[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Inflation will go down

Salehuddin Ahmed, finance and planning adviser to the interim government, yesterday said inflation in Bangladesh will go down within a reasonable amount of time.

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Inflation will go down
Salehuddin says

Salehuddin Ahmed, finance and planning adviser to the interim government, yesterday said inflation in Bangladesh will go down within a reasonable amount of time.

However, newly-appointed Bangladesh Bank Governor Ahsan H Mansur said the burden of spiralling prices may be brought to tolerable levels within the next five to six months.

"I will not tell you to go to the market tomorrow and see how prices have declined because that will not be the case," Ahmed said while speaking to reporters at the Secretariat following a meeting on prices, production and supply of essentials.

"However, it will also not be the case that decades are required to reduce inflation," he added.

Ahmed also said the government would emphasise improving supply and production to tame inflation.

Alongside taking various measures in this regard, it will also evaluate whether those are effective.

Moreover, the interim government will impose measures or policies that are easily digestible, he added.

The meeting was also attended by the central bank governor, secretaries of the finance, commerce, and food ministries as well as senior officials of other relevant ministries.

After the meeting, the new central bank governor said it would be possible to work on the domestic market from three angles, one of which is the supply side.

"This relates to how we can increase supply by increasing production and create a positive impact on the market," he added.

Second, issues like extortion that have come to the fore need to be addressed. The third will be addressing demand-side issues.

Bangladesh Bank is already working to this end and there will be a review to know whether more can be done, Mansur said.

He said another important challenge is the dearth of foreign currency, as a result of which Bangladesh is currently unable to import as per previous levels, impacting the overall market.

Mansur said keeping inflation at a tolerable level will be possible within five to six months if issues like foreign currency reserves, extortion and lower production are addressed adequately.

"We are hoping for that but we need time to work," he added.

He also said it is not possible to solve the foreign currency crunch overnight.

Apart from that, Mansur said the reserves cannot be reduced illogically and that a minimum level has to be maintained. This is because an illogical decline would lower investor confidence in the market.

So, the central bank needs to maintain the minimum reserve level in sectors where US dollars are used for imports, he said, adding that calculated steps should be taken in this regard.

He also informed that they would discuss the issue with development partners.​

 

[Saif]

Reserve crisis will not be resolved overnight: New BB governor

Bangladesh Bank's newly appointed governor Dr Ahsan H Mansur has acknowledged the country's foreign exchange reserve crisis, cautioning that the situation will not improve overnight. However, he assured that the central bank will not drastically cut down on dollar supply to the market. In a press

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Reserve crisis will not be resolved overnight: New BB governor
He pledges cautious approach
FE ONLINE DESK
Published :
Aug 14, 2024 17:04
Updated :
Aug 14, 2024 17:48

Bangladesh Bank's newly appointed governor Dr Ahsan H Mansur has acknowledged the country's foreign exchange reserve crisis, cautioning that the situation will not improve overnight. However, he assured that the central bank will not drastically cut down on dollar supply to the market.

In a press briefing at the secretariat on Wednesday, following a meeting on inflation and food supply, Dr Mansur said, "The reserve crisis is a reality, and it won't be resolved overnight. We need to assess our position and determine the optimal level of supply to the market while maintaining adequate reserves."

The governor emphasised the importance of maintaining market confidence and avoiding an abrupt reduction in dollar supply. He highlighted the need to balance the demand for imports and payments with the available reserves.

Dr Mansur further revealed plans to engage with development partners to explore avenues for increasing the country's foreign exchange reserves. He expressed optimism about the situation, stating, "We will tread carefully but move forward. I hope we will start seeing results within a few months."

The governor's comments come amidst growing concerns over Bangladesh's dwindling foreign exchange reserves, which have been impacted by factors such as rising import costs, higher debt servicing and a global economic slowdown.​

 

[Saif]

Bangladesh turmoil may slow financial reform, weaken banks: S&P

Moody’s Analytics said last week it has provisionally revised Bangladesh’s GDP growth forecast for this year to 5.1 per cent from 5.4 per cent previously

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Bangladesh turmoil may slow financial reform, weaken banks: S&P
ReutersNew Delhi/Dhaka
Published: 15 Aug 2024, 10: 46

A vendor waits for customers at his fruits stall at a wholesale market in Dhaka on 14 August 2024, days after a student-led uprising that ended the 15-year rule of Sheikh Hasina AFP

Political turmoil in Bangladesh is likely to slow planned financial reforms and has already added to weakness in the banking sector, S&P Global Ratings said on Wednesday.

Prime Minister Sheikh Hasina quit and fled to India last week after student-led protests against her spiralled into some of the worst violence since Bangladesh’s 1971 independence from Pakistan, killing 300 people and injuring thousands.

An interim government, led by Nobel Prize winning economist Muhammad Yunus, has been appointed to plug a power vacuum and hold elections, but the protests have widened to target officials appointed during Hasina’s term, including the central bank chief and four deputy governors, who have resigned. A new central bank governor has been appointed.

“We see risk of policy inaction and a potential slowdown in financial reforms,” S&P Global Ratings credit analyst Shinoy Varghese said.

Weakness in the banking industry, including a lack of liquidity, thin capital buffers and ailing asset quality, has worsened while the departure of senior central bank officials could delay ongoing structural reforms, the rating agency said.

The anti-government protests emerged from a movement in July against quotas in government jobs, as the $450-billion economy - the world’s fastest-growing just years earlier - struggled with youth unemployment, inflation and shrinking reserves.

These conditions drove Hasina’s government to seek a $4.7 billion bailout from the International Monetary Fund, which was approved in January 2023.

Workers stand while waiting for vegetables to transport at a wholesale market in Dhaka on 14 August 2024, days after a student-led uprising that ended the 15-year rule of Sheikh Hasina AFP

Weeks of unrest have fanned inflation, which reached 11.66 per cent in July - when the government imposed a nationwide curfew, shutting down transport, offices and the mainstay garments industry for days - from 9.72 per cent the previous month, according to official data.

Moody’s Analytics said last week it has provisionally revised Bangladesh’s GDP growth forecast for this year to 5.1 per cent from 5.4 per cent previously.

“Bangladesh’s recovery from the currency crisis hinges on the ability of any replacement government to meet public concerns and reestablish social order,” it said in a note.

The Asian Development Bank, a key development partner for Bangladesh, said it would work with the interim government towards macroeconomic and fiscal sustainability.

“A second priority is the expansion of private sector development to enhance competitiveness and create new employment opportunities,” the ADB said in a statement.

“This includes working with the interim government to streamline government-to-business services to reduce the cost of doing business in Bangladesh.”​

 

[Saif]

Forthcoming $1.20b from four major financiers

A sum of some US$1.20 billion is expected to come from four major development partners willing to support Bangladesh's interim government in economic recovery, officials said, as the country's forex reserves have long been on depletion. The Ministry of Finance (MoF) has already started wor

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Forthcoming $1.20b from four major financiers
FHM Humayan Kabir
Published :
Aug 16, 2024 00:33
Updated :
Aug 16, 2024 00:33

A sum of some US$1.20 billion is expected to come from four major development partners willing to support Bangladesh's interim government in economic recovery, officials said, as the country's forex reserves have long been on depletion.

The Ministry of Finance (MoF) has already started work to get the budget-support credit which will narrow down the income-expenditure gap in the current fiscal year's budget and improve foreign- exchange reserves, they said Thursday.

The World Bank (WB) is expected to provide $500 million worth of budget support to the government within this 2024-25 fiscal, a senior Economic Relations Division (ERD) official said.

Besides, the country's second-largest development partner-the Asian Development Bank (ADB)-is expected to extend $400 million in budgetary support by December this year, he added.

Additionally, the government is expecting at least $200 million worth of support from the Asian Infrastructure Investment Bank (AIIB) and another $100 million from Korea.

Bangladesh is struggling with economic crisis, especially with a crunch in foreign-exchange reserves, over nearly two years.

Bangladesh's reserves have fallen to only about $20 billion from about $46 billion three years back, resulting in tightfisted spending for imports with its domino effect on production and consumer market.

An ERD official says: "The expected budgetary support from the four major development partners will give a cushion to the economy by way of boosting the reserves."

In addition to the expected $1.20-billion support, the government is also expecting disbursement of IMF's ongoing support to Bangladesh.

The deposed government in June last announced a Tk 7.97-trillion budget with a total fiscal deficit worth Tk 2.516 trillion.

Of the total deficit, the government has set a target to fulfil 36 per cent from external assistance. The remaining 55 per cent of the budget deficit will be financed from domestic borrowings, 6.0 per cent from the national savings certificates and the remaining 3.0 per cent from other sources.

In the last FY2024, the government received a handsome amount of budget support from different lenders.

The IMF provided $1.15 billion in the 3rd tranche of its assured $4.7-billion loan in a package deal, the WB approved $500 million, the ADB $290 million, South Korea $100 million and France $107 million.

Besides, the AIIB confirmed $400 million loan for helping government for its development works.

In a meeting with newly appointed Finance and Planning Adviser Dr Salehuddin Ahmed on Tuesday in Dhaka, WB country director in Bangladesh Abdoulaye Seck affirmed their continuous support to the interim government.​

 

[Saif]

Circular economy for sustainable business with ecological harmony

The traditional linear business model, with its extractive philosophy, "take, make, dispose" prioritises short-term profits over sustainability. This leads to cheap, disposable products that generate excessive waste, depleting resources and harming the environment. Resource extraction, production,

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Circular economy for sustainable business with ecological harmony
Md Abdul Latif
Published :
Aug 16, 2024 21:11
Updated :
Aug 16, 2024 21:11

The traditional linear business model, with its extractive philosophy, "take, make, dispose" prioritises short-term profits over sustainability. This leads to cheap, disposable products that generate excessive waste, depleting resources and harming the environment. Resource extraction, production, transportation, and disposal all contribute to pollution, greenhouse gas emissions, and habitat degradation. This model lacks recycling and reuse, perpetuating a culture of disposability and posing supply chain risks. In contrast, the circular economy offers a sustainable alternative, emphasising waste reduction, resource conservation, and closed-loop production. Its core principles-reduce, reuse, and recycle-promote innovation, sharing, and collaboration. Products and materials are kept in use by designing out waste and pollution, regenerating natural ecosystems, and fostering a sustainable future. Walter R. Stahel coined the term, highlighting its importance for planetary survival, while Kate Raworth emphasises its focus on a regenerative business approach. The circular economy presents a path towards sustainable business opportunities and ecological harmony.

The traditional business model carries significant environmental, economic, and social costs. Its impact is substantial from water scarcity and hazardous waste to health problems, community displacement, and cultural erosion. Waste mismanagement and insufficient recycling hinder economic growth and job creation, placing a burden on society. Unsustainable resource use jeopardises future development, exacerbates inequality, and harms human well-being. Bangladesh's textile and garment industry, crucial for its economy, faces environmental challenges. Despite contributing over 84 per cent of export earnings, the sector generates significant waste, including 20 to 47 per cent of yarns, scraps, and rejects. Dyeing processes pollute rivers with hazardous chemicals, and water consumption is high, averaging 250-300 liters per kilogram of cloth. The industry also contributes significantly to CO2 emissions, increasing at an annual rate of 8 per cent over the past two decades. Notably, the growing use of synthetic fabrics like polyester and viscose staple fibre doubles the carbon footprint compared to cotton.

Bangladesh's thriving electronics industry, fueled by the widespread use of microchips in everyday devices, produces a significant amount of hazardous e-waste. The country generates 1.2 kg of e-waste per capita annually, with projections indicating a rise from 0.13 million tons in 2010 to 4.62 million tons by 2035, showing a 20 per cent annual growth rate as reported by the Department of Environment (DoE).Currently, only 3 per cent of the total generated e-waste is recycled, a lower rate than in other developing countries. Improper disposal of 97 per cent non-recycled e-waste poses significant environmental risks due to toxic elements contaminating air, water, and soil. The shipbreaking industry worsens the issue by releasing harmful electronic components from scrapped vessels, turning Bangladesh into a hazardous waste site. Contamination of recyclable Lead (Pb) has surged due to the extensive use of leaded gasoline in vehicles.

Transitioning to a circular economy eliminates reliance on virgin material streams, offering a holistic solution for interconnected social, economic, and environmental issues. The circular economy minimises waste by recycling materials in a closed-loop system, reducing dependency on new resources and environmental impact. This approach extends product life-spans through refurbishment and upgrades, minimising hazardous waste. Closed-loop production also lowers costs associated with raw material extraction, processing, and waste management, while creating jobs in areas like product design, recycling, and refurbishment. This innovative system fosters innovation by shifting from product ownership to service provision, encouraging durable and sustainable designs. This model promotes resource efficiency through platforms like sharing services (bike-sharing, co-working spaces) and developing biodegradable materials to replace traditional plastics. Transitioning to a circular economy necessitates new consulting services, innovative recycling technologies for complex materials, and diverse job opportunities. These roles span circular economy consultancy, sustainable design, refurbishment, sharing platform management, closed-loop production, biodegradable materials engineering, and product life cycle management, indicating a burgeoning field with immense potential for growth and sustainability.

Numerous initiatives demonstrate the growing momentum of the circular economy. The Ellen MacArthur Foundation, for example, works with brands like H&M, Lee, and Mud Jeans to promote recyclable and durable denim, aiming to reduce waste in the fashion industry. They also advocate for reducing single-use plastics and increasing recycling. The Loop Circular Shopping Platform partners with major brands to offer refillable and reusable packaging, further reducing waste. Tesla's Battery Recycling Programme recovers materials from old electric vehicle batteries, minimising the environmental impact of battery production and disposal. IKEA's Circular Business Model includes furniture rental, buy-back programs, and exploration of new materials. Cities like Amsterdam, Copenhagen, and San Francisco are embracing circular economy principles to improve resource efficiency, minimise waste, and create sustainable urban areas. Other notable examples include Patagonia's Worn Wear Programme, Fair Phone's Modular Smartphone, Renault's Car-Sharing Platform, Michelin's Tire Recycling Programme, and HP's Printing and Recycling Programme. These successful initiatives showcase the circular economy's ability to reduce waste, promote sustainability, and drive innovation and growth.

Bangladesh's readymade garment (RMG) industry is actively pursuing a circular economy model to foster sustainable growth and remain competitive. As per the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) data, the country leads the world in green garment factories, with 192 Leadership in Energy and Environmental Design (LEED) certified facilities, including 67 platinum-rated ones, and over 550 more in the certification process. Initiatives like the "Circular Fashion Partnership," involving the BGMEA, Global Fashion Agenda, Reverse Resources, and P4G, aim to establish a long-term, scalable circular fashion system. The overarching circular fashion system includes a specialised circular textile value chain that initiates a responsible production process to minimise Jhut waste (including cutting remnants, scraps, and fluffs), reduce resource consumption, and enhance sustainability in the RMG sector. Of the estimated 400,000 to 500,000 tonnes of Jhut waste, only 5 per cent is recycled, while 30-35 per cent is repurposed for domestic clothing, with much ending up in landfills, incinerated, or exported. The RMG sector holds significant potential to cut cotton imports and generate an additional $5 to $6 billion in garment exports through local recycling. In the e-waste sector, a robust informal network of retailers, repairers, collectors, and recyclers ensures that nearly 90 per cent of e-waste finds a second life through repurposing, repair, or recycling, highlighting the significant potential of informal networks in driving circularity within e-waste management.

To successfully compete in the global market and shift towards a circular economy, industries need to revamp production processes to value waste, enhance skills, and boost efficiency. However, the transition presents several challenges: inadequate recycling infrastructure, product design flaws for circularity, insufficient logistics and transportation systems, lack of supportive policies and regulations, inconsistent standards and certifications, improper taxation and incentives, consumer behaviour hindering circularity, supply chain complexity, insufficient investment in new technologies, limited data and metrics, and inadequate monitoring and evaluation. The barriers to a circular economy include legal, structural, operational, financial, technological, attitudinal, and human resource issues.

Overcoming these obstacles requires collaboration between governments, businesses, consumers, and civil society. Designing products with modular components, implementing closed-loop production systems with innovative waste reduction and management strategies, and offering products as a service, where ownership and responsibility are retained, are crucial steps. Adopting circularity is not just morally imperative but also a strategic business opportunity for long-term success, and a sustainable future.

Dr Md Abdul Latif (PhD in Development Policy), Additional Director, Bangladesh Institute of Governance and Management (BIGM).​

 

[Saif]

Can the new leadership save the economy?

Never has this country seen such a scholarly leadership team for economic policymaking in its history

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Can the new leadership save the economy?
Never has this country seen such a scholarly leadership team for economic policymaking in its history

VISUAL: REHNUMA PROSHOON

It is welcome news that Dr Ahsan H Mansur is going to lead Bangladesh Bank (BB). Former BB governor and current finance advisor to the interim government, Dr Salehuddin Ahmed, will serve as a knowledgeable advisor on finance and banking. The recent addition of a prominent economist like Dr Wahiduddin Mahmud as another new advisor has created a golden opportunity to correct the course of the economy, which is currently in disarray. It would be equally encouraging if the government appoints another expert to lead the Bangladesh Securities and Exchange Commission (BSEC), to represent the country's capital market.

Finally, Dr Muhammad Yunus, head of the interim government and a globally recognised pro-poor growth economist, has the potential to create a powerful leadership team that can not only rescue the economy from a possible downturn, but also guide us toward recovery. Their first task is to address the three groups of looters: bank defaulters, tax dodgers, and money launderers—who have formed a "devil's triangle" and have been coddled by politicians in power, nearly ruining the country's institutions.

Never has this country seen such a scholarly leadership team for economic policymaking in its history. At times, BB governors were duly qualified, but often the finance ministers or leaders in the capital market were not. On other occasions, both governors and finance ministers were inadequately qualified, placing the wrong people in key positions. This situation weakened the leadership triangle and undermined the effectiveness of the economy.

We know that the leadership team during this interim period is likely to be short-lived, as pressure for new elections is mounting. However, people expect to see a series of reforms in recruitment policies to ensure that only qualified individuals can become BB governor, BSEC chair, or finance ministers—not merely those who curry favour with big-ticket bank looters or who are sycophantic to the regime. People hope that future elected governments will choose scholarly leaders, especially for key financial institutions, whom the public can respect and rely on.

Controlling inflation in the short term and addressing massive youth unemployment in the medium term are their two main challenges. The previous two governors, who questionably held the leading position at the central bank, have made the task for the new governor significantly more difficult. The primary hurdle is to bring clarity and accuracy to the definition of defaulted loans, which were reported as much lower than their actual amount due to looter-friendly definitions. For example, a loan was considered "regular" if only 5 to 10 percent of it was repaid. This is a mockery, and the previous regime approved it easily, primarily so that these defaulters can participate in the one-sided election.

The parliament has largely become a club of corrupt businesspeople who occupy 61 percent of the seats, with the remainder filled by retired bureaucrats, elderly party stalwarts who still crave power, and a few promising youths. Politics has corrupted central-bank policymaking. The finance minister from 2019 to 2023 orchestrated this definitional perversion to favour delinquents, and the past two governors merely complied with the finance minister's wishes without assessing any merit or ethics. The new governor will face resistance from the beneficiary groups when attempting to implement best global practices in loan administration. However, since the finance advisor is not affiliated with any business mafia, the governor will receive wholehearted support from Salehuddin Ahmed whenever corrective measures are undertaken.

Full transparency of information and data should be maintained within the pentagon of leaders to break the "devil's triangle." Governor Mansur is right to emphasise that he will take necessary steps to ensure that financial hooligans who siphoned off millions of dollars from the country face serious consequences. Since the interim government is not concerned with political popularity, it is crucial for it to reveal true figures on inflation, unemployment, defaulted loans, written-off loans, money trafficking, and revenue gaps. This transparency will aid other agencies and researchers in working effectively. Hiding data has caused serious damage to the economy, though ministers adopted this tactic to remain politically expedient.

This is the time to abolish the Financial Institutions Division at the ministry. Its establishment after 2009 has caused more harm than good by weakening the central bank and empowering finance ministry officials who often served politically connected top-ranking oligarchs, including those who closely supported the former prime minister. Moral hazards have reached such a point that making a U-turn will be one of the toughest tasks for the interim government. It is also crucial to establish "Revenue" as an independent ministry, as it represents more than 10 percent of GDP. This is a significant weak point in Bangladesh's finance sector that has been long ignored. Leading such a crucial department with just non-expert bureaucrats has proven ineffective and will continue to do so.

In other countries, defaulted loans rise when the economy performs poorly. Bangladesh's growth continued to rise until 2019, reaching nearly 8 percent. Growth has become lacklustre after Covid-19, not due to global factors but because of increased wilful defaults and rampant corruption across all sectors. Still, growth has hovered around 5 to 6 percent, which does not justify requests for loan rescheduling or default. The nature of defaulted loans varies widely based on ownership structure, indicating that they are primarily institutional and political in nature, rather than being related to the real economy.

The share of defaulted loans out of total outstanding loans is as low as 3.38 percent in foreign banks, while it is as high as 22 percent in private banks. The corresponding figure for public banks is abnormally high at 38.56 percent, vindicating that the issue is primarily one of poor governance and political looting. The new governor is expected to address this problem. All boards of directors at both public and private banks must be reshuffled, and the directorship law should be revoked.

Professor Rehman Sobhan mentioned in a seminar on the banking sector on July 7 this year that Bangladesh Bank (BB) enjoyed a rich tradition of having scholars as governors, such as Dr Mohammed Farashuddin, Dr Fakruddin Ahmed, Dr Salehuddin Ahmed, and finally Dr Atiur Rahman. This tradition collapsed in 2016, leading to less favourable results in the banking industry. However, with the appointment of Ahsan H Mansur as governor, we hope that BB will regain its knowledge-based leadership and that subsequent regimes will uphold this standard, which is crucial for the economy to thrive.

Dr Birupaksha Paul is professor of economics at the State University of New York in Cortland, US.​

 

[Bilal9]

Economic adviser of Bangladesh Dr. Salahuddin Ahmed met with donor organizations including World Bank at the Planning Commission facilities today and discussed loan servicing payments among other things. He expressed his confidence in the state of Country's current economy and said that the economy is not in any great danger and although slowed, pace of economic development is expected to pick back up in rather short order.

 

[Saif]

Economy seeing renewed optimism

Bangladesh’s economy is experiencing a surge in optimism as institutional reforms and positive investor sentiment take hold, according to LightCastle Partners, an international management consulting firm.

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Economy seeing renewed optimism
Light Castle Partners says on Bangladesh

Bangladesh's economy is experiencing a surge in optimism as institutional reforms and positive investor sentiment take hold, according to LightCastle Partners, an international management consulting firm.

LightCastle highlighted these developments in its recent Bangladesh Update publication for August 2024, emphasising the country's emerging market potential.

"The Dhaka Stock Exchange has experienced a significant upswing, with the DSEX benchmark index rising by 786 points over a four-session period, marking a 12 percent increase, and market capitalisation surging by $5.8 billion as of August 11," LightCastle.

The positive momentum came about after Sheikh Hasina resigned from her post as prime minister and fled the country on August 5 in the face of a student-led mass uprising.

"The rally has been primarily driven by fundamentally strong businesses, which have seen steady stock price increases, indicating early signs of an efficient market. This suggests that investors are optimistic in light of the ongoing institutional reforms," it added.

Institutional reforms, aimed at improving governance and restoring business confidence, include the appointment of a new Supreme Court chief justice. The resignation of the Bangladesh Bank governor and the Bangladesh Securities and Exchange Commission chairman present further paths towards reform.

These departures, all political appointees, signal a broader shift towards depoliticising key institutions.

"These changes are expected to lead to further improvements in governance and are seen as crucial steps in addressing long-standing issues within the country's institutions, which have been marred by political influence and inefficiency," LightCastle said.

Despite the positive developments, the manufacturing sector, particularly the garments industry, continues to face challenges.

LightCastle pointed out that security concerns have kept factories from operating at full capacity.

At the same time, Chittagong port, a critical hub for the country's trade, is currently experiencing severe congestion, with container volumes exceeding capacity by 50 percent, as per data till August 14.

Additionally, the daily number of vehicles transporting goods from the port has plummeted, further exacerbating supply chain disruptions.

Expressing that the banking sector is still under pressure, the firm said that high levels of non-performing loans (around 10 percent) and capital flight have been masked by the previous regime.

"The sector has also been hit by inflation, declining foreign exchange reserves, and slowing economic growth, further straining financial stability," LightCastle said.

LightCastle also flagged other challenges, including the energy sector's rising payables, bureaucratic inefficiencies, and the need for constitutional reforms.

These issues, if left unaddressed, could hinder the country's economic progress, it added.

However, the ongoing institutional changes and renewed political consciousness among the youth, spurred by recent student movements, offer hope for long-term structural changes, the firm noted.

LightCastle observed that businesses are increasingly optimistic about the potential for fairer market practices and sustainable growth despite the current challenges.​

 

[Saif]

More effective steps needed to widen tax net

With 53 years having passed since Bangladesh gained independence, it is now considered as one of the next emerging economies in Asia and has the prospect of being ranked among middle-income countries.

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More effective steps needed to widen tax net

With 53 years having passed since Bangladesh gained independence, it is now considered as one of the next emerging economies in Asia and has the prospect of being ranked among middle-income countries.

However, there is nothing to be complacent about considering these feats alone as there is still huge potential for growth.

In a country with a population of around 180 million and subsequently large consumer market, the per capita income in terms of US dollars currently stands at $2,784, according to the Bangladesh Bureau of Statistics.

And although the National Board of Revenue has spent many years trying to increase the tax-to-GDP ratio, it remains surprisingly low at less than 8 percent compared to the regional average of above 15 percent.

Of the roughly 10 million TIN holders eligible for taxation in various categories, only 3.4 million individuals and 34,000 corporates regularly file tax returns. A major reason for this disparity is the lack of close monitoring by the tax regulator, indicating that its steps so far are not enough to widen the tax net.

For example, corporate and individual tax rates have been gradually rationalised over the years but it has not been reflected positively in increasing tax collection.

This makes it evident that tax evaders, particularly a section of businesses and individuals, have not been adequately motivated to start complying with the rules.

Furthermore, the scope to whiten black money by paying 15 percent tax on undisclosed income is doing more harm than good by discouraging genuine taxpayers.

This is because those who regularly pay taxes are often harassed by tax officials due to arbitrary issues in their assessment while certain businesses and individuals are constantly evading taxes.

The Institute of Chartered Accountants of Bangladesh had introduced a document verification system in 2020 to prevent the submission falsified financial statements and ensure transparency. Still, tax evasion continues with the help of corrupt officials.

It is also surprising that many businesses conduct much of their transactions in cash and neglect to report them when filing their official financial statements.

So, these issues warrant proper investigations by experts and other experienced personal.

Besides, identifying new tax payers is not very complicated or challenging but the inspectors responsible in this regard have been largely unsuccessful due to corruption and lack of proper monitoring.

As such, tax enforcement should be made more effective and rational without causing more undue harassment for genuine taxpayers. This entails strictly monitoring TIN holders, identifying new taxpayers with external support if needed, and redefining the role of inspectors.

Also, digitalisation is a prerequisite for ensuring transparent financial reporting.

Faceless assessments should be introduced, as is the case in neighbouring countries, and the taxation system should be simplified to reduce the scope for harassment.

Big businesses should be more closely scrutinised as well, with everything from their start-up capital to current investments being brought under the scanner to ensure financial transparency.

Additionally, close monitoring of tax officials must be ensured so that they cannot exercise their powers for personal gain at the cost of taxpayers.

Ultimately, there is no alternative to overdue reforms in tax administration to address these issues.

The author is a senior partner of Hoda Vasi Chowdhury & Co and former ICAB president​

 

[Saif]

BB in talks with IMF for extra $3 billion loan

Bangladesh is in talks with the International Monetary Fund for an additional $3 billion loan, according to BBC and Bloomberg reports.

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BB in talks with IMF for extra $3 billion loan

Bangladesh is in talks with the International Monetary Fund for an additional $3 billion loan, according to BBC and Bloomberg reports.

In an interview with Bloomberg, Bangladesh's new central bank Governor Ahsan H Mansur said the loan is needed to recover from the recent political turmoil that the country went through. The bank is also buying dollars from local banks to meet unpaid debt.

Bangladesh secured $4.7 billion in funding from the IMF last year. Mansur said he was in a conversation with the Washington-based financial body to "augment" and "front load" this amount by an additional $3b, reports BBC.

He said Bangladesh was also seeking an additional $1.5b from the World Bank and $1b each from the Asian Development Bank and the Japan International Cooperation Agency.

The country is only just emerging from weeks of upheaval following deadly protests that forced the ouster of prime minister Sheikh Hasina earlier this month.

The violence that accompanied the anti-government protest has disrupted the garment exports, the country's main foreign exchange earner.

Reserves were already under pressure before the current crisis, and stood at $20.5 billion as of July 31, just enough to cover about three months of imports, reports Bloomberg.

Mansur, a veteran economist who spent three decades at the IMF, was named governor of Bangladesh Bank last week by the interim government headed by Nobel laureate Professor Muhammad Yunus.

The former Governor Abdur Rouf Talukder and two other deputy governors resigned as part of a string of bureaucratic departures following the fall of the previous government.

The central bank bought more than $200 million in three days from the interbank market since Mansur was appointed governor at Bangladesh Bank on Aug 13, reports Bloomberg.

Dr Mansur said the central bank aims to buy as much as $1 billion every month from local banks.

In the BBC interview, he emphasised that cleaning up the country's banking sector was his top priority when speaking to the BBC at the central bank's headquarters in the commercial heart of Dhaka.

There has been a "designed robbery of the financial system" which has caused significant damage to banks and has serious implications for the stock market and the broader economy, he suggested.

Bangladesh's banks have seen a flight of deposits and an alarming rise in non-performing assets following defaults by groups allegedly linked with the ousted Awami League government.

The non-performing assets were "just robbery of the banks. They took the money and put it in Singapore, Dubai, London and elsewhere. So the first effort would be to try to take people to task and get the money back," Dr Mansur told the BBC.​

 

[Saif]

Resetting economy an uphill task

After the fall of Sheikh Hasina's brutal autocratic regime on August 5, thanks to student-people's mass upspring and scarifies of hundreds of lives, the country has entered an unchartered territory. The details of the economic damage done by the ousted regime through bad governance have now s

thefinancialexpress.com.bd

Resetting economy an uphill task
Asjadul Kibria
Published :
Aug 24, 2024 22:11
Updated :
Aug 24, 2024 22:11

After the fall of Sheikh Hasina's brutal autocratic regime on August 5, thanks to student-people's mass upspring and scarifies of hundreds of lives, the country has entered an unchartered territory. The details of the economic damage done by the ousted regime through bad governance have now started to surface on a big canvas. Though some were not unknown, such as the plundering of money from the banks by manipulating the rules and allowing irregularities, the severity now becomes clearer. The interim government, headed by Nobel laureate Dr Muhammad Yunus, thus is facing a monumental challenge to fix the economy and restore normalcy. At this moment, at least three immediate key challenges are there, and they require urgent and tough measures to overcome within a short period of time. These are containing inflation, resetting the financial sector, and balancing foreign credit.

The annual average inflation rate reached 9.90 per cent in July last, when monthly food inflation stood at 14.10 per cent, the highest in the previous 13 years and four months. The persistent surge in inflation for the last two years has seriously eroded the real income of most people, and their cost of living has increased significantly. The Hasina government's unchecked corruption was a prime driver of inflation, and the situation deteriorated further due to reckless borrowing from the banking system last year. The government borrowed some Tk 940 billion in the last fiscal year (FY24) from the banking system, of which around three-fourths was direct borrowing from Bangladesh Bank, which indicates that money was printed. Printing money means the injection of fresh banknotes in circulation, and that leads to a rise in the money supply. As according to the central bank, the money multiplier was 5.47 in May last. It simply means if the central bank raises the monetary base by TK 100 only, the money supply rises by Tk 547.00 or more than five times. It ultimately increases inflation.

Again, illegal toll collection by various groups at various stages of the supply chain increases the prices of products by five to six times at the retail market, causing consumers to pay higher prices. It also fuels inflation. Moreover, over the years, there was a practice of distorting and manipulating data of production, supply and demand, leading to a significant mismatch between supply and demand. The mismatch ultimately sparked inflation. So, the big question now is how the interim government will be able to cool down the inflation by the end of the year. There is no magic wand, as the interim government took charge less than three weeks ago. One has to wait for a couple of months to see the outcome of the measures taken by the current government, which is working hard to devise some effective tools to curb inflation.

The sudden flash flood, unleashed by heavy rains and an onrush of water from upstream in India, tore through the country's eastern, southeastern, and northeastern districts, making the economic recovery even more challenging. Already, around 4.5 million people are seriously affected by the flood, and thousands of fish farms, poultry farms, aman seedbeds, and vegetable fields have been damaged in these districts.

The banking sector has become vulnerable due to gross irregularities over the last 15 years. The amount of default loans in the total banking system stood at Tk 1.82 trillion at the end of March this year, which was around 11 per cent of the total loans distributed during the period under review. And around Tk 920 billion was plundered from the sector during 2008-2023 through two dozen bank scams, according to an estimate revealed by the Centre for Policy Dialogue (CPD). The amount was equivalent to 2 per cent of the country's GDP and 12 per cent of FY24 national budget.

Over the years, some oligarchs have emerged in the country backed by the government's political and legal protection and took control of the banking sector. Oligarchs are the individuals who 'through private acquisition of state assets amassed great wealth that is stored especially in foreign accounts and properties and who typically maintain close links to the highest government circles.' The interim government is trying to clamp down on some of the oligarchs by freezing their bank assets and removing them and their proxies from the different banks' boards. It is, however, a very challenging task as they own some big conglomerates of the country and control many businesses and trading. Recovering the default loans and retaining some plundered money is hard.

The interim government has also decided to form a banking commission, which will provide recommendations to reform the banks and fix the problems in the coming days. This proactive step demonstrates the government's commitment to addressing the economic challenges and restoring stability.

A large amount of foreign and domestic debt becomes a big liability for the country. Shortly, the pressure to repay primarily foreign debts, will increase. Currently, the amount of outstanding foreign debt is US$ 70 billion, which has to be repaid in the coming days in various instalments. For instance, the repayment of US$12 billion borrowed from Russia to construct the Rooppur Nuclear Power Plant is scheduled to start in 2027. An effort is, however, there to delay the payment by rescheduling, which requires hectic negotiations.

As foreign debt has to be repaid in the US dollar, it creates pressure on foreign exchange reserves. The reserve has also been depleted for the last two years due to higher import bills and regular repayments of foreign debts. Over the years, the forex reserve was shown by inflating the figure. There was also a manipulation to inflate the statistics of export earnings. As the gross manipulation of two key indicators of the external sector has been detected recently, and the actual figures are less than the manipulated figures, the national economic statistics also come under question. The policy measures, adopted based on manipulated data, ultimately provided a distorted picture. So, the problems in the economy compounded, and the list is long.

The interim government has thus started a 'mission tougher' if not 'mission impossible' to address the country's economic problems. However, one needs to keep in mind here that there is no quick fix.​

 

[Saif]

Ordinance likely to block black money whitening

Scrapping the impugned black money-whitening facility is likely by proclaiming an ordinance in the interim period as parliament has been dissolved following the fall of the past government in an uprising, taxmen indicate. Revenue officials in a meeting Tuesday with the finance adviser mooted the p

thefinancialexpress.com.bd

Ordinance likely to block black money whitening
Option to be placed with advisory council of interim govt
FE REPORT
Published :
Aug 28, 2024 00:34
Updated :
Aug 28, 2024 00:34

Scrapping the impugned black money-whitening facility is likely by proclaiming an ordinance in the interim period as parliament has been dissolved following the fall of the past government in an uprising, taxmen indicate.

Revenue officials in a meeting Tuesday with the finance adviser mooted the proposal, amid discussions on a wide range of affairs like taxation reforms, hassle-free rapid trade clearance, government revenue boost.

Official sources said Finance and Commerce Adviser Dr Salehuddin Ahmed responded positively and assured of placing the matter before the council of advisers of the interim government.

Following newly appointed National Board of Revenue (NBR) chairman Abdur Rahman's instructions, the taxmen verbally showed wiliness to withdraw the much-contended special fiscal benefit offered for legalizing undeclared money.

The budget for the current 2024-25 financial year, adopted by the immediate-past government, provides for whitening 'black money' on payment of 15-percent tax. Regular taxpayers have to pay taxes up to 20 per cent on their incomes.

"Scrapping the scheme would need passing an ordinance as it is in the Finance Act 2024 passed in the budget," said one official.

However, Dr Salehuddin Ahmed, after the meeting with the NBR, declined to talk on this fiscal amnesty at this moment.

Talking to the newsmen, Dr Salehuddin Ahmed instructed the revenue board not to create any obstacles to release of goods from the customs ports in order to facilitate private-sector investment, much sought after for gearing up economic activity, job creation, and growth.

The measures to develop industrial sector have to be taken care of through taking proper steps on tax collection.

"The bill of lading and bill of entry have to be released in due time. In case of any lacking in documentation, the revenue officials would ask for it," he said while talking to the press after his consultation with the National Board of Revenue high-ups.

The process has to be expedited without causing any hindrance from government's part, he added.

Mr Ahmed urges them to resolve the roadblocks in export-import cargo clearance.

"Forcing the existing taxpayers while sparing the tax-evaders would not happen now," the finance and commerce adviser, a former governor of the Bangladesh Bank, categorically said.

Dr Ahmed, however, declined to talk on the existing black money-whitening facility and also the US treasury department's proposal on tax-base-extension support.

On the US treasury proposal he said, "We are taking care of but cannot make comment instantly."

He hastened to add: "Also, the British Ambassador pointed out on foreign- exchange-market reform due to having their expertise to tackle recession in 2007-08, which affected UK and USA most."

Mervyn King was the Governor of the Bank of England who successfully tackled the great recession of 2007-08, Dr Salehuddin mentioned, citing his visit to London that time when he was BB governor.

King was appointed governor of the Bank of England in 2003, succeeding Edward George. Most notably, he oversaw the bank during the financial crisis of 2007-2008 and the Great Recession.

"I told it BB's issue which it can take care of," he said.

He, however, preferred to look into the local expertise capacity before taking help of foreign expertise.

"We have to increase our tax-GDP ratio. It is still low. The NBR will have to maximize tax collection," he said, adding that the government cannot run depending constantly on loan.

Responding to newsmen's query, NBR chairman Abdur Rahman Khan said service delivery would be expedited in bringing businessmen's confidence.

"We will work with all-out efforts to meet the revenue-collection target and plug the scope of revenue leakage," he said.

The NBR is the most important entity of the government having a major role in facilitating industrialization, he notes.​