[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Illicit money flow, rampant corruption plagued economy

The country lost $16 billion annually on an average between 2009 and 2023 because of the illicit fund flow amid systemic tax evasion, misuse of exemptions, and poorly managed public finances under...

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Illicit money flow, rampant corruption plagued economy
Staff Correspondent 01 December, 2024, 17:05

Bangladesh interim government chief adviser Professor Muhammad Yunus speaks at the programme organised to hand over a white paper on the country's economy at the chief adviser office in Dhaka on Sunday. | CA press wing

The country lost $16 billion annually on an average between 2009 and 2023 because of the illicit fund flow amid systemic tax evasion, misuse of exemptions, and poorly managed public finances under the authoritarian Awami League regime ousted amid a mass uprising on August 5.

The illicit financial outflows are more than double the combined value of net foreign aid and Foreign Direct Invest, according to the White Paper on the State of Bangladesh Economy, submitted to chief adviser Muhammad Yunus on Sunday by a 12-member committee headed by economist Debapriya Bhattacharya.

The white paper, underscoring the significant fiscal opportunities lost to corruption, stated that halving tax exemptions could double education funding and triple health allocations.

Income tax exemptions were granted to selected large conglomerates, including Summit Group for its Liquefied Natural Gas terminal and 15 power plants, S Alam Group for its coal-based power plants and BEXIMCO Group for its Sukuk Bond, according to the white paper.

The white paper also highlighted that $14–24 billion was lost to political extortion, bribery, and inflated budgets with the annual development programme projects worth $60 billion in the past 15 years.

Chief adviser’s press secretary Shafiqul Alam in a briefing on the day said that the chief adviser was stunned by the plundering of public money during the AL regime.

Calling the white paper an autopsy of misappropriation of public funds by the authoritarian regime, he said that the interim government would start meetings with international agencies including the Federal Bureau of Investigation of the United States from December 10 to bring back the stolen assets.

On August 29, the white paper committee was appointed after the interim government assumed power on August 8, three days after deposed prime minister Shekh Hasina fled to India on August 5.

Exploring the overall economy left behind by the AL regime in 23 chapters, the 385-page white paper revealed that protracted periods of deceptive data, lax financial management, reckless macroeconomic management, public finance pilferage, and external sector imbalances had created deep wounds in the economy.

The deceptive economic outcome indicators, coupled with serious institutional flaws in sectors like banking, non-banking financial institutions, capital market and the energy sector are linked to the launch of overpriced mega projects and the huge outflow of illicit finance, said the white paper.

The white paper showed that the lack of democratic accountability from the fraudulent national elections of 2014, 2018 and 2024 shaped the authoritarian government that promoted collusion between the ruling politicians, a section of the bureaucrats and certain business elites for its sustainability.

It also said that the unholy alliance eroded institutional integrity of legislature, executive and the judiciary and paralyzed the non-state actors like media, civil society and private sectors, through intimidation, self-censorship and cooption leading to the rise of the oligarchs who ruled the political governance and economic management.

‘Consequently, the government lost its policy sovereignty. These oligarchs influenced and manipulated key facets of the economy to serve their vested interests, concealed by an illusory development narrative sustained by inflated and misleading data,’ said the paper.

Identifying two dozen channels of corruption, the paper puts the banking sector on top of the most corruption-ravaged sector, followed by physical infrastructure and energy and power while information and communication technology was also identified as one of the most corruption-affected sectors by its operational and technological novelty.

The banking sector crises have deepened due to politically influenced lending practices overburdened with distressed assets of Tk 6.75 lakh crore as of June 2024, equivalent to the cost of constructing 14 Dhaka metro rail systems or 24 Padma Bridges, according to the paper.

‘The S Alam Group alone took about Tk 2 lakh crore from the banks,’ said the white paper.

The paper also said that manipulated domestic production figures and understated demand for key commodities, such as rice, edible oil, and wheat, had destabilised markets while erratic and politically influenced procurement policies benefited powerful business groups and exacerbated consumer hardships due to almost double-digit inflation over the past two years.

The paper identified that Tk 13.4 lakh crore had been funnelled through hundi transactions in the past decade by recruiting agencies for visa purchases — an amount four times the cost of constructing Dhaka metro rail between Uttara and Motijheel.

The paper classified 73 per cent of social safety net beneficiaries as non-poor until 2022.

Receiving the white paper, the chief adviser thanked the committee for doing a landmark, saying it should be published once it is finalised and be taught in textbooks in national college and university curriculum according to the press wing of the chief adviser.

Committee member Mustafizur Rahman said that they examined seven large projects costing over Tk 10,000 crore each and found that the initial estimate of Tk 1,14,000 crore was revised to Tk 1,95,000 crore, recording 70 per cent increase by adding many components, showing an inflated land price, and manipulating the purchase.

This happened without analysing the cost benefit, he said, adding that total expenses on 29 large projects were $87 billion, or Tk 7,80,000 crore.

Committee member AK Enamul Haque said that in the past 15 years over Tk 7,00,000 crore was spent on the ADP, and 40 per cent of the money was plundered by bureaucrats.

M Tamim, another member of the committee, said that $30 billion was invested on power generation, and if the kickback was considered 10 per cent, the amount would be at least $3 billion.​

 

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A possible game-changer for BD's sustainable growth

Amid the ongoing foreign exchange volatility, local businesses could attract substantial capital through "foreign private equity funds", offering a lifeline to the crisis while fostering sustainable growth. Launched in 2020, the foreign private equity fund BMA, supported by globally renowned

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A possible game-changer for BD's sustainable growth
Jasim Uddin Haroon
Published :
Dec 02, 2024 00:57
Updated :
Dec 02, 2024 00:57

Amid the ongoing foreign exchange volatility, local businesses could attract substantial capital through "foreign private equity funds", offering a lifeline to the crisis while fostering sustainable growth.

Launched in 2020, the foreign private equity fund BMA, supported by globally renowned institutions, such as British International Investment (BII), Dutch development bank FMO, and Norway's Norfund, focuses on high-potential sectors, including manufacturing, agriculture, food, and financial services.

BMA distinguishes itself as the only private equity fund exclusively mandated to invest in Bangladesh.

Traditionally, local corporate entities rely on banks, the capital market, or foreign loans for financing. However, foreign loans often come with high variable interest rates, restrictive conditions, and short-term repayment schedules, posing challenges for sustainable growth.

Private equity provides a viable alternative by injecting long-term capital into businesses, helping them streamline operations, drive growth, and enhance compliance with environmental, social, and governance (ESG) standards.

"We can invest between $10 million and $25 million in a single company and are open to investing in diversified sectors," said Khalid Quadir, managing partner of BMA.

He emphasised the untapped potential in Bangladesh's agricultural sector, which boasts an annual turnover exceeding $40 billion.

Quadir identified the light engineering sector as particularly promising. "This sector has the potential to replicate China's success in manufacturing and innovation, positioning Bangladesh as a mini China," he said.

BMA has already demonstrated this strategy through its investment in ACI Motors, a market leader in agricultural mechanisation and automotive.

The fund focuses on investing in compliant and well-governed companies like ACI Motors to create jobs and drive sustainable growth.

A notable success story is Japanese conglomerate Mitsui & Co's recent acquisition of a substantial stake in ACI Motors.

"Such investments bring global confidence, as major players feel reassured when they see foreign investments have already been established," Quadir said. He also emphasised BMA had facilitated a conducive partnership within ACI Motors for new global players to join in. He believes this could be a replicable model for other aspiring businesses.

ACI Motors assembles and distributes branded agrarian machinery, including products from Japan's Yanmar, motorcycles from Yamaha, and commercial vehicles from China's Foton.

Despite its potential, the country faces multiple hurdles to attract large foreign capital infusion. Many local corporations struggle with poor governance and outdated operational frameworks.

Regulatory inefficiencies, particularly at the Bangladesh Securities and Exchange Commission (BSEC), also deter private equity investments. For instance, initial public offerings (IPOs), a common exit strategy for such private equity funds, face lengthy delays.

Private equity funds often resort to alternative exit strategies, such as selling stakes to foreign entrepreneurs or local sponsors. Typically, they aim to exit within five years. But in Bangladesh, these investments often remain tied up for over a decade due to regulatory delays.

To attract more private equity investments, Bangladesh must implement regulatory reforms to enable smoother exits for investors.

As the country transitions from a developing economy to a middle-income one, fostering technology-driven industries will be crucial to maintaining competitiveness.

"With improved compliance, governance, and sustainability, Bangladesh can draw even greater foreign direct investment and private equity funding," said Dr M Masrur Reaz, chairman and CEO of Policy Exchange of Bangladesh, a private think tank.

He emphasised such investments were vital for local businesses in this critical period.​

 

[Saif]

An anatomy of the current economic situation in Bangladesh

Bangladesh's economy faces instability, inflation, and political unrest hindering growth.

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An anatomy of the current economic situation in Bangladesh

VISUAL:STAR

The economy of Bangladesh is at such a critical juncture, struggling with both long-standing structural problems and newly emerging issues. Though exports and remittances have shown improvement in recent times, continuing macroeconomic instability, high inflation, and political unrest continue to shake the prospects for sustainable growth and recovery. These imperative challenges now require well-coordinated strategies and overall reform initiatives that will stabilise the economy on the pathway of resilient and sustainable growth.

Macroeconomic instability and persistent inflation

Despite the expected recovery, the incidence of macroeconomic instability remains high, denting confidence. Inflation is still at a high level, shredding real incomes and further increasing financial vulnerability among the population. For more than two years, monetary policy has periodically resorted to raising interest rates to combat inflation. Though since May 2022 until now, Bangladesh Bank has hiked the repo rate by 11 times, the impact remains marginal. In the context of persistently high inflation for more than two years and the resulting erosion of real incomes, the effectiveness of controlling inflation through demand contraction via higher interest rates has come under scrutiny. Such a rise in interest rates without much success in lowering inflation may take a toll on private investment and thus weaken the prospects of economic recovery. On the other hand, the recent move by Bangladesh Bank to infuse Tk 22,500 crore in liquidity support to six crisis-hit banks through money printing is also unlikely to ease inflationary pressures. The most important issue in inflation control is the need for coordination among monetary policy, fiscal policy, and the management of the domestic market, which is lacking. While taxes and duties on essential imports need to be lowered on time, equally important is the effective regulation of anti-competitive practices in the market and addressing bottlenecks in the value chain.

The political economy of law and order

The economic uncertainty is being exacerbated by a deteriorating law and order situation. The increase in political conflicts and social unrest surely points to an unstable environment that scares away investment and dampens economic activities. Resultant insecurity disrupts supply chains, and labour productivity, and increases the cost of doing business. Despite repeated emphasis by top policymakers on restoring law and order, significant progress remains elusive.

Labour unrest in different sectors including the garment sector is very critical. Especially for the RMG, the unsettled disputes regarding wages, benefits and working conditions may impact the reputation of the sector and its export competitiveness. Preferential market access threatened by graduation from LDC status in 2026 might further squeeze the profit margins of exporters already suffering from operational disruptions.

However, export and remittance inflows have been doing reasonably well in recent months. But to sustain this growth, the political and economic environment should remain stable. The ongoing political conflicts and social unrest are so critical that gains would easily be lost because of uncertainty that keeps buyers and investors away from the Bangladeshi market.

The uncertain path of reform initiatives

While the interim government has expressed a strong commitment to initiating reforms in critical economic and political domains, the success of these efforts hinges on building an effective consensus among key stakeholders, including competing political forces and the bureaucracy. For instance, addressing high levels of non-performing loans and weak governance is essential to restructuring the banking sector and restoring financial stability. Similarly, reforms in taxation are crucial to increasing revenue generation and reducing reliance on foreign borrowing.

However, without consensus among stakeholders, the reform agenda risks becoming fragmented and contested, with limited progress in core areas like taxation, the banking sector, public expenditure, and institutional governance. Moreover, entrenched interest groups wielding significant power may resist these changes, further undermining the reform process. This lack of cohesion and resistance may hamper economic recovery, deepen public disillusionment with governance, and erode trust in the system.

A path to economic recovery and sustained growth

Given the current economic and political landscape, the following measures are essential to place Bangladesh on a sustainable growth path:

First, coherence in monetary policy, fiscal measures, and market regulation should be enhanced. An empowered coordination body can ensure that the policies for inflation control cover both demand and supply-side factors. Second, reforms of critical economic, political, administrative, and judicial domains are very important to nurture good governance and restore the people's confidence. Openness and participation in policymaking processes can build consensus and reduce resistance. The interim government should present the roadmaps for the reforms in these critical domains and invite stakeholders to share their opinions.

Third, there is a need to stem the deterioration in the law-and-order situation by building a dialogue between political and social groups. Also, there should be a clear roadmap to the elections (both national and local) so that a conflict-less environment can be created in which economic activities can thrive. Fourth, policymakers should help the negotiation between labour groups and employers to end disputes and adhere to international labour standards, incentives for innovation, and diversification of the sectors so that they can meet challenges after LDC graduation.

Fifth, there is a need to decrease the dependence on RMG and remittances by helping other potential export sectors grow. This will require addressing the sector-specific problems as well as reducing the high cost of doing business. Finally, vulnerable groups must be cushioned against inflationary pressures through targeted subsidies and social safety nets. This would help maintain domestic consumption and prevent sharp increases in the level of poverty.

Bangladesh stands at its crossroads, where the pace of its economic future may well depend upon how boldly and effectively current challenges will be met by policymakers. Economic instability currently interplays in a political battle with particularly weak governance. Instead of quick fixes, a multisectoral approach that underpins reforms, stability, and inclusivity is needed to usher in sustainable development. The time to begin churning this process is now because the costs of inaction are too high for a country whose task of securing its economic future remains at the top of the agenda.

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

 

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$6 billion foreign loan commitments may come by June: finance adviser

The commitments will come from multiple sources, including World Bank, IMF, ADB, Opec

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$6 billion foreign loan commitments may come by June: finance adviser
The commitments will come from multiple sources, including World Bank, IMF, ADB, Opec

The government expects to get new loan commitments worth $6 billion for reform activities from the development partners within next June, Finance Adviser Salehuddin Ahmed said today.

They will come from multiple development partners, including the World Bank, International Monetary Fund, the Asian Development Bank and the Organization of the Petroleum Exporting Countries (Opec), he said.

The adviser shared the information with journalists after a meeting with an IMF mission at his office in the capital.

The mission, led by its chief Chris Papadakis, came to Bangladesh to review the country's performance and compliance with structural reform conditions that the IMF attached for the fourth tranche of the $4.7 billion loan.

The government will seek extra fund as it is going through a reform process in many sectors like banking, which will require additional spending, the adviser said.

It may take time to disburse the fund, as it is not possible to release the entire amount within a year, he said.

However, the commitments may come by June this year, he added.

Earlier in August after taking charge of the country, the interim government had said it would seek $3 billion of additional loan from the IMF.

In October, Ahmed discussed the new IMF loan on the sidelines of the annual meetings of the IMF and the World Bank Group held in Washington in late October this year.

In today's meeting, the mission wanted to know what strategies the government has taken and will take to improve the country's economic situation, the adviser said.

He also mentioned today's scheduled meeting of the mission with the Bangladesh Bank governor, during which the delegation sought to know what steps had been taken to reform the banking sector.​

 

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Bangladesh ‘sleepwalked’ into middle-income trap

Bangladesh, mired in data fog, has “sleepwalked” into the middle-income trap according to the white paper on the state of the country’s economy.

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Bangladesh ‘sleepwalked’ into middle-income trap
White paper asserts

Bangladesh, mired in data fog, has "sleepwalked" into the middle-income trap according to the white paper on the state of the country's economy.

The term refers to a situation where a country experiences rapid economic growth and moves from a low-income economy to middle-income status but then struggles to make the leap to high-income status.

"We said earlier that Bangladesh is at risk of falling into the middle-income trap. But it has already happened. We have tried to explain it with data in the white paper," Zahid Hussain, a key member of the white paper panel, said at a press conference on Monday, a day after the committee handed over the final report to Chief Adviser Prof Muhammad Yunus.

Addressing the same event, Debapriya Bhattacharya, who led the white paper panel, supported Hussain's claim.

A major reason was the practice of inflating official data, which meant the country did not have any idea about the path it was truly on

As for how the country had fallen into this trap, the white paper identified "stasis in structural reforms, reform reversals, institutional decadence, global adversities, and a growing gulf between the reality on the ground and the perceptions of policymakers".

Other factors that it mentioned were employment remaining concentrated in low-productivity agriculture and informal activities, ubiquitous resource misallocations, and the slipping competitiveness of the economy.

Another major reason was the practice of inflating official data, which meant the country did not have any idea about the path it was truly on.

For example, according to the white paper, Bangladesh's economic growth has been overstated since 1995.

The remarks were made at a time when Bangladesh's overall economy is facing significant challenges, exacerbated by persistent inflation and a banking sector crisis brought on by a massive amount of non-performing loans, poor governance, and a severe liquidity crunch.

Simultaneously, slow infrastructure development and inefficiencies plague the development industry while political unpredictability and low business confidence prevent investment from growing in the country.

Unemployment is also increasing, particularly among youth, as the economy fails to generate adequate quality employment opportunities.

These issues have pushed Bangladesh into the middle-income trap, according to industry insiders.

The World Bank defines the "middle-income trap" as a situation where middle-income countries face challenges to economic growth, innovation, and wage competition.

In the World Bank's 2024 World Development Report, the middle-income trap was described as a period of slow growth and a decline in productivity gains.

It is a situation where a country is unable to compete with low-wage countries and high-income countries, is prone to premature slowdowns in development, and relies on policies based on superficial measures of economic efficiency.

The multinational lender added that middle-income countries face geopolitical challenges, demographic challenges, environmental challenges, competition from low-wage countries, and competition from high-income countries.

According to the white paper panel, the only way to break free of this shackle is to increase the total factor productivity, which measures how much output can be produced from a certain amount of inputs, particularly labour productivity.

"Education and skill of the labour force are the key to enhancing labour productivity and sustaining higher growth," it said.

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said the big concern now is finding a way out of the trap.

"I think there are three exits. One is macroeconomic stability, the second is policy reform and the third is institutional accountability. There are no other exits."

According to experts and economic analysts, if Bangladesh falls into the middle-income trap, it will be unlikely to achieve its goal of becoming a developed nation by 2041.

At the end of 2023, there were 108 countries, including China, Brazil, Türkiye and India, stuck in the "middle-income trap", according to the World Bank. The countries are home to 6 billion people.​

 

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IMF begins talks on fresh loans

The third review mission of International Monetary Fund (IMF) yesterday entered into discussions with the interim government of Bangladesh regarding potential conditions for a fresh $3 billion loan.

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IMF begins talks on fresh loans
Interim govt expects $6b budget support by next June

The International Monetary Fund (IMF) headquarters building is seen in Washington, U.S., April 8, 2019. REUTERS

The third review mission of International Monetary Fund (IMF) yesterday entered into discussions with the interim government of Bangladesh regarding potential conditions for a fresh $3 billion loan.

The IMF mission, whose primary task is to assess the country's progress in meeting its criteria for releasing the fourth tranche of a $4.7 billion loan, will continue the discussions until December 17.

The IMF mission led by Chris Papadakis held separate meetings with Finance Adviser Salehuddin Ahmed and Bangladesh Bank Governor Ahsan H Mansur alongside other senior officials.

"We discussed the disbursal of the existing loan package and also sought extra funds. As the government is going for many reforms, it will need more money," Ahmed said after the meeting.

But other than financing reforms, particularly in the banking sector and revenue collection, the funds will also be needed to address any deficit in the country's current account and foreign exchange reserve.

Having already sought funds for its reform activities, the government is expecting a total commitment of $6 billion from the World Bank, IMF, OPEC Fund and others by next June, he added.

After taking office in August, the interim government said it would seek an additional $3 billion loan from the IMF to reduce the existing pressure on the foreign exchange reserves.

On the last week of September, an IMF mission came to take stock of the country's economic situation and what it requires to recover.

In October, Bangladesh opened discussions with the IMF regarding the new loan in a sideline meeting when Ahmed visited Washington to attend the annual meeting of the World Bank and IMF.

Following this discussion, the mission came to Bangladesh to review the country's performance and compliance with structural reform conditions for the fourth tranche of the $4.7 billion loan.

The finance adviser informed that the mission came to observe the country's condition in terms of revenue collection, its fiscal deficit, GDP growth, and inflation.

"They want to know what strategies the government has taken and will take. The mission also will meet with the central bank to see what steps were taken to reform the banking sector," he said.

Ahmed also informed that the government had argued that stability has returned to the banking sector in part.

"Already, the foreign exchange rate is not fluctuating heavily like in previous months," he said.

Besides, even a troubled lender like Islami Bank is starting to perform well even though it initially needed liquidity support.

"So, all other the banks will also soon become financially stable," he hoped.

Regarding the economic situation, Ahmed said inward remittance was at a satisfactory level and export growth was not low either.

Furthermore, Ahmed said although imports are still low, they have been increasing lately, with the interim government working to raise the inadequate level of capital machinery imports.

"Whatever measure we take will be good for the country in the long run. Besides, we will not take any whimsical steps that the next government cannot follow," he said.

"The IMF will give some targets (for the new loan) and we will try to fulfil them," Ahmed added.

The IMF mission expressed satisfaction about the reform activities of Bangladesh Bank but is concerned about the stubbornly high inflation rate, according to central bank officials present at the meeting.

The central bank officials told the IMF mission that the policy rate has been increased twice and inflation has not been tamed. Still, they expect it will at least relieve some of the inflationary pressure.

"The IMF mission said the policy rate could be increased further if inflation does not come under control," said a Bangladesh Bank official on condition of anonymity.

The multilateral lender approved the $4.7 billion loan in January 2023. Bangladesh has already received $2.3 billion of the total amount in three tranches.

Of the $2.3 billion received so far, $1.1 billion arrived as the third tranche in June this year.​

 

[Saif]

Gen Z: Shaping the future of business

Generation Z, popularly known as Gen Z, is a term used to represent people born between the late 1990s and early 2000s. This demographic cohort presently accounts for approximately 30 percent of the global population. It is estimated that Gen Z will account for 27 percent of the global workforce...

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Gen Z: Shaping the future of business

Generation Z, popularly known as Gen Z, is a term used to represent people born between the late 1990s and early 2000s. This demographic cohort presently accounts for approximately 30 percent of the global population. It is estimated that Gen Z will account for 27 percent of the global workforce by 2025.

The situation in Bangladesh is no different. It is a young country with a median age of around 28 years. Individuals aged 10 to 24 years, which includes a substantial portion of Gen Z, make up about 30 percent of the country's total population.

As this generation comes of age and enters the workforce and consumer markets, their distinct characteristics, values, and behaviours will significantly influence how businesses operate and engage with customers. Gen Z exhibits certain attributes that differentiate them from previous generations, such as Millennials, Generation X, and Baby Boomers. Understanding these attributes is crucial for businesses.

This generation is overwhelmingly tech-savvy; highly proficient in using technology and digital tools for communication, entertainment, education and shopping. This digital fluency shapes their preferences for instant access to information and services.

As this generation grew up at the peak of globalisation, they are very inclusive and value diversity. Gen Z is genuinely concerned about social issues like climate change, racism, inequality, etc. They tend to be very pragmatic and realistic as they have experienced economic uncertainty, political instability and global crises.

This generation appreciates collaboration and teamwork but authenticity and self-expression do matter to them as well. While they have relatively shorter attention spans caused by social media, it is because of the internet and social media that they are exposed to different cultures, ideas and lifestyles, leading to a broader understanding of global issues and a desire for interconnectedness.

This cohort prefers to spend money on travel, events and activities that enrich their experiences rather than on traditional consumer goods. Mental health is a foremost concern for them.

Organisations need to understand and adapt to Gen Z's preferences to thrive in an increasingly competitive landscape. Businesses need to invest in social media marketing, influencer collaborations and interactive content to effectively reach and engage this generation. Companies have to develop sustainable products, prioritise ethical sourcing and create offerings that align with the social issues important to this generation.

Organisations that connect with this cohort emotionally and demonstrate a commitment to their values will foster loyalty. Companies have to embrace technology to meet the expectations of this tech-savvy generation. Flexible work arrangements, mental health support and professional development opportunities are some of the critical topics to attract and retain this group.

Some global companies have already adapted their business strategies, marketing approaches and product offerings to align with the values and preferences of Gen Z. For example, Nike has incorporated sustainable practices into its production processes, creating eco-friendly product lines like the "Move to Zero" initiative, which aims to reduce waste and carbon emissions. Starbucks engages with Gen Z through its social media presence, promoting causes like racial equality. Netflix has adapted its content strategy to cater to Gen Z's diverse tastes and preferences. The streaming service produces original content that reflects the experiences and challenges faced by this generation, such as shows addressing mental health, social justice, and identity.

Bangladeshi businesses should gear up to understand and adapt to these characteristics of Gen Z for engaging effectively with this influential cohort as they continue to shape the business.

The author is chairman and managing director of BASF Bangladesh Limited​

 

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IMF asks to raise tax-GDP ratio by 0.6 percentage points

The International Monetary Fund (IMF) has asked to increase the tax to GDP ratio by 0.6 percentage points by the end of this fiscal year to make up for last fiscal year’s revenue collection shortfall.

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IMF asks to raise tax-GDP ratio by 0.6 percentage points

The International Monetary Fund (IMF) has asked to increase the tax to GDP ratio by 0.6 percentage points by the end of this fiscal year to make up for last fiscal year's revenue collection shortfall.

Last fiscal year, the ratio stood at 7.3 percent.

As per conditions of an existing loan of the Washington-based lender, the ratio was supposed to be increased by 0.5 percentage points every year.

"But the IMF asked to raise the ratio…for the current fiscal year to mitigate last year's shortfall… It will definitely create an extra burden on us," said a top official of the National Board of Revenue (NBR) yesterday.

The issue was raised during a scheduled closed-door meeting between an IMF delegation and NBR officials at the tax authority's Agargaon headquarters in Dhaka.

This is the third IMF delegation arriving with the primary task of assessing the country's progress in meeting the criteria for the release of a fourth tranche of the $4.7 billion loan.

The multilateral lender approved the $4.7 billion loan in January 2023. Bangladesh has already received $2.3 billion in three tranches.

The IMF mission's discussions with the interim government of Bangladesh began on Tuesday, incorporating potential conditions for a fresh $3 billion loan. The discussions are to continue until December 17.

The delegation asked why the NBR failed to meet the IMF's revenue collection target for the previous fiscal year and sought to know about the measures taken to increase revenue collections, according to the official.

The tax authority logged overall receipts of Tk 382,562 crore in fiscal year 2023-24, falling short of its revised target by Tk 27,438 crore.

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

The multilateral lender laid emphasis on revenue mobilisation, especially for the fact that Bangladesh witnessed a one percent year-on-year drop in revenue collection in the first four months of this fiscal year.

The tax authority collected Tk 101,281 crore in the July-October period, falling short of the target by Tk 30,831 crore.

The target for the entirety of fiscal year 2024-25 has been set at Tk 480,000 crore.

The NBR official further said the mission had enquired about the tax expenditures and various reform measures, including automation of the taxation system and e-return filing.

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

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

Besides, the mission also discussed the status of medium and long-term revenue collection strategies, measures to strengthen tax administration governance and plans to separate the tax administration from the tax policymaking department.​

 

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Bangladesh sees dip in FDI inflows amid global economic uncertainty

Bangladesh witnessed a decline in Foreign Direct Investment (FDI) inflows during the fiscal year 2024, reflecting challenges posed by global economic uncertainties and domestic constraints. According to Bangladesh Bank data released on Wednesday, net FDI inflows stood at US$ 1,468.17 million in th

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Bangladesh sees dip in FDI inflows amid global economic uncertainty
FE ONLINE REPORT
Published :
Dec 04, 2024 22:52
Updated :
Dec 04, 2024 22:52

Bangladesh witnessed a decline in Foreign Direct Investment (FDI) inflows during the fiscal year 2024, reflecting challenges posed by global economic uncertainties and domestic constraints.

According to Bangladesh Bank data released on Wednesday, net FDI inflows stood at US$ 1,468.17 million in the 2024 fiscal year, marking a decrease of $141.60 million or 8.80 per cent compared to the fiscal year 2023.

The decline highlights concerns about the investment climate as the country navigates shifting economic landscapes.

A major component of FDI, net equity capital inflows, also recorded a drop.

In the fiscal year 2024, equity inflows totalled $667.50 million, compared to $709.93 million in 2023. This represents a decline of $42.43 million, or 5.98 per cent, indicating subdued investor confidence and possibly reduced expansion plans by foreign companies.

Despite the contraction in inflows, Bangladesh's FDI stock experienced modest growth.

As of June 2024, the total FDI stock reached $17,543.08 million, an increase of 1.49 per cent over the previous year's level. This suggests that while new investments have slowed, existing foreign investments in the country remain relatively stable.

 

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ADB, MGI sign deal to construct energy-efficient flour mill in Bangladesh

The Asian Development Bank and Tanveer Dal Mill and Flour Mills Limited, a member of the Meghna Group of Industries, have signed a $20 million-loan agreement to support construction of a greenfield state-of-the-art, energy-efficient flour milling plant in Bangladesh...

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ADB, MGI sign deal to construct energy-efficient flour mill in Bangladesh
Bangladesh Sangbad Sangstha . Dhaka 05 December, 2024, 14:05

UNB Photo

The Asian Development Bank and Tanveer Dal Mill and Flour Mills Limited, a member of the Meghna Group of Industries, have signed a $20 million-loan agreement to support construction of a greenfield state-of-the-art, energy-efficient flour milling plant in Bangladesh.

This new facility will double MGI’s wheat flour output and enable the production of quality wheat products while consuming 37 per cent less electricity than existing plants.

The improved energy efficiency is expected to lower operational costs and reduce carbon dioxide emissions by approximately 8,200 tonnes annually.

The plant will produce 6,60,000 tonnes of wheat, contributing to domestic agriculture production and enhancing food security, said an ADB press release on Thursday.

‘This project marks a significant step toward the advancement of sustainable industrial development in Bangladesh. By promoting energy-efficient technologies and improving product quality, ADB and MGI are directly contributing to the country’s food security, food safety, economic resilience and environmental sustainability,’ said ADB director general for private sector operations Suzanne Gaboury.

‘Furthermore, the project is aligned with the Government of Bangladesh’s goals of strengthening domestic agro-processing and reducing the energy intensity of key industries,’ added Suzanne.

The demand for wheat in Bangladesh has been steadily increasing, but domestic production has not kept pace. In 2022, the country consumed about 8.8 million tonnes of wheat, while local production exceeded only one million tons.

This reliance on imported wheat highlights the urgent need to expand domestic milling capacity. With the anticipated rise in demand for flour milling, investing in energy-efficient technologies will foster environmentally sustainable growth in this sector.

‘The project will ensure food security, create additional employment opportunities for 160 individuals, foster relationships with 1,50,000 vendors in the SME sector, support market creation and industrialization, and more importantly, contribute sustainable GDP growth in the Bangladesh economy,’ said MGI’s chairman and managing director Mostafa Kamal.

‘We are enthusiastic about working with ADB and this project demonstrates the group’s commitment to due diligence and compliance,’ added Kamal.​

 

[Saif]

Govt must improve law and order fast

Improving law and order has become imperative in recovering Bangladesh’s global image that took a beating for domestic politics over the past decade, said a top chamber leader.

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Govt must improve law and order fast
Says president of AmCham

Syed Ershad Ahmed

Improving law and order has become imperative in recovering Bangladesh's global image that took a beating for domestic politics over the past decade, said a top chamber leader.

"Due to political instability and corruption, there has been significant damage to Bangladesh's reputation globally -- we need to work on rebuilding trust with international partners," Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh, told The Daily Star in an interview recently.

Factors such as law and order and political instability discourage foreign investors.

To attract foreign direct investment, demonstrable evidence of an improving business climate and transparent governance needs to be presented, he said.

Ahmed's observation comes at a time when Bangladesh's net FDI was found to have been overstated by $5.7 billion between fiscal years 2019-20 and 2022-23.

In the four fiscal years, Bangladesh actually received $5.86 billion as net FDI, a disappointing amount given the seeming political stability and stellar economic growth in those years.

Ahmed termed the last 10 years of the previous Awami League government "very pathetic".

"What I think is that our institutions were severely damaged in those years."

Institutions like the Public Service Commission and the Election Commission and the regulatory agencies such as the National Board of Revenue (NBR), the Bangladesh Bank (BB) and the police were compromised.

"This led to widespread disorder in the country and everything became politicised."

The previous AL regime saw widespread corruption and money laundering.

"The Anti-Corruption Commission and the Bangladesh Bank were supposed to foil those but they did not do their job."

Even the agencies meant to support businesses such as the port were not spared from politicisation, which, ultimately, weakened the business environment, and the business ecosystem suffered.

"If the ACC is not truly independent and effective, corruption will continue unchecked. Similarly, our Public Service Commission needs to ensure a fair recruitment process free from political influence. Only then we can build the foundation for sustainable economic growth."

Institutional reform is key, said Ahmed, country manager and managing director of Expeditors (Bangladesh), a global logistics company.

"We need strong, independent institutions that aren't swayed by political pressure or financial incentives. Without strong institutions, our business environment will continue to suffer," he said, while lauding the interim government's reform initiatives.

And all the institutions should be led by strong, impartial individuals who are not money-minded.

"Only then can we create a truly democratic atmosphere. The challenges we are facing, like cronyism and the politicisation of business organisations, are deep-rooted. And these issues won't just go away without structural changes."

Bangladesh's politicians practised the wrong sort of politics all these years, according to Ahmed.

They were supposed to pick politicians as leaders. Instead, they invited businesspeople to politics and made them ministers.

For instance, in January, two-thirds of the lawmakers elected in the 12th parliamentary election were business people, according to Shushasoner Jonno Nagorik, a non-government organisation.

"So, we made a big mistake here. Because politicians are supposed to be individuals who are connected with the people, those who have the tendency to sacrifice for people. What we saw was that those who became councillors were engaged in business also."

Parties should pick those people as leaders who have the mentality to serve the people and do not have the mentality to expand their wealth.

While businesspeople have the right to engage in politics, they should distance themselves from businesses when they become active in politics.

"When you are a politician, your focus should be on politics. But if you are involved in politics and business, there will be no benefit."

He cited the case of the US where successful businesspeople who join politics step aside from their businesses. They leave the businesses to the top management of their firms.

"Here, in our country, you will find that the politicians remain involved in their business directly. This should not be."

Some businesspeople had political aspirations, and they joined politics after becoming leaders of trade bodies such as the Federation of Bangladesh Chambers of Commerce and Industry.

"This is a regret for us. Had the trade bodies worked in favour of businesses, then our business environment would not have deteriorated so much."​

 

[Saif]

Is Motijheel losing its glory as commercial hub?

Motijheel, once the pulsing heart of Dhaka’s trade and commerce, has become a shadow of its former self. Empty office floors now whisper tales of abandoned ambitions.

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Is Motijheel losing its glory as commercial hub?

Motijheel, once the pulsing heart of Dhaka's trade and commerce, has become a shadow of its former self. Empty office floors now whisper tales of abandoned ambitions.

For example, take the Ittefaq Mor-Dilkusha-Naya Paltan stretch. The two-kilometre patch has some 40 commercial buildings standing by one side of the road. Around 22 of them now have "to-let" signs dangling.

Their yearslong wait for tenants speaks of a commercial exodus that has drained the lifeblood from what was once Dhaka's most vibrant business hub.

Most buildings have not found tenants since the previous occupants left in the past five years. Besides, existing businesses, banks and non-bank financial institutions (NBFIs) are moving to Gulshan, Banani or Baridhara.

New businesses are also hesitant to assume a business address in the old town area.

Take Adamjee Court Annex Building-2, located next to Motijheel park, as another example.

Once a busy 12-story building rented by a bank, it was full of people and activity.

After the Covid-19 pandemic hit in 2020, the bank began to relocate its head office to Gulshan area in phases. Now, most floors in the building remain empty, leaving it gloomy even in daylight.

The scene is similar at the DSE Annex Building, roughly a 15-minute walk from Adamjee Court building. During a visit there recently, the 11-story structure was found eerily quiet at 1:00 PM, with only two or three people in the elevator.

This was beyond anyone's wildest imagination just a few years ago.

In the 2010s, when the building was full of stock brokerage firms, people had to queue just to enter the elevator. All the main activities of the Dhaka Stock Exchange (DSE) were also handled inside the building from 1959 until 2019.

Consequently, it was one of the busiest buildings in the area during trading hours. But now it is deserted in the middle of the day.

After the DSE relocated its office to its own building in Nikunja, thousands of square feet of space have remained vacant in the commercial structure.

Two brokerage houses and an insurance company have posted relocation signs, stating that they are also departing for greener pastures.

A similar sight was found at the Jibon Bima Tower in Dilkusha, where the Bangladesh Securities and Exchange Commission (BSEC) rented space for its office since the 1990s.

Two floors, each boasting 6,200 square feet, now remain vacant in the building after the BSEC shifted to its own building in Sher-e-Bangla Nagar in 2017.

Banks, whose headquarters once dominated Motijheel, earning it the status as the capital's downtown area, have mostly relocated to Gulshan.

A number of building owners in Motijheel said they are not getting commercial tenants despite offering comparatively lower rents.

Md Delwar Hossain, the owner of a building in Dilkusha, said he has been searching for tenants for four years as one floor remains vacant.

This area was highly sought-after in the 90s, with commercial spaces fetching the highest rents across all of Dhaka. But few people now call him to inquire about the floor.

"While the building itself is now old-fashioned, there are many vacant spaces that are not that old. The problem is that large conglomerates, banks, NBFIs and new-generation corporations are not coming to this area," Hossain said.

Most businesses were concentrated in Motijheel due to easy communication and proximity to public offices, he added.

Officials at Sadharan Bima Corporation, which has several buildings in Motijheel, said they have thousands of square feet of vacant spaces across their properties.

According to them, although vacant commercial floors have been a common sight in Motijheel for years, rents have not reduced. However, the increase in rent is slower than in other areas.

The average rent per square foot in this area ranges from Tk 60 to Tk 90, depending on location and amenities.

This is still lower than the rent one would expect to pay in newer commercial hubs like Gulshan and Banani.

According to bdproperty.com, a website for renting and selling real estate, the average rent in Gulshan range from Tk 180 to Tk 250 per square foot. In Banani, it ranges from Tk 70 to Tk 150.

Alongside the shift in commercial offices, cinemas in the area are also suffering.

Modhumita Cinema Hall, located on Toynbee Road, was once a top-rated movie theatre. But now it opens irregularly amid a dearth of visitors.

The situation is even worse for Ovishar Cinema Hall, which has been closed since the pandemic.

Md Liton, owner of Ovishar Store located next to the cinema hall, said he started his shop in the 1990s. Back then, he and his three brothers used to sell snacks.

The area surrounding the cinema hall was once swarming with people, who gathered to watch movies. As the cinema business declined, his three brothers left the store in search of other jobs.

Liton said that people once bought cinema tickets from the black market at prices three times higher than the official rate. Now, the hall building has become a ghost palace, having been closed for years. People now flock to the multiplexes in large shopping malls to enjoy movies.

Motahar Hossain Masum, who grew up near the Old Dhaka area and visits Motijheel frequently, said although banks have relocated their offices, several top food sellers remain and continue to attract a large number of people.

The self-professed gourmand shared some insights into the cuisine scene.

Established in 1958, Deshbandhu Hotel continues to serve food that evokes nostalgia for many.

Other popular hotels in the area include Ghoroa and Hirajheel. These hotels welcome a large number of diners daily.

In the 1980s, when the Bangladesh Chemical Industries Corporation (BCIC) building was constructed, its cafeteria attracted white-collar officials with its upscale design and quality food, Masum said.

Purbani Hotel also has a long history of attracting white-collar people, he added.

Motijheel's transformation into a different place at night is striking.

As people rush home after work, the area becomes eerily quiet. On weekends and public holidays, the streets in Motijheel host cricket, football, or badminton for children.​

 

[Saif]

Wahiduddin believes Bangladesh to get political govt next year

The planning and education adviser Wahiduddin Mahmud on Saturday expressed hope that Bangladesh would see an elected government next year.

www.newagebd.net

Bangladesh to see political shift next year amid challenges: Wahiduddin Mahmud
United News of Bangladesh . Dhaka 07 December, 2024, 12:27

Wahiduddin Mahmud | UNB photo

Bangladesh is set to witness a political shift next year, says planning and finance adviser Wahiduddin Mahmud.

Speaking at the opening session of the Annual Baltic Conference on Defence (ABCD) conference at a hotel in the capital on Saturday, organised by the Bangladesh Institute of Development Studies (BIDS), he hinted at significant political developments while underlining the nation’s critical economic challenges.

Mahmud, however, pointed out that income inequality remains one of the country’s most pressing concerns. 'To tackle this disparity, quality education is paramount, an area where Bangladesh still has a long way to go.' He said.

As Bangladesh transitions from its status as a Least Developed Country (LDC), Mahmud referred to the ongoing efforts to retain some benefits associated with the LDC status.

'We no longer have the option of remaining an LDC. Discussions to sustain certain privileges from developed nations are ongoing, with positive responses from many,' the adviser said.

In a separate session, Indermit S Gill, Chief Economist at the World Bank, provided insights into how Bangladesh could escape the middle-income trap.

Investment and job creation should be the focal points, he stated, urging the country to foster entrepreneurship and expand the use of technology.​

 

[Saif]

Prioritise enhancing business environment

Improve law and order, rebuild trust with international partners

www.thedailystar.net

Prioritise enhancing business environment
Improve law and order, rebuild trust with international partners

Bangladesh's economy is at a critical juncture due to widespread corruption, financial irregularities, and the politicisation of public institutions by the previous Awami League regime. Since the interim government took charge following the fall of the AL on August 5, it has been attempting to restore some stability in the financial and business sectors. However, the efforts being made are not sufficient compared to the damage inflicted on the business environment by ongoing political instability and law and order situation not being fully restored. According to Syed Ershad Ahmed, president of the American Chamber of Commerce in Bangladesh, it is imperative to improve the law and order situation in the country to recover Bangladesh's global image, which was significantly tarnished during the AL's rule. The government must also urgently address issues like political stability and corruption to rebuild the trust of international partners.

Although exports and remittances have increased over the past four months, the ongoing macroeconomic instability, high inflation, and political unrest continue to threaten economic growth and recovery. According to a recently presented government-commissioned white paper on the economy, $234 billion were siphoned out of Bangladesh between 2009 and 2023, during the AL's tenure. Economic growth has also been overstated since 1995, with the practice of inflating estimates more after the fiscal year 2012-13. Additionally, Bangladesh's net FDI was found to have been overstated by $5.7 billion between the fiscal years 2019-20 and 2022-23. These issues have significantly dampened our economic prospects, which now requires well-thought-out strategies and plans to recover.

During the reign of the AL, public institutions such as the Bangladesh Bank, the National Board of Revenue, the Election Commission, and the police were heavily politicised. This widespread politicisation has significantly affected the business climate. Moreover, as more businesspeople entered politics, they prioritised their business interests over political commitments, further politicising public institutions for personal gain. For example, according to Shushasoner Jonno Nagorik, two-thirds of the lawmakers elected in January's 12th parliamentary election were businesspeople.

Against this backdrop, the interim government must focus on bringing buyers and investors back to the country by addressing the ongoing political uncertainty and relatively fragile law and order situation. It must implement significant reforms in state institutions to rebuild trust with international partners. Furthermore, it should encourage the creation of new businesses to attract both foreign and local investors. Since business and commerce depends on political stability and the overall situation in relation to law and order, the challenges faced by businesspeople in these regards must be urgently addressed.​

 

[Saif]

Deferring LDC graduation not an option

Education and Planning Adviser Wahiduddin Mahmud said Bangladesh has no option to defer its graduation from the least developed country (LDC) club.

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Deferring LDC graduation not an option
Education and Planning Adviser Wahiduddin Mahmud says

Planning Adviser Wahiduddin Mahmud speaks at the inaugural session of a four-day “Annual BIDS Conference on Development 2024” in Dhaka yesterday. Photo: star

Education and Planning Adviser Wahiduddin Mahmud said Bangladesh has no option to defer its graduation from the least developed country (LDC) club.

"Even if we want to, we may not be able to remain in the group of LDCs. Many people don't know that," he said.

The eminent economist made the remarks yesterday in Dhaka at a four-day conference organised by the Bangladesh Institute of Development Studies (BIDS).

As per the United Nations schedule, Bangladesh is set to graduate from the LDC status in November 2026.

However, owing to the economic crisis that has been prevalent for nearly two years, the issue of deferring graduation has been coming to the spotlight in recent months, particularly by local businesses.

With the economy in a fragile state due to the fallouts of global inflationary pressure, the Covid-19 pandemic, the Russia-Ukraine war as well as political turmoil and energy shocks on the domestic front, a section of exporters has been putting pressure on the government to shelve any graduation plans.

Although there is a lot of money in the balance sheets of some big industrial companies, it does not exist in reality. Workers have to be paid. But where will the money come from?— Wahiduddin Mahmud Education and planning adviser.

According to a UN report, trade preferences accorded to Bangladesh as an LDC have played a crucial role in the development of its economy and achievements in trade and social sectors. The loss of these benefits following graduation is expected to dent a lot of businesses by costing the country its trade competitiveness, especially if it fails to secure bilateral agreements with major export destinations.

In November, Finance Adviser Salehuddin Ahmed told the media that they are yet to make a decision on the scheduled graduation.

The United Nations Committee for Development Policy (CDP) reviews the LDC category every three years, assessing the progress of countries across three criteria, namely income, human assets, and vulnerability.

Based on these reviews, the CDP recommends which countries should be classified as LDCs to the United Nations Economic and Social Council (ECOSOC). The final decision is made by the UN General Assembly.

To graduate, a country must meet the threshold for two of the three criteria in two consecutive reviews.

"We have already qualified twice," Prof Mahmud said, referring to the previous reviews in 2018 and 2021.

If any country files a petition to the CDP's hearing committee saying that they are unable to graduate or asking to stay in the group of LDCs, it is considered degrading, he added.

"The Maldives and some tiny island nations applied for it, but it was unsuccessful."

When a country qualifies, it graduates automatically, the adviser explained.

"We need to continue discussions on unilateral concessions with different nations. Japan, Canada and the European Union can be favourable options," he added.

He also underscored the need for export diversification and economic diplomacy to negotiate in the global market.

Earlier, members of a panel that recently prepared a white paper on the state of the economy also advised the government not to defer graduation.

"Based on the committee's assessment of data and information, Bangladesh meets the requirements for LDC graduation despite the challenging economic situation," Debapriya Bhattacharya, who led the panel, said last week.

"So, we don't see any reason to hold back the graduation process."

In its report, the white paper committee said recent concerns about inflated economic indicators under the previous Awami League government would have little relevance in the case of LDC graduation.

The UN bodies will only revisit their calculations when a revised data set, including gross national income estimates, is available from government sources.

"Notwithstanding the reservations expressed by certain exporters' groups, there is hardly any plausible reason, as of now, for Bangladesh to request a deferment of the exit date from the LDC group," it said.

"Under these circumstances, Bangladesh will be well advised to pursue a substantive and effective LDC graduation strategy. This will require putting forward a transition plan to counteract the negative fallouts of Bangladesh's graduation out of the LDC group and enable the required structural transformation of the economy."

The white paper added that postposing graduation will invite political backlash.

According to a triennial review by the CDP in February this year, the current situation remains comfortable despite recent economic and political challenges.

Even the dampened economic performance during the current fiscal year is not expected to bring the country below the stipulated thresholds, it said.

Illusory wealth in big industry balance sheets

Speaking of how Bangladesh can build an egalitarian society after a mass uprising toppled the Sheikh Hasina regime on August 5, Mahmud said that the interim government is facing a huge shortage of resources.

This has made it difficult to increase investment in education, health and human resource development.

"A lot of money has been smuggled out of the country. People's money is in the banks, but the money has gone out," he said.

Although there is a lot of money in the balance sheets of some big industrial companies, it does not exist in reality, he said, mentioning the example of Beximco.

"Workers have to be paid. But where will the money come from?" he asked.

It is difficult to build an egalitarian society when contending with such realities.

"Now it has become a moral issue whether to buy dialysis machines or invest in public health," he said, adding that even seasoned economists and philosophers like Amartya Sen and John Rawls may not be able to come up with a solution for such a moral dilemma.

Indermit S Gill, the chief economist of the World Bank Group, said during a presentation at the event that middle-income countries, which are home to 6 billion people, were caught in a race against time.

"The external environment is making things harder, not easier. To escape the middle-income trap, countries need to undergo two transitions, not one. The transitions are between investment, infusion and innovation.

"To grow quickly, they have to discipline incumbents, reward merit, and capitalise on crises," Indermit said.

Binayak Sen, director general of the BIDS, delivered the opening remarks.

A total of 30 papers, two keynote addresses and 12 public lectures from Bangladesh and abroad will be presented and delivered at the conference, said Sen.​

 

[Saif]

Revised budget may be Tk 50,000cr smaller

Bangladesh’s national budget for fiscal year 2024-25 is likely to be reduced by more than Tk 50,000 crore, with the entire cut expected to be made in funds meant for the annual development programme (ADP).

www.thedailystar.net

Revised budget may be Tk 50,000cr smaller

Bangladesh's national budget for fiscal year 2024-25 is likely to be reduced by more than Tk 50,000 crore, with the entire cut expected to be made in funds meant for the annual development programme (ADP).

However, this budgetary revision will depend on several factors, including conditions that the International Monetary Fund (IMF) may set for a fresh loan, the availability of budgetary support and the government's ability to generate revenue through tax collections.

A Fiscal Coordination Council held a meeting chaired by the finance adviser on Monday and discussed the reduction, according to officials from the Ministry of Finance.

In June, the government had passed a national budget of Tk 797,000 crore for fiscal year 2024-25, which included an allocation of Tk 265,000 crore for the ADP.

After the expected revision, the overall size of the budget may be reduced to Tk 747,000 crore, with the ADP allocation likely falling to Tk 216,000 crore, a senior official of the ministry said.

These figures are only preliminary estimates, and the final size of the revised budget will be determined during a meeting set for March or April next year, he said.

A significant portion of the cuts is expected to come from the ADP as the implementation of development projects has slowed due to political instability and the change in government.

Besides, the interim government has also decided to adopt a more cautious approach to spending.

In the first four months of fiscal year 2024-25, ADP implementation fell by 31 percent year-on-year.

Officials of the Implementation Monitoring and Evaluation Division (IMED) point out that many ADP projects were currently on hold due to contractors fleeing following the ousting of the previous government, and few had returned.

Additionally, the government is reevaluating projects that may not be deemed essential or were initiated based on political decisions, further contributing to the delays in project implementation.

As a result, the government has decided to reduce the ADP allocation by a big margin.

However, changes could come about in the revenue as the allocation for interest payments and subsidies is expected to rise.

But this has not been decided yet because a big portion of the revenue budget is spent on interest payments, a financial ministry official said, adding that increasing interest payments were exceeding previous projections.

In the budget for the current fiscal year, Tk 113,500 crore was allocated for interest payments and Tk 42,388 crore had already been spent in the first quarter.

This is a 92 percent increase compared to the same period last year.

That is why the allocation for interest payments may increase further in the revised budget.

Besides, subsidy spending has also been rising in recent years, with the government initially allocating Tk 88,015 crore for it.

By the end of the first three months of the current fiscal year, Tk 4,514 crore had been spent on subsidies, which is nearly half of what was spent during the same period last year.

The finance ministry official said the payments for subsidies have not been cleared due to the political unrest. Besides, there are arears on bills of the fertiliser, energy and power sectors, he said.

Meanwhile, the IMF may impose a condition for the government to settle a substantial portion of these arrears to be eligible for a fresh loan, the finance ministry official said.

This could increase the allocation for subsidies in the revised budget.

As of June, arrears for bills of the power, energy, and fertiliser sectors had accumulated to about Tk 60,000 crore, and these arrears continue to grow.

The interim government, after taking charge, sought budgetary support from multilateral and development partners. The government is expecting to get commitments for $6 billion in loan support by next June.

However, a confirmation on the amount of money will be available by next March or April. And the size of the revenue budget is depending on it.

Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), suggested that the government's decision to revise the budget could be linked to efforts to control inflation by reducing expenditure.

He noted that government revenues were under pressure, and there were challenges involving the development projects initiated by the previous government.

To stabilise the economy, Raihan recommended that the government prioritise key projects while addressing irregularities and mismanagement from past administrations.

However, he emphasised that there is no room to reduce the operating budget as interest payments on loans continue to rise.

Raihan, also a professor of economics at the University of Dhaka, said the fiscal year would unfold with these constraints in place, but stressed the importance of developing a mid-term plan for the future.

The potential loan from the development partners would provide some relief to the government, but it is crucial to align this funding with the country's development priorities, he said.​

 

[Saif]

Investment promotion ecosystem struggles

The fragmented structure of investment promotion ecosystem in Bangladesh and poor coordination among investment promotion agencies, regulatory bodies and service providers, outdated laws, weak...

www.newagebd.net

Investment promotion ecosystem struggles
Taufiq Hossain Mobin 07 December, 2024, 23:06

The fragmented structure of investment promotion ecosystem in Bangladesh and poor coordination among investment promotion agencies, regulatory bodies and service providers, outdated laws, weak enforcement of intellectual property rights and a number of other issues were major barriers to attracting investments in Bangladesh.

The observation was made in the white paper on the state of Bangladesh economy submitted to chief adviser Muhammad Yunus on December 1.

Although the Bangladesh Investment Development Authority was established as the central agency to support investments, its effectiveness was hampered due to insufficient collaboration with other IPAs, regulatory institutions and service providers, the paper said.

BIDA’s regional offices also faced infrastructural challenges that hindered the full implementation of its one stop service platform, aimed at streamlining investment procedures.

Policy inconsistencies and procedural delays further deterred foreign investments. For instance, the paper said, discrepancies between BIDA’s work permit guidelines and the residency definition under the Income Tax Act 2023 created confusion among investors.

Additionally, the work permit approval process could take up to 12 months, frustrating investors. The report recommended integrating visa and work permit procedures, similar to practices in India and Thailand, to improve efficiency.

The paper noted that automation efforts in Bangladesh were also incomplete. Initiatives like the VAT online and income tax automation projects still require dual submissions for approvals and registrations, undermining their effectiveness.

‘Furthermore, the monitoring and evaluation system remains weak, as BIDA depends on estimated data from its investor relationship management system, which is not systematically utilised,’ it said.

The legislative framework also complicated the investment landscape. Outdated laws such as the Foreign Private Investment Promotion and Protection Act 1989 and the Transfer of Property Act 1882 posed challenges, while the Bangladesh Flag Vessels (Protection) Act 2019 created logistical bottlenecks by mandating 50 per cent of goods be transported via Bangladeshi vessels, despite the limited capacity of national shipping lines.

In the pharmaceutical sector, reliance on imported active pharmaceutical ingredients and new regulatory requirements under the Drugs and Cosmetics Act 2023 created operational hurdles.

Weak enforcement of intellectual property rights further exposed investors to risks.

The report urged the government to strengthen IPR protection and train enforcement agencies like customs and police to improve investor confidence.

The absence of a centralised master OSS, originally intended to integrate services from agencies such as the Bangladesh Export Processing Zone, the Bangladesh Economic Zone Authority and the Hi-Tech Park Authority, has led to data inaccuracies and coordination issues.

Moreover, duplications in registration processes across multiple agencies could be resolved by introducing a unique investor identification system, the paper suggested.

The report also pointed out that BIDA’s registration system included numerous small-scale projects with investments below Tk 15 crore, raising questions about their necessity for BIDA registration when a trade licence could suffice.

It called for streamlining processes and reducing the excessive number of regulatory approvals required, which currently stands at 150 across 23 government agencies.​

 

[Saif]

What is the actual amount of FDI in Bangladesh?

The inflow of foreign direct investment (FDI) in the last fiscal year declined further, which was predictable. After recording a big jump three years back, the country witnessed a decline in FDI for two consecutive years. Macroeconomic instability coupled with political uncertainty discouraged fore

thefinancialexpress.com.bd

What is the actual amount of FDI in Bangladesh?
Asjadul Kibria
Published :
Dec 08, 2024 00:42
Updated :
Dec 08, 2024 00:42

The inflow of foreign direct investment (FDI) in the last fiscal year declined further, which was predictable. After recording a big jump three years back, the country witnessed a decline in FDI for two consecutive years. Macroeconomic instability coupled with political uncertainty discouraged foreign investors from injecting fresh capital. Existing multinational entities (MNEs) also repatriated more instead of reinvesting. Thus, FDI in FY24 declined by 8.80 per cent, after a fall of 6.50 per cent in FY23.

The latest statistics on FDI, released by Bangladesh Bank last week, also gave rise to a few queries about the overall FDI situation in the country. The most important question is whether the statistics provided by the central bank regarding FDI represent the actual scenario. The half-yearly report titled 'Foreign Direct Investment and External Debt January-June, 2024', prepared and published by the statistics department of Bangladesh Bank, showed that the country received US$1.47 billion as net FDI in FY24 which was $1.61 billion in FY23. A year back, the January-June 2023 version of the report, however, showed that the net inflow of FDI in FY23 stood at $3.25 billion.

Therefore, it is crucial to seek clarification when comparing the latest reports on FDI with the previous versions. The latest report presents a significantly different picture, with FDI data revised downward. The central bank publication simply stated: "Data has been revised as per BPM6 Guideline from 2019 and onwards." However, this explanation lacks the necessary depth and transparency, leaving room for misinterpretation. The report mentioned that the Bangladesh Bank has been conducting an enterprise survey since 1995 to collect detailed information on FDI in the country, and FDI data are compiled and published on a quarterly basis on the central bank's website. But more transparency is needed in this process.

Application of the guidelines and methods of BPM6 led to revising the FDI data downward significantly. An explanatory note should be there to avoid misunderstanding and misinterpreting the data. By not doing so, the central bank has continued the old practice of data concealment as was the case during the previous regime.

The Sixth Edition of the Balance of Payments and International Investment Position Manual (BPM6) was introduced in 2009 by the International Monetary Fund (IMF). The international guideline is designed to calculate and compile the balance of payments and foreign investment statistics. Bangladesh Bank has started to follow the BPM6 since 2013 to calculate and prepare the country's balance of payments gradually. In this process, the statistics of FDI are also being estimated in line with the BPM6, which is also reflected in the BoP table.

For instance, in FY14, net FDI was recorded at $1.40 billion in the BoP table, in line with the previous method or BPM5. After revision as per BPM6, it reduced to $1.08 billion. Since then, the FDI figures in BoP have been estimated in line with BPM6. At the same time, the half-yearly report of the FDI continued to provide the statistics based on the enterprise survey without adjusting it with the BoP data. Thus, a significant discrepancy between the BoP data and survey data continued. As the figures generated through survey data were higher than BoP data, the government used to demonstrate the survey data on FDI as the country's success story. In this way, manipulation with a key economic indicator provided a distorted picture of the economy to the rest of the world.

The same also happened in terms of foreign exchange reserves, which are a key component of the BoP. Despite starting the use of BPM6 in FY13, central bank fabricated the forex reserve data to inflate the amount. Intervention from IMF finally compelled Bangladesh Bank to release both the gross and net reserve as the latter matches the BPM6 guideline.

Interestingly, the gross inflows of FDI are also reported in the BoP table since FY15. The estimation of gross FDI also started to appear simultaneously in the survey-based half-yearly report. Gross inflows are the total inward direct investment made by non-resident investors in the country. Net inflows are derived by deducting disinvestment from gross inflows. Disinvestment includes capital repatriation, reverse investments, loans given to parent firms and repayments of intra-company loans to parent firms.

However, the latest report did not provide the gross inflows of FDI or the disinvestment figure, which were included in the previous report. This omission in the latest report makes it less comprehensive and may leave the audience feeling that their need for a complete picture of the FDI situation is not being fully considered. Only the figures on gross outflows of FDI and related disinvestments are there, which is not enough for a comprehensive understanding of the FDI situation.

Once again, the downward revision of FDI data in the report after seven years raises the question of data quality. The potential for data manipulation to inflate national incomes during the ousted Hasina regime has already distorted the overall economic development statistics. This manipulation not only distorts the economic reality within the country but also affects the country's economic reputation on the global stage, making it a matter of concern and vigilance for all stakeholders.

The White Paper on the state of the Bangladesh economy, prepared by a group of experts assigned by the interim government, said: ".....the data ecosystem is highly foggy and toxic for the gullible. Just as global warming is the result of human actions, so are the fogs and toxicity in Bangladesh's data results of errors of omission arising from data collection and computation methods and errors of commission by the ruling elites to fit political purposes." The White Paper also pointed out that the balance of payment data, considered relatively free from systematic bias, entered the flux zone with a story changing revision of export data. "Foreign exchange reserve reporting became controversial with the publication of discrepancies in an IMF report in 2020," it added. Now, the adjustment of the survey data on FDI with the BoP data, which was overdue, needs some clarification for the sake to credibility and transparency of FDI and relevant data.​

 

[Saif]

Warnings of recession in Bangladesh

The interim government's Planning Advisor issued a warning of a possible recession in Bangladesh. He singled out the lack of private investment as the major factor that would be contributing to the impending recession (FE, November 26). However, just two weeks before the Advisor's warning on Novemb

thefinancialexpress.com.bd

Warnings of recession in Bangladesh
Muhammad Mahmood
Published :
Dec 08, 2024 00:30
Updated :
Dec 08, 2024 00:30

A bank teller is counting notes at a branch of bank in Dhaka —FE file photo

The interim government's Planning Advisor issued a warning of a possible recession in Bangladesh. He singled out the lack of private investment as the major factor that would be contributing to the impending recession (FE, November 26). However, just two weeks before the Advisor's warning on November 11, the Governor of Bangladesh Bank assured the country that even if economic growth slowed down, there was no threat of recession in the country.

So, the signals for the recession in Bangladesh look mixed. However, since the Advisor gave his opinion at the end of the Executive Committee of the National Economic Council (ECNEC) meeting held on November 25 chaired by the Chief Advisor, it can be considered as the informed view of the government.

He said that if the current situation continued without any new private investment and almost stagnant public sector, development expenditure would result in a recession. He further added that the private sector was not showing any interest in investment and the interest rate had gone up. He also said that economic stagnation in the country was due to inflation and price hikes of essentials.

Numerous economic theories attempt to explain why and how an economy goes into recession. These theories can be broadly categorised as economic, financial, psychological, or a combination of these factors. Economic output, employment, and consumer spending drop in a recession. Interest rates are also likely to decline as central banks cut rates to support the economy and as a result budget deficits go up.

While there is no official definition of a recession, most analysts use the technical definition of two consecutive quarters of decline in a country's real GDP. A recession can also be defined as a sustained period of weak or negative growth in real GDP that is accompanied by a significant rise in the unemployment rate. But for Bangladesh a simpler definition can be applied where a recession is a significant, pervasive, and persistent decline in economic activity.

The Bangladesh economy is currently slowing down. Early in November, the World Bank slashed its growth forecast for Bangladesh by 1.7 percentage points to 4 per cent for the fiscal 2024-25. Recently, Moody's downgraded country's outlook from stable to negative and downgraded the credit rating from B1 to B2 citing the reason that "the negative outlook reflects downside risks to Bangladesh's growth outlook". Overall, currently there is a pessimistic outlook for growth in the country.

Rising inflation can create business and investor uncertainty. Rising inflation can also place upward pressure on interest rates and downward pressure on some asset prices. Inflation not only reduces the level of business investment, but also the efficiency with which productive factors are used.

Also, jacking up interest rates by Bangladesh Bank to fight inflation has become less effective, as reflected in resurging inflation in the country, nor has it helped stabilise the BDT. This is simply because exchange rates impact inflation through their effect on tradable prices.

Let us only focus on the two main determinants of investment-- interest rates and expected returns. Higher interest rates make borrowing more expensive and potentially reduce investment. A change in real interest rates, whether increase or decrease, will directly affect investment. The real rate of return is the nominal return less the inflation rate. The real rate of return, therefore, adjusts profit for the effects of inflation. It is a more accurate measure of investment performance than the nominal rate of return.

Industrial output growth has slowed down in Bangladesh due to stagnant private investment, import restrictions on inputs and higher energy costs. Foreign exchange reserve has declined, further compounding the problem to a point where the country is struggling to pay for fuel and imports. Bangladesh also imposed import restrictions to save foreign exchange.

Bangladesh is not only running a deficit on the current account but in the financial account as well in its balance of payments. If the financial account becomes negative, that creates further pressures on foreign exchange reserve. Consequently, over the past two years the taka lost about 40 per cent of its value against the U.S. dollar. For foreign investors, this exchange rate volatility causes currency risk and creates concerns about the overall economic environment.

Over the last decade or so, the private investment/GDP ratio remained at around 20 per cent. The industrial sector experienced a decline of 3.7 per cent in output growth in 2023-24. The picture is not very different in the services sector. Together these two sectors account for 87 per cent of GDP. In fact, the investment/GDP ratio has been on a declining trend since 2019.

Bangladesh's foreign direct investment (FDI) was on a downward trend for some time. Bangladesh FDI for 2023 was US$1.39 billion, a 15.28 per cent decline from 2022 and FDI for 2022 was US$1.63 billion, a 5.16 per cent decline from 2021. Overall, FDI remains at a very low level at around 2 per cent of GDP.

According to the US Department of State's "2024 Investment Climate Statements: Bangladesh, "corruption remains a serious impediment to investment and economic growth…Corruption is common in public procurement, tax, and customs collection, and among regulatory authorities. Off-the-record payments by firms reduces Bangladesh's GDP by two to three per cent, according to some estimates". The Statement further adds that foreign investors report that Bangladesh's weak and slow legal system, which is widely believed to be corrupt, is an obstacle to investment.

According to a survey conducted by to the Transparency International Bangladesh (TIB), judicial services ranked as the 4th highest corrupt government organ in the country. Between 2009 and April 2024, an estimated TK 1.46 trillion were paid in bribe to access services provided by the government (FE, December 4). Not surprisingly, the survey period coincided with the repressive and criminally syndicated regime of Sheikh Hasina.

According to the Financial Express (November 27) chief executive officers (CEOs) of multinational corporations operating in Bangladesh met the Chief Advisor and asked him to undertake a series of measures to improve the 'ease of doing business' and to make the Bangladesh Investment Development Authority (BIDA) one stop service centre for them. The BIDA is the main authority that promotes and supervises private investment in the country. They also said that improved credit rating was also needed to encourage FDI flows into the country. For that to achieve, a stable and predictable economic environment is needed.

In view of the Planning Advisor signalling the likelihood of a recession, all investors, both domestic and foreign, in Bangladesh also factor in the vulnerabilities associated with a recession such as sustained profit margin compression, credit market stress, energy and financial market shocks. Also, a deeply crisis ridden banking sector, where the central bank has recently injected Tk 225 billion to six cash-strapped banks to meet depositors claims and the ratio of non-performing loan (NPL) is likely to hit 25 per cent in the coming days, notwithstanding additional uncertainties related to the political backdrop adding further to investors woes. The interim government, therefore, through its actions need to reassure investors and creditors that it can guarantee both the political and economic stability conducive to stimulate economic growth.

Bangladesh's private consumption accounted for 66.8 per cent of its nominal GDP in June 2024, compared with a ratio of 68.6 per cent in the previous year. On average across countries, private consumption is the component of GDP that accounts for the largest proportion of the overall changes to GDP. So, weaker private consumption will slow down the economy further. This is also relevant because private consumption is a prime indicator of the economic well-being of households.

But the real interest rate (bank lending rate minus inflation) has been on the decline since 2019 and stood at 0.629 per cent in 2023 against an average of 4.96 per cent between 1976 and 2023. The real interest rate in Bangladesh at 0.63 per cent is very low relative to the world average of 4.25 per cent, based on data from 81 countries. So, this can not be a major factor impeding private investment.

Over the past two years, the taka lost about 40 per cent of its value against the U.S. dollar. Since the end of September, the dollar has again started to appreciate devaluing currencies around the world, including BDT. For foreign investors this exchange rate volatility causes currency risk and creates concerns about the overall economic environment.

Lack of domestic private investments in Bangladesh can be attributed to a variety of factors ranging across infrastructure deficiencies, lack of finance, corruption, macroeconomic imbalances, ineffective enforcement of law, to mention a few. The inflow of foreign direct investment also remains low, mainly due to the poor regulatory framework and business environment as well as widespread corruption and red tape.

So, the slowdown in economic activity is not only for lack of investment but also for a host of other reasons. The state alone cannot stimulate the economy or pick up the slacks of the private sector to maintain the growth momentum. In fact, in view of the economic challenges resulting from the repressive and highly corrupt Hasina's 15-year rule, the present period does not hold out much hope of economic growth.

What is needed now is an industrial policy to build better Bangladesh with a sharp break with the economic policy consensus of the last five decades or so. This will require delinking industrial policy from high levels of bureaucratic and political controls carried out under the pretence of economic nationalism which has only resulted in creating an almost closed economy and helped a deeply corrupt bureaucracy and equally corrupt politicians to benefit from it.

A recently published draft report on the State of Bangladesh Economy revealed the extent of corruption involved in the public sector development expenditures under the Annual Development Programme (ADP) alone over the last 15 years. The report indicated that about 40 per cent of the allocated funds were embezzled by the politicians and public servants. What is more disturbing, US$16 billion on average have been transferred overseas annually during the past 15-year period (FE, December 1&2).

Therefore, industrial policy must also set the transparent parameters on the state's role in the economic realm. Such the necessary fine tuning of industrial policy will not only help woo private investment including FDI but will also help the country accelerate the economic recovery and strengthen capacity to withstand future shocks, enabling the country to achieve sustainable economic growth.​

 

[Saif]

Bangladesh economy might have expanded in Nov

Bangladesh’s Purchasing Managers’ Index (PMI) increased to 62.2 in November, a 6.5 percentage point climb from October, according to an unofficial estimate, indicating accelerated economic expansion driven by agriculture, manufacturing and services sectors.

www.thedailystar.net

Bangladesh economy might have expanded in Nov

Bangladesh's Purchasing Managers' Index (PMI) increased to 62.2 in November, a 6.5 percentage point climb from October, according to an unofficial estimate, indicating accelerated economic expansion driven by agriculture, manufacturing and services sectors.

However, the construction sector saw a setback, reverting to contraction.

The PMI, released by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange Bangladesh (PEB), is a tool designed to offer timely insights into the nation's economic health, according to the MCCI.

Developed with support from the UK Government and technical expertise from the Singapore Institute of Purchasing & Materials Management (SIPMM), it provides a critical barometer for businesses, investors and policymakers.

In the latest report published on December 7, agriculture showed robust growth, marking a second consecutive month of expansion with improved indexes for new business and activity.

Employment in the also sector contracted at a slower pace, while order backlogs contracted faster. Manufacturing extended its expansion streak to three months, with gains in new orders, exports, factory output, and input purchases.

Notably, the sector posted first-time growth in employment, imports, and supplier deliveries. Order backlogs contracted at a reduced rate. The construction sector, which had marginally expanded in October, faced a downturn. Input costs and order backlogs contracted, though new business, activity and employment showed slight improvements.

The services sector continued its recovery, expanding for a second month with stronger growth in new business and order backlogs. Employment in the sector returned to positive territory, while input costs rose more slowly.

The latest PMI readings indicate a gradual expansion of the Bangladesh economy for the second month after previously posting 3 months of contractions.

Despite the positive outlook, the economy continues to face challenges arising from various political process-related uncertainties and disruptions from industrial and other protests.​