

Bangladesh losing zero-duty benefits post-LDC graduation

Bangladesh's graduation from the group of least-developed countries (LDCs) to a developing nation in 2026 has become a point of national pride, underlining the substantial economic strides that the country has made.

Not only does the accomplishment signify that the nation has improved income levels, reduced poverty, and raised living standards, but it also represents improvement in social conditions.

Bangladesh was included in the LDC group in 1975 by the United Nations, with the country languishing from the havoc wreaked by the Pakistani army during the Liberation War of 1971.

The UN Committee on Development Policy, the body which assesses the graduation process, has confirmed Bangladesh will graduate in November 2026. It examined the country's economic performance across three criteria: gross national income (GNI) per capita, human assets index (HAI), and economic and environmental vulnerability index (EVI).

Bangladesh has outperformed all previously graduated LDCs in the three criteria in all reviews.

Although the exit will brighten the image and prestige of the country, it will also bring serious challenges for exports, especially due to the erosion of trade benefits.

BENEFITS FOR LDCs

Since becoming an LDC, Bangladesh has enjoyed zero-duty benefits on exports to different countries, including developed and developing nations. It receives preferential treatment in 38 countries. Of the total merchandise shipped from Bangladesh annually, 73 percent is LDC-induced.

It also qualifies for trade preference on shipments to its largest destination, the European Union, under its generous "Everything but Arms (EBA)" scheme. It has helped Bangladesh turn into the second-largest garment supplier to the bloc after China.

Except for the US, all other developing and developed countries have granted Bangladesh zero-duty benefits under the declaration of the Hong Kong Ministerial of the World Trade Organisation (WTO), where global leaders agreed to implement the Doha Development Agenda by approving duty exemptions for all goods originating in LDCs.

The US government did not comply with the declaration and had instead allowed duty-free access for 97 percent of the products of the LDCs. Unfortunately, garment items, the mainstay of the export basket of Bangladesh, were included in the three percent that was subject to duties.

As a result, Bangladeshi garment exporters have always had to face a 15.62 percent duty on apparel exports to the markets in the world's largest economy.

Washington suspended Bangladesh from the generalised system of preference (GSP) in June 2013 for its failure to meet statutory eligibility requirements related to worker rights. The US GSP programme for all countries expired in December 2020 and the US Congress is yet to take up a new scheme. As a result, it has no duty benefit for LDCs currently.

Since gaining the LDC status, Bangladesh has been performing strongly in merchandise exports, especially in the shipment of apparel. Now, the country is the second-largest garment exporter worldwide, accounting for a 7.9 percent share of the global market.

Bangladesh is also the biggest beneficiary of the duty privileges afforded to LDCs, with the country alone availing more than 67 percent of the benefits extended to the group.

Furthermore, Bangladesh enjoys trade benefits on a broader scale. For instance, it gets a 12 percent preferential margin on its sales to European countries, which provide a substantial price advantage.

WHAT AFTER LDC GRADUATION

Since Bangladesh will lose preferential market access, the loss of exports may primarily be worth $7.77 billion annually if merchandise exports of the fiscal year 2022-23 are considered.

"LDC graduation will have the greatest impact on the exports of Bangladesh," said the WTO in a study report. Bangladesh is projected to lose 14.28 percent of its exports.

Once the country leaves the bloc, local exporters may face an 11.5 percent duty in major export destinations in the EU if the GSP Plus facility can't be secured.

This duty will not only be imposed on exports to the EU but also to some emerging markets. For example, duties will be levied at 20 percent in India and 18 percent in Japan.

Apart from the impact of direct tariffs, the industrial sector, especially the garments industry, will face consequences. This may be reflected in workers losing their jobs as exports fall and exporters lose their competitiveness in global trade.

IS THERE ANY SILVER LINING?

The graduation will act as a source of pride and serve as recognition for the nation as it becomes a member of the developing countries.

On the positive side, Bangladesh may witness a higher inflow of foreign direct investments after it becomes a developing nation because the change in the status will brighten the country's image. There will also be enhanced access to finance because of better credit ratings.

But the real question is whether the country will be eligible for the same trade facilities once it exits the group and whether there is any possibility of retaining the benefits in the years after 2026. The straightforward answer is no, but two important developments need to be considered.

First, the EU will grant a three-year grace period to graduating LDCs, meaning Bangladesh will be allowed duty-free access up to 2029.

Second, at the 13th WTO Ministerial Conference in Abu Dhabi this year, it was decided that graduating LDCs would be given the facilities for three more years. In this case, graduating countries will have to negotiate with trading partners and it will not be flat like it is today.

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD), said the think-tank's study found that around 14 percent of Bangladesh's exports will be affected following graduation. "Moreover, Bangladesh will have to rationalise tariffs for other countries by withdrawing regulatory and customs duties."

In the absence of the duty-free export facility, Bangladesh will have to sign trade pacts with other countries in order to keep the preferential market access. However, such deals will come at a cost. For example, if free trade agreements (FTAs) are signed, the country may lose a major source of revenue in the form of import duties.

The country's income from import duties stood at Tk 96,259 crore in the last financial year, accounting for 29 percent of the total revenue collections.

Experts suggest the government make the most of the trade benefits of the LDCs and continue negotiations with major partners to sign FTAs, Comprehensive Economic Trade Agreements (CEPAs), Economic Partnership Agreements (EPAs), and Preferential Trade Agreements (PTAs).

If a graduating nation can negotiate efficiently, it may enjoy trade benefits for more than three years after the transition. For example, China has retained benefits for Samoa although the latter graduated in 2014. Therefore, the extent to which preferences can be availed will depend on the negotiation capacity of Bangladesh.

The EU and some countries such as Canada, Australia and the UK have already agreed to continue LDC-linked benefits for Bangladesh for three more years after 2026.

HOW TO REMAIN COMPETITIVE

According to experts, if Bangladesh can take proper steps, the country will be able to offset the financial losses from graduation. "The government has formed seven sub-committees on LDC graduation, and they should work efficiently so that the country can ensure a smooth transition," Prof Rahman added.

Once the country graduates, it will lose foreign assistance. So, the government has initiated measures and is bringing in changes to the budget and policies.

The principal secretary of the Prime Minister's Office has constituted a committee and seven sub-committees involving private sector stakeholders and researchers to identify potential challenges in the post-LDC era and carry out reforms in order to insulate the economy.

In order to tackle challenges stemming from the loss of preferential market access, Bangladesh is considering penning agreements with 13 major trading partners, including China, India, Japan, and the US. In December 2020, Bangladesh signed an PTA with Bhutan, its first bilateral trade deal.

The government has been active in formulating a nine-point action plan to be implemented by 2026 to continue trade benefits in the EU by availing GSP Plus facility.

Export-oriented industries are expected to take a beating owing to graduation since developing and developed nations are not allowed to provide direct cash subsidies on export receipts as per WTO rules.

Therefore, the government aims to provide subsidies in different forms to ensure competitiveness and revenue inflows from international markets.

The government plans to remove and reduce import and supplementary duties on 282 products in 2024-25 in order to prepare the nation for graduation. However, experts have termed the measures inadequate.​

 

[Saif]

Costs of LDC graduation

Bangladesh will lose access to LDC-specific duty-free and quota-free schemes

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Costs of LDC graduation

1. Bangladesh will lose access to LDC-specific duty-free and quota-free schemes
2. LDC-specific preferential rules of origin will go
3. Significant impacts are expected in the EU, Japan and other markets, affecting especially garments
4. No significant impacts are expected in the US considering current rules
5. Bangladesh will no longer benefit from extension given to LDCs on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
6. The TRIPS-related development may lead to higher medicine prices in Bangladesh and other countries
7. LDC graduation may leave limited impact on development cooperation in Bangladesh
8. Bangladesh may lose international support measures in trade, official development assistance and others
9. There will be no travel support to UN meetings and no benefit from LDC-specific support measures

BENEFITS OF LDC GRADUATION

1. Achieving the status will be an important development milestone though the gain is sometimes unquantifiable
2. More FDI is expected due to better image of the country
3. Bangladesh may obtain easy loans because of better credit ratings

 

[Saif]

Highest income tax rate stays unchanged at 25%

The government has moved away from its decision to raise the highest income tax rate to 30 percent and end tax holidays for investors in economic zones and hi-tech parks.

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Highest income tax rate stays unchanged at 25%
Lawmakers pass budget for FY25

The government has moved away from its decision to raise the highest income tax rate to 30 percent and end tax holidays for investors in economic zones and hi-tech parks.

However, the proposal aimed at granting amnesty for whitening the black money has been approved while the plan to levy duties for the first time on the cars imported by lawmakers has been scrapped – developments that upset the opposition.

Yesterday, lawmakers passed the Finance Act 2024 with several amendments after Finance Minister Abul Hassan Mahmood Ali placed the bill in parliament.

When he unveiled the budget for 2024-25 on June 6, the finance minister proposed to elevate the highest slab of the tax rate to 30 percent applicable to annual incomes of more than Tk 38.50 lakh that high-income earners can generate.

The government has retained it at 25 percent "to ease the tax burden" on taxpayers, according to the amended Finance Act. The highest tax rate would be 30 percent from 2025-26, it said.

The government has extended the existing 10-year holiday for investors in private economic zones and hi-tech parks and continued the zero-duty benefit on the imports of capital machinery, components and construction materials. The finance minister had proposed a 1 percent duty.

Ignoring widespread condemnation from economists, watchdogs and businesspeople, the scope to allow individuals and businesses to legalise black money without facing any question and by paying a 15 percent tax was passed.

According to the new provision, no authority can question if a taxpayer pays tax at fixed rates for immovable properties such as flats and land, and a 15 percent tax on other assets, including cash, securities, bank deposits, and savings schemes.

Yesterday, several lawmakers including GM Quader, also the opposition leader, and Hamidul Haque opposed the amnesty.

"It is double standards on the part of the government because it has committed to eliminate corruption. It should be stopped," Haque, the lawmaker of Kurigram-2, told parliament.

After the budget was unveiled, the finance minister was praised for his plan to amend the Member of Parliament (MPs) Order 1973 in order to withdraw the duty-free vehicle import facility for lawmakers. A 25 percent import duty, along with other taxes, was scheduled to be in place in FY25.

Since no amendment was proposed yesterday, lawmakers will keep enjoying the benefit.

Currently, vehicles are considered luxury goods in Bangladesh and are subject to a maximum of 500 percent supplementary duty. In some cases, it goes up to 800 percent.

Also, there are other duties and taxes that regular importers must cough up. In contrast, MPs have been exempted from paying any customs duties since 1988.

Officials of the finance ministry and the National Board of Revenue (NBR) who were involved with the budget preparation said the change in plan comes as the initiative contradicts the MPs (Remuneration and Allowances) Order, 1973 (President's Order).

NBR data showed that of the 572 cars imported by the MPs since 2009, at least 563 were brought in from Japan. Brands included Toyota Land Cruisers, Range Rovers, and Mitsubishi Pajero.

The finance minister also backtracked on his decision to impose an environmental surcharge on the vehicles owned by government authorities, departments and private companies. The surcharge on the second vehicle has been retained.

According to the Finance Act, trusts will have to pay a 15 percent capital gains tax similar to companies. Previously, trusts were excluded.

The capital gains up to Tk 50 lakh in the share market will continue to qualify for the tax exemption.

For individual investors, the gains tax would be 15 percent if they hold securities for at least five years. If they make the sales in less than five years, the capital gains will be considered as other incomes, and the regular income tax rate will be applicable.

The government has eased the rules on showing proof of submission of returns linked to renting community and convention centres for weddings and other events.

Under the new provision, proof of income tax filing will be required only for using such venues in eight city corporations.

Speaking in parliament, Abul Hassan Mahmood Ali said inflation would come down to 6.5 percent in the next fiscal year thanks to steps and strategies initiated by the government.

He also said the budget for FY25 has been framed to strike a balance between attaining economic stability and retaining the growth trend, the goals that apparently contradict each other.

The finance minister is hopeful that the country will return to a higher growth trajectory soon.​

 

[Saif]

New budget to take Bangladesh one step forward: PM

Prime Minister Sheikh Hasina today said the proposed national budget for the 2024-25 fiscal year was not "ambitious", vowing to take Bangladesh forward

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New budget to take Bangladesh one step forward: PM

Photo: BSS

Prime Minister Sheikh Hasina today said the proposed national budget for the 2024-25 fiscal year was not "ambitious", vowing to take Bangladesh forward.

"I don't consider the budget as an ambitious one... We will take Bangladesh one step further through the implementation of the budget," she said while taking part in a discussion on the proposed budget in the parliament.

This is the largest ever budget in size with Tk 7.97 lakh crore in the history of Bangladesh, with Tk 2.65 lakh crore annual development programme (ADP) and 6.75 percent growth rate, she said.

Some people have termed the budget as "an ambitious one" while some others called it a deficit, claiming that it was not possible to implement the budget and the need to reduce the growth target and ADP, she said.

The prime minister said they have the capability to take the challenge of implementing the budget.

"Taking challenges is our job. We want to move on by taking challenges and we have been marching ahead by accepting the challenge," she added.

Speaker Shirin Sharmin Chaudhury presided over the sitting of the third session of the 12th parliament.

On June 6, Finance Minister Abul Hassan Mahmood Ali placed Tk 7.97 lakh crore national budget for the 2024-25 fiscal in parliament, which is 4.6 percent bigger than the current fiscal year.​

 

[Saif]

Record budget support helps govt meet IMF’s reserve condition for first time

Bangladesh is going to fulfil the International Monetary Fund’s condition on foreign exchange reserves in June on the back of record budget assistance from global creditors, the first time since the IMF approved its $4.7 billion loan programme more than a year ago.

www.thedailystar.net

Record budget support helps govt meet IMF's reserve condition for first time

Bangladesh is going to fulfil the International Monetary Fund's condition on foreign exchange reserves in June on the back of record budget assistance from global creditors, the first time since the IMF approved its $4.7 billion loan programme more than a year ago.

The development comes after several bilateral and multilateral lenders approved $4.8 billion this month. Of the volume, budget support amounted to $2.76 billion and project loans stood at $2.04 billion. The budget support has already been added to the forex account of the Bangladesh Bank.

The IMF unveiled the loan scheme in January 2023 as the country was compelled to turn to external creditors owing to the unprecedented balance of payments crisis amid a sharp decline in the forex reserves because of higher outflows against inflows.

Maintaining a certain level of net international reserves (NIR) has been a major condition attached with the loan. However, the government could not meet the target set for June, September and December last year and March this year. Still, Bangladesh has received three instalments under the programme.

The country was given a revised target of keeping an NIR of $17.78 billion in December. The actual NIR stood at $16.73 billion.

In order to secure the fourth instalment, the country would have to keep an NIR of $14.79 billion on June 30. However, thanks to the disbursement of a record amount of budget support, the country is going to hit the goal.

"Bangladesh has fulfilled the condition on the NIR," BB Spokesperson Md Mezbaul Haque told The Daily Star, without disclosing the exact figure.

Another central banker said the NIR would be above $15 billion. "The overall reserves have increased riding on the budget support and the incremental rise in inward remittance earnings ahead of Eid-ul-Azha."

In the first three weeks of June, remittance earnings were around $2 billion. It was $2.5 billion in the previous month.

Among the budget support, the IMF lent $1.15 billion, the World Bank approved $500 million, the Asian Development Bank extended $290 million, South Korea provided $100 million, and France gave $107 million.

The Asian Infrastructure Investment Bank is scheduled to approve a $400 million loan today. The disbursement would be made on the day as well, according to a finance ministry official.

BB officials said the gross forex reserves amounted to $21.99 billion on Thursday while the NIR was $15.5 billion.

The NIR is defined as reserves assets minus forex liabilities. Currently, the central bank releases data on the reserves as per its traditional accounting method as well as in line with the balance of payments and investment position manual (BPM6) of the IMF.

Usually, the NIR is $5 billion to $6 billion lower than the amount reported in line with the manual.

The fund from the ADB is going to be added to the central bank's reserves. It will also have to make some repayments. Afterwards, the NIR would be above $15 billion.

This month, the WB approved loans totalling $1.5 billion. South Korea gave its nod for $814 million in credit support.

Bilateral and multilateral lenders committed $7.93 billion in loans and support in the first 11 months of 2023-24, up 33 percent year-on-year, financial ministry figures showed.

They disbursed $7.02 billion in July-May against $6.98 billion in the similar period in the previous financial year. Bangladesh repaid $3.07 billion in loans, and it was $2.46 billion a year earlier.​

 

[Saif]

Economy can be brought back to pre-Covid state: FM

Finance Minister Mahmood Ali on Saturday said the economy of the country can be brought back to the pre-Covid state through implementing the fiscal measures envisaged in the FY2025 budget. Delivering his closing speech on budget in the House, the minister hoped that the implementation of the budge

thefinancialexpress.com.bd

Economy can be brought back to pre-Covid state: FM
Published :

Jun 29, 2024 20:45
Updated :
Jun 29, 2024 21:11

Finance Minister Mahmood Ali on Saturday said the economy of the country can be brought back to the pre-Covid state through implementing the fiscal measures envisaged in the FY2025 budget.

Delivering his closing speech on budget in the House, the minister hoped that the implementation of the budget would help continue the ongoing development spree aimed at materialising the Vision 2041, which envisages a prosperous and 'Smart' Bangladesh.

While formulating the budget for the 2024-25 fiscal year, the minister said, he has undergone the 'difficult' task of balancing between expansion and contraction to maintain the growth momentum and contain inflation.

Listing the fiscal policies to curb inflation, he said the repo rate was enhanced to 8.55 per cent, the interest rate was made market-based, and a crawling peg system was introduced for the foreign exchange rate.

All these steps will help keep inflation at 6.5 per cent in the next fiscal year, he hoped.

The minister said that in the last one and a half decades, the country has been enjoying over 6.7 per cent GDP and has emerged as the 33rd largest economy in the world.

In line with the electoral manifesto of the Awami League, huge steps were taken to improve the social and physical infrastructure, agriculture and food production, to ensure food security and to shore up resource mobilisaton, the minister pointed out, adding that, through these initiatives, the country will achieve the GDP target of 6.7 per cent in the midterm and the growth rate will reach 7.25 per cent.

He said the per capita income will reach 12500 dollars by 2041, and the poverty rate will come down to zero per cent in the country by that year.

Due to the inclusive economic policy, the government has been able to reduce the poverty rate to 18.7 per cent from 31.5 per cent, the minister mentioned.

He said the allocation for the social safety net is 12.3 Per cent higher in the proposed budget, and a massive food rationing programme is ongoing to enable low-income people to absorb the shock of the high commodity prices.

He also stated that a lot of measures are being taken to make tax administration efficient and people-friendly.

Several acts have been enacted in this regard, including the Customs Act, which was amended recently and has been effective from June 6, this year, the minister said.

In the six ministries, online databases are installed to make the collection of indirect taxes more effective, he said.

The minister said that he has had consultation with different stakeholder groups before formulating the budget, and he sought the help of all in implementing the proposed budget.​

 

[Saif]

Economy in FY25: Is there any light at the end of the tunnel?

There is hope that the major challenges Bangladesh is facing due to high inflation and the foreign reserve crisis will stabilise gradually in fiscal year 2024-25, but consistency in maintaining a strict policy stance will be imperative to that end.

www.thedailystar.net

Economy in FY25: Is there any light at the end of the tunnel?

There is hope that the major challenges Bangladesh is facing due to high inflation and the foreign reserve crisis will stabilise gradually in fiscal year 2024-25, but consistency in maintaining a strict policy stance will be imperative to that end.

While most countries, including the US, India and even cash-strapped Sri Lanka, succeeded in controlling inflation, the consumer price index (CPI) of Bangladesh has kept rising.

Inflation in the country has persistently hovered above 9 percent since March last year and the Bangladesh Bank (BB) failed to control it for two major reasons.

The first is that the central bank was very late in its response to rising inflation and the other is that the interest rate cap, which persisted in various forms until May 8 this year, made the government's monetary policy ineffective.

The central bank also injected fresh money into the economy by providing loans to the government, stimulus packages after the pandemic, and liquidity support for some weak Islamic banks, fuelling inflation.

However, positivity is in the air as the central bank has finally adopted some reform initiatives as per the prescription of the International Monetary Fund (IMF) for a $4.7 billion loan programme.

One of the biggest reforms was made by the banking regulator when it scrapped the interest rate ceiling and allowed banks to fix interest rates based on market factors.

In April 2020, the BB first introduced a 9 percent interest rate ceiling. Although that was withdrawn at the beginning of FY24, the banking regulator introduced a new interest rate system based on the six-month moving average rate of treasury bills, abbreviated as SMART, which served as another cap.

Among other reforms, the BB hiked the repo rate or policy rate several times, bringing it to 8.50 percent, in a bid to make money costlier and tame skyrocketing inflation.

Not only that, after huge criticism from different corners, the central bank decided to stop providing loans to the government from FY24.

Another major reform came in the foreign exchange rate as the central bank made it flexible by introducing the crawling peg system.

In May, US ratings agency Moody's projected that Bangladesh's foreign exchange reserves position would stabilise over the next few months despite the country repeatedly failing to fulfil the IMF's reserve target due to a drastic fall in forex holdings over the past two years.

So, there is a scope for all the initiatives taken by the central bank and the government to lead to positive outcomes in the new fiscal year, but consistency in regard to a strict policy stance is important.

The Bangladesh Bank is going to announce the monetary policy for the first half of FY25 in the third week of July, with the main objective of controlling inflation and achieving the GDP growth target set by the government.

Ahead of that, the question on everyone's mind is regarding the kind of policy stance that will be adopted, especially as lower and middle-income people have been bearing the brunt of rising prices.

On a 12-month average between June 2023 and May 2024, the inflation rate stood at 9.73 percent, much higher than the BB's target of 7.5 percent for the outgoing fiscal year of 2023-24.

The government aims to contain the CPI to 6.5 percent for FY25.

In its latest publication, the IMF said the macroeconomic outlook of Bangladesh is expected to gradually stabilise as policy actions start to take hold.

Bangladesh Bank executive director and spokesperson Md Mezbaul Haque told The Daily Star yesterday that the forex market is liquid now due to higher inflows of US dollars.

He added that remittance earnings had been increasing after the flexible exchange rate was introduced.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the dynamism in the economy depended on policy measures.

If the central bank and the government maintain strict policy measures, it will help reduce inflation, as per the economist.

The government has also set high bank borrowing targets for the new fiscal year, but banks are facing liquidity shortages, he said, adding that the central bank will have to be strict about its decision to refrain from granting loans to the government.​