[🇧🇩] Monitoring Bangladesh's Economy

[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.​

 

[Saif]

Salehuddin urges industrialists to invest in education, research

Finance adviser Salehuddin Ahmed on Sunday urged industrialists to invest in education and research to bridge the gap in skilled manpower and knowledge in the industrial sector...

www.newagebd.net

Salehuddin urges industrialists to invest in education, research
Bangladesh Sangbad Sangstha . Dhaka 08 December, 2024, 22:58

Salehuddin Ahmed | BSS photo

Finance adviser Salehuddin Ahmed on Sunday urged industrialists to invest in education and research to bridge the gap in skilled manpower and knowledge in the industrial sector.

The adviser made these remarks as chief guest at the celebration ceremony of the Graduate Diploma in Leather, Leather Goods and Footwear Management programme of East West University held at EWU campus in the city, said a press release.

Salehuddin Ahmed emphasised that successful figures like Bill Gates and Elon Musk did not achieve their innovations solely by themselves; their success was built on long- term investments in research.

He highlighted the irony that while business leaders in Bangladesh often complain about the lack of skilled manpower, they did not invest in educational and research institutions.

The event was presided over by chief adviser of EWU and former governor of the Bangladesh Bank Mohammed Farashuddin. Other distinguished speakers included resident representative of the Asian Development Bank in Bangladesh Hoe Yun Jeong, vice-chancellor of EWU Shams Rahman, senior vice-president of the Leathergoods and Footwear Manufacturers and Exporters Association of Bangladesh Mohammed Nazmul Hassan, additional secretary of the Finance Division Mohammed Walid Hossain and professor of the Department of Business Administration of EWU and programme director of the Graduate Diploma in Leather, Leathergoods and Footwear Management Programme Tanbir Ahmed Chowdhury.

The ceremony was attended by EWU diploma graduates, faculty members, Officers from different sections, officials from the Ministry of Finance, and representatives from the Asian Development Bank, among others.​

 

[Saif]

NBR to cut tax exemptions once economy improves: chairman

The government will rationalise tax exemptions once the country’s economic situation improves to some extent, according to National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan.

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NBR to cut tax exemptions once economy improves: chairman

The government will rationalise tax exemptions once the country's economic situation improves to some extent, according to National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan.

"To boost revenue, we must come out of the culture of tax exemptions. Our development partners have asked us to discontinue this practice for our benefit," he said, describing the practice as discriminatory.

Khan made these remarks while responding to queries from journalists at the NBR headquarters in Agargaon yesterday.

The revenue authority is considering bold measures regarding tax exemptions, especially as the International Monetary Fund (IMF) has been persistently urging the government to cut them in a bid to increase the country's tax-to-gross domestic product ratio, which is among the lowest in the world.

"We have no alternative but to cut exemptions," he said.

"We will do it timely. We have already started. It's not like we are sitting idle. Except for essential commodities, we will take steps immediately where we have the scope."

The interim government has introduced various tax exemptions on the import of essential commodities, including rice, oil, eggs, and onions in recent months. The NBR chairman attributed these exemptions to the ongoing "economic crisis".

He also hinted at the imminent withdrawal of some tax exemption facilities.

"We have issued some statutory regulatory orders to cancel existing exemptions. Some more will be issued later," he said.

However, Khan assured that no forceful measures would be taken.

"We will move only after discussion with traders," he added.

Despite the revenue board allowing significant exemptions at the import stage, the prices of essential commodities have not yet reduced to expected levels, he said.

Khan also said that the NBR was set to observe the National VAT Day today and "VAT Week" from December 10 to 15.​

 

[Saif]

No overnight cure for ailing financial sector

There is no overnight cure for the deep-rooted challenges facing the country’s banking sector, Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said yesterday.

www.thedailystar.net

No overnight cure for ailing financial sector
Former FBCCI president Abdul Awal Mintoo says

There is no overnight cure for the deep-rooted challenges facing the country's banking sector, Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said yesterday.

He also said the initiatives that the Bangladesh Bank has taken so far are not enough to bring down non-performing loans.

He made the remarks while speaking on the current business and investment environment and the way forward at the Economic Reporters' Forum (ERF) office in Dhaka. The ERF organised the conversation.

Minto added that printing money to lend to cash-strapped banks is a misstep because it can cause inflationary pressures -- a thorn in Bangladesh's side for over two years -- in the domestic markets to intensify.

The economic data requires a lot of corrections, including in exports and imports, as the real data was not published during the last government's regime

The investment environment climate is attractive enough to lure in foreign direct investment, he added.

More than 96 percent of investment comes from people's savings, but they can hardly save due to high inflation, he said.

In recent times, well-dressed people are also standing in queues in front of the Trading Corporation of Bangladesh's Open Market Sales programme, which sells essentials at subsidised prices through trucks.

The former FBCCI president also said a warm relationship with India is needed for the sake of the country's interests.

Minto also said Bangladesh should not graduate from the group of Least Developed Countries (LDCs) and get the status of a developing nation based on false economic data.

A recent white paper on the state of the economy estimated that Bangladesh's gross domestic product had been overstated by 3.5 percentage points on average between FY13 and FY19.

"The economic data requires a lot of corrections, including in exports and imports, as the real data was not published during the last government's regime," he said.

Replying to queries, Mintoo said the corporate culture in the country has not improved yet as most big corporations are still very much family businesses.

He said the country's failure to produce an adequate number of qualified personnel to run such big corporations efficiently was one of the reasons for that.

However, this can cause serious problems for businesses, as exemplified by Beximco Group, which has been in hot water since the arrest of its vice-chairman Salman F Rahman after the political changeover.

Salman also served as the private industry affairs adviser to deposed Prime Minister Sheikh Hasina.

Regarding corruption under the past government, he said a section of people considered bribes to be an investment. It was not a political party but a section of people that ran the country without holding acceptable elections, Mintoo said.

He added that an acceptable election is needed to improve the business and investment environment.

He said a special environment must be prepared to attract investment, especially to capitalise on investments that are being shifted away from China.

Other countries are attracting that capital because of a good investment environment, he added.

He added that foreign direct investment has been slowing because foreign investors think Bangladesh is a risky country for parking funds.

Significant discrimination is being noticed in the country's education and health sectors and an elected government can remove such discrimination, he opined.

Mintoo expects the interim government will announce a roadmap to elections soon as all reform reports will be submitted to the government by the end of this month.

The way the government has been freezing the bank accounts of businessmen is not right. Such steps will affect business, he said.​

 

[Saif]

Finance adviser hints at end to tax break

Finance adviser Salehuddin Ahmed on Tuesday said that the tax exception culture enjoyed by industries over the years was due largely to low domestic revenue generation...

www.newagebd.net

Finance adviser hints at end to tax break
Staff Correspondent 10 December, 2024, 22:46

National Board of Revenue chairman Md Abdur Rahman Khan speaks at a seminar on the occasion of ‘VAT Day and VAT Week 2024’ organised by the National Board of Revenue at its head office at Agargaon in the capital Dhaka on Tuesday. Finance adviser Salehuddin Ahmed, Finance Division secretary Md Khairuzzaman Mozumder and Federation of Bangladesh Chambers of Commerce and Industry administrator Md Hafizur Rahman also spoke on the occasion. | New Age photo

Finance adviser Salehuddin Ahmed on Tuesday said that the tax exception culture enjoyed by industries over the years was due largely to low domestic revenue generation.

‘Days are numbered for enjoying the tax break,’ said the finance adviser at a seminar on the occasion of ‘VAT Day and VAT Week 2024’ organised by the National Board of Revenue at its head office at Agargaon in the capital Dhaka.

The finance adviser said that the local industries were needed to be got rid of tax exemption facility to face the challenges the country’s graduation from the least developed countries’ bloc in 2026 would bring.

Many local export-oriented industries which are now enjoying duty preferences in developed and developing countries may lose the benefit, he said.

The finance adviser was also critical about the tax evasion for which the country’s tax-GDP ratio has been ridiculed as one of the lowest in the world.

He suggested that tax officials should be friendly to taxpayers.

He called upon all to pay taxes so that the government is able to increase allocation to health and education sectors.

A World Bank report said the county’s income from value-added tax in 2018-19 could have been at least three times higher than the collection of Tk 85,000 crore had the government implemented the VAT law properly.

Presided over by NBR chairman Md Abdur Rahman Khan, Finance Division secretary Md Khairuzzaman Mozumder and Federation of Bangladesh Chambers of Commerce and Industry administrator Md Hafizur Rahman spoke at the seminar.

The finance secretary said the development partners often raised the issue of low tax-GDP ratio.

The revenue board should conduct strong efforts to augment revenue mobilisation, he said.​

 

[Saif]

IMF offers extra $1b for reforms

The International Monetary Fund (IMF) has offered an additional $1 billion to Bangladesh but the government is pushing for at least $2 billion to implement the interim government’s reform agenda, narrow the deficit in the current account and shore up the dollar stockpile.

www.thedailystar.net

IMF offers extra $1b for reforms
Govt pushing for at least $2b under existing loan programme

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

The International Monetary Fund (IMF) has offered an additional $1 billion to Bangladesh but the government is pushing for at least $2 billion to implement the interim government's reform agenda, narrow the deficit in the current account and shore up the dollar stockpile.

Finance Adviser Salehuddin Ahmed sought a fresh $3 billion from the Washington-based multilateral lender under the existing loan programme on the sidelines of the annual World Bank-IMF meeting in October.

Following the discussion, a 13-member IMF mission came to Bangladesh at the beginning of the month to review the country's performance and compliance with structural reform conditions for the fourth tranche of the existing loan.

The issue of extending the loan amount was discussed with the mission, which has offered about $1 billion in exchange for additional reform conditions, The Daily Star has learnt from people involved with the discussions.

But the government is holding out for at least $2 billion. In that case, $1 billion would be coming in each of the remaining four tranches under the existing loan programme.

In January last year, the multilateral lender approved a $4.7 billion loan package for Bangladesh. So far, it has disbursed $2.3 billion in three instalments.

Meanwhile, the IMF mission is set to hold talks with officials of the finance ministry and the central bank today and on December 15 to finalise various policy documents.

The policy documents are a memorandum of economic and financial policy of the government, a letter of intent, a technical memorandum of understanding and a memorandum of understanding.

While the IMF is satisfied with the interim government's various reform initiatives, it will impose specific conditions for the next loan tranches, the officials said.

This time, IMF is giving more emphasis on revenue collection, reducing the subsidy for power, energy and fertiliser sectors and banking sector governance.

In case of increasing revenue collection, the IMF wanted to know the government plans regarding tax exemption in the next fiscal budget.

Besides, the IMF may impose a condition to separate policy and administration at the National Board of Revenue and reduce the multiple VAT rates.

In the case of the central bank and banking sector, the IMF could impose various conditions for the amendments of the Bangladesh Bank Order, the Bank Company Act, and Bankruptcy.

The IMF could also give a condition for bringing down arrears in government subsidy and price adjustment.

As of June, the government's arrear was about Tk 60,000 crore. However, after taking charge, the interim government brought the amount down significantly, according to finance ministry officials.

The finance ministry is aiming to clear the arrears by half by June next year and the rest in the next fiscal year.

In case of price adjustment, the IMF has suggested raising the electricity tariffs further.

However, the interim government is unwilling to adjust the price this fiscal year because it could fuel inflation further.

The government, however, will cut expenditures of power plants in a bid to reduce subsidies, the finance ministry officials said.

A closing meeting of the IMF mission will take place on December 17 with the finance adviser.​

 

[Saif]

ADB approves $600m loan for structural reforms in Bangladesh

The Asian Development Bank on Wednesday said that it approved $600 million ‘policy-based loan’ to Bangladesh...

www.newagebd.net

ADB approves $600m loan for structural reforms in Bangladesh
United News of Bangladesh . Manila 11 December, 2024, 17:43

Logo of Asian Development Bank. | Collected photo

The Asian Development Bank on Wednesday said that it approved $600 million ‘policy-based loan’ to Bangladesh.

The loan will be used for bringing structural reforms supporting domestic resources mobilisation, enhance efficiency of public investment projects, developing private sector, reforming state-owned enterprises, and promoting transparency and good governance, according to a release by the Manila-based multilateral lender.

ADB’s policy-based loan promptly responds to Bangladesh’s immediate development financing needs following the political transition, said the lender’s regional lead economist Aminur Rahman.

This particular loan programme of the ADB has been developed in close collaboration with the International Monetary Fund, World Bank, and other multilateral lenders after the interim government led by Muhammad Yunus sought extra funds from them to tackle the lingering economic crisis, mostly left behind by the Awami League regime ousted on August 5 amid a student-led mass uprising.

Reportedly, the Finance Division also expects to receive another around $1.5 billion loan as budget support from the International Monetary Fund and World Bank by the next two months.

The ADB said that Bangladesh had been struggling with revenue mobilisation, as it possessed the world’s lowest tax-to-gross domestic product ratio at only 7.4 per cent.

This loan will help Bangladesh to introduce key policy actions with the aim of increasing domestic resource mobilisation, while improving transparency and accountability, according to the release.

The ADB loan programme includes digitalisation and green initiatives, rationalisation of tax incentives and exemptions, and measures to assist taxpayers to boost tax morale.

Improved transparency and efficiency of public investment projects through increased digitalisation is another key objective of the loan programme.

The loan will promote private sector development and foreign direct investment by streamlining regulatory environment and creating a level playing field.

To simplify business creation and operations, over 130 services have been made available in an online integrated platform. These are complemented by improved governance and performance monitoring of state-owned enterprises and streamlined foreign direct investment approval processes, according to the release.​

 

[Saif]

Consumer financing slows amid economic hardship, uncertainty

Consumer financing has slowed as people are adopting a go-slow strategy for taking loans, considering the increasing trend of interest rates amid ongoing inflationary pressure.

www.thedailystar.net

Consumer financing slows amid economic hardship, uncertainty

Consumer financing has slowed as people are adopting a go-slow strategy for taking loans, considering the increasing trend of interest rates amid ongoing inflationary pressure.

Banks are also being very conservative in providing consumer credit amid the uncertainty surrounding the recent political changeover, industry insiders said.

As of September this year, the percentage of consumer credit out of total loans stood at 8.62 percent, down from 8.86 percent the previous year, according to the latest data from the Bangladesh Bank.

Total outstanding loans in the banking sector stood at Tk 1,619,917 crore as of September this year, of which Tk 139,613 crore is consumer financing.

The percentage of consumer credit out of total loans was 6.81 percent in the same period of 2020, 7.67 percent in 2021 and 8.44 percent in 2022.

Consumer credit, or consumer debt, is personal debt taken on to purchase goods and services. For instance, a credit card is one type of consumer credit in finance.

Industry insiders said people take consumer credit mostly for lifestyle and luxury product purchases.

However, they have been forced to cut their spending on luxury products in the face of economic hardships. Still, some people are taking consumer loans to meet their monthly expenses, they added.

From September last year to September this year, banks disbursed Tk 9,103 crore as consumer credit, down from Tk 17,993 crore in the same period of the year prior, central bank data showed.

Bank Asia is continuing to expand its retail loans or consumer financing, said its managing director, Sohail RK Hussain.

Home loans, personal loans, automobile loans and credit cards are the major areas of retail loans.

Credit growth in the retail segment is not substantial and is still insignificant compared to the total loans in the banking sector, said the Bank Asia MD.

People of middle-income and upper middle-income are mainly taking consumer credit, he said, adding that professionals are mostly taking those types of loans.

The housing and automobile sectors were adversely impacted last year due to the exchange loss of the local currency, taka, against the US dollar, Hussain said, adding that the 100 percent letter of credit (LC) margin on luxury products impacted retail loans.

Hussain also said consumer credit or retail loans are expanding on the increased earning capacity of people and changing lifestyles.

From September last year to September this year, banks disbursed cash for purchasing consumer goods, apartment purchases, credit cards loan and salaries, central bank data showed.

Banks are also lending for educational expenses, medical treatment, marriage expenses, travel or holidays, professional loans, transport loans, loans against provident funds, personal loans against deposit premium schemes (DPS), personal loans against fixed deposit receipt (FDR) and more.

M Khurshed Alam, deputy managing director of Eastern Bank, said consumer financing has slowed because of inflationary pressure.

Inflation in Bangladesh hit a four-month-high of 11.38 percent in November this year and has stayed above 9 percent since March of last year.

Alam said Bangladesh Bank is trying to curb inflationary pressure by hiking the policy rate, which pushes up the lending rate. As a result, people are avoiding loans.

Keeping pace with the interest rate of general loans, the central bank recently increased the maximum interest rate on credit cards to 25 percent from 20 percent.

The hike in interest rate of loans against credit cards will impact the credit growth of consumer financing, Alam said.

Few banks are providing consumer credit, which is why this segment is yet to expand, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

He said banks are allowed to lend a maximum of Tk 2 crore to each client as a home loan and a maximum of Tk 40 lakh as a personal loan.

Rahman, also the former chairman of the Association of Bankers, Bangladesh, said banks are now very conservative in giving consumer credit as defaulted loans in this segment have also increased.​

 

[Saif]

Revamping bond market for economic growth

The bond market in Bangladesh, despite its immense potential, remains largely unexplored. Several factors including weak corporate governance, lack of awareness and data transparency, investor-unfriendly tax structures, and inadequate enforcement of regulations contribute to the underutilisation. T

thefinancialexpress.com.bd

Revamping bond market for economic growth
FE
Published :
Dec 13, 2024 00:02
Updated :
Dec 13, 2024 00:02

The bond market in Bangladesh, despite its immense potential, remains largely unexplored. Several factors including weak corporate governance, lack of awareness and data transparency, investor-unfriendly tax structures, and inadequate enforcement of regulations contribute to the underutilisation. The absence of a sustainable bond market has placed undue pressure on the country's banking system as the primary source of financing. This growing reliance on banks enhances the risk of non-performing assets, threatening the overall stability of the financial system. A recent roundtable jointly organised by The Financial Express (FE) and Watermark Inc. highlighted these challenges and the unutilised potential of the bond market. Experts at the event emphasised the need for comprehensive reforms to unlock the economic benefits that a vibrant bond market could offer. Their suggestions included revamping the tax structure, consolidating all regulators and market intermediaries under a single authority, and updating regulations to align with global best practices. These measures, they argued, would help attract both domestic and international investors, including global impact investors.

The bond market, a financial marketplace where buyers and sellers exchange bonds as debt securities, plays a crucial role in the economy. It provides borrowers with a mechanism to finance large-scale projects and operations, while also offering savers and investors a way to diversify their portfolios. Furthermore, bond markets act as an economic barometer, with bond prices typically moving inversely to the stock market. When equity markets rise, bond yields tend to decline, and vice versa. This counter-cyclicality makes bond markets a reliable indicator of economic trends.

In Bangladesh, however, the bond market remains quiescent, and its potential impact on the economy untapped. The keynote speaker Managing Director of UCB Investment at the roundtable pointed out that the ratio of the corporate bond market to GDP in the country is only 0.19 per cent, the lowest among peer nations. He noted that while government treasury bonds offer high yields of 12-13 per cent, the risk-adjusted returns on corporate bonds should be more attractive to investors. To realise this potential, he stressed the importance of fixing the regulatory framework and aligning it with global standards. The development of both debt and equity markets in tandem is essential for a balanced financial ecosystem. A well-disciplined debt market can complement the equity market by providing a safety net for investors, who can offset potential equity losses with stable returns from fixed-income securities. The Editor of The Financial Express observed that bonds, which typically offer reasonable yields, are considered a safe investment by informed savers. He also highlighted the urgent need for a vibrant secondary market for the transaction of both government and private bonds.

With the interim government currently focusing on restructuring the country's financial management, revitalising the bond market should be a top priority. A robust bond market can significantly enhance capital mobilisation, reduce strain on banks, and provide a stable funding source for long-term projects. The time is ripe for Bangladesh to unleash the potential of its bond market aimed at ensuring its contribution to sustained economic development.​

 

[Saif]

Three Cs ruined credibility of data in AL regime

Collusive behavior, capacity deficit and coordination failure have been identified as the main reason for lack of credible data on key socio-economic indicators during the Awami League regime...

www.newagebd.net

Three Cs ruined credibility of data in AL regime
Shakhawat Hossain 15 December, 2024, 00:36

Collusive behavior, capacity deficit and coordination failure have been identified as the main reason for lack of credible data on key socio-economic indicators during the Awami League regime ousted on August 5 amid a student-people uprising.

Impacts of collusive behavior of politicians and public servants to distort data have been evident in all key metrics such as gross domestic product, inflation, labour force and poverty.

The other two Cs –– capacity deficit and coordination failure –– have also led to the systemic compromise of data integrity or data-related disarray in the country over the years, according to the White Paper on the State of Bangladesh Economy.

AL policymakers hardly paid attention to the call for maintaining proper methods in calculating data through out its unbroken tenure between January 2009 and August 2024, the white paper said.

Experts and economists found it difficult to present an objective state of economy and development in absence of reliable data.

Indicating various macroeconomic data, Policy Exchange Bangladesh chairman Masroor Reaz said that they were getting many data which were not available or delayed during the AL regime.

He hoped that the availability of data in the most reliable form would increase in the coming days.

When official statistics on key metrics such as the GDP, inflation, private investment or employment are unreliable, a disconnect between economic realities and policy responses is created, said the white paper.

Appointed on August 29, a 12-member committee headed by Centre for Policy Dialogue distinguished fellow and economist Debapriya Bhattacharya submitted the white paper to the chief adviser Muhammad Yunus on December 1.

The issue of reliable data has also been highlighted in at least eight of the 23 chapters of the white paper aiming to portray the mismanagements and irregularities of the AL regime.

GDP growth rate has been the centre of attention because of apparent disjuncture with other key indicators, including private sector credit, revenue mobilisation, import payments for capital machines, energy consumption, export receipts and employment generation.

Focusing on the issue, the white paper said that in the post-2013 period, the political policymakers took a special interest in GDP figures and surely made strong influences.

A collusive group in the Bangladesh Bureau of Statistics allegedly emerged to ensure that the economic performance of the country was maintained against all odds, be it only on paper, said the white paper.

During the post-2019 period, this collusive group was largely maintaining the act. Data producers might have felt pressured to present an overly optimistic view of development characterised by accelerated economic growth, especially since past estimates were repeatedly manipulated, added the white paper.

It highlighted the collusive behavior on inflation, one of the most talked about issues over the past two years.

The unusual delay and reluctance to release the Consumer Price Index in August 2022 and only 8.4 per cent inflation for gross rent, fuel and lighting components against the price hike of fuel oil by Tk 50 with a potential domino effect pushing up prices of food, transport and utilities, among others it stated.

The distrust of inflation data increased as the BBS made a revision in estimating inflation with an expanded commodity basket having 700 more items with the latest rebasing of 2021-22 CPI, creating an opportunity for the enumerators to use arbitrary judgements, said the white paper.

Many commodities included in the new estimation method are largely unavailable at many market points of the country.

Former World Bank Dhaka office chief economist Zahid Hussain, also a writer of the white paper preparation committee, said that suppression of inflation data below double digits in the past two years was linked to collusive behavior.

Now the BSS seems to be providing actual data, he said, calculating that the double-digit inflation prevailed in August, October and November out of four months of the interim government completed on December 8.

The white paper identified that discrepancies in standards and definitions had enabled the Bangladesh Bureau of Statistics to report an inflated employment rate to appease the regime regarding the overall labour force.

Poverty rates have been reduced to 18.7 per cent in 2022 from 26.5 per cent in 2016, but the poverty reduction rate does not go in parallel with a recent BBS study on Food Security Statistics 2023 that revealed that about 22 per cent of the households perceived themselves as moderate to severe food insecure.

The sharp decline in extreme poverty surely raised the eyebrows of analysts, said the white paper.

Recognising that political influences and priorities often guide statistical manipulations is crucial. This underscores the importance of accurate data as the backbone of effective policy making, the white paper said.

Manipulated data can lead to devastating consequences, making the need for reliable data even more urgent, it added.​

 

[Saif]

ADP cut prompted by changed situation

Adhering to the basic principles of flexibility and adjustability, the interim government is mulling over a substantial cut in the annual development budget for the current fiscal year by a big margin of Tk 500 billion from the local-resources part of the budgetary outlay. And that is thanks to the

thefinancialexpress.com.bd

ADP cut prompted by changed situation
Editorial
Published :
Dec 15, 2024 00:21
Updated :
Dec 15, 2024 00:21

Adhering to the basic principles of flexibility and adjustability, the interim government is mulling over a substantial cut in the annual development budget for the current fiscal year by a big margin of Tk 500 billion from the local-resources part of the budgetary outlay. And that is thanks to the nation's appalling economic condition left behind by the immediate past government. This is no doubt a deep cut in comparison with the reductions in the ADP allocations by Tk 190b and Tk 180b in FY 23 and FY 24 respectively. A pressing financial need and the traditionally poor project implementation capability of the feeble government agencies also prompted the action. It may be mentioned here that the actual ADP implementation rate sank to less than 8 per cent during the July-October period this year. According to a report published in this paper, the budget-trimming process as part of austerity measures will bring down the ADP allocation to Tk 2.15 trillion from the original Tk 2.65 trillion. A downsized but achievable ADP is much better than a robust one far beyond the existing financial and implementation capability. However, maximum efforts must be made for the successful execution of the revised plan. At the same time, causes behind poor implementation capacity should be found out and removed.

The amount to be saved through trimming of the allocation is likely to be used to pay the dues that the government owes to the local private and foreign power generation companies as outstanding and other charges for power purchase. The cut in the ADP allocation will make a revision of the development programme and resetting priorities in the changed situation necessary. While plan for infrastructural development and budgetary allocation for projects are integral parts of a government's yearly economic programme, revision of project plans and fund allocation adjustment to cope with prevailing circumstances are also regular exercises. This is particularly true in case of deficit financing due to failure of the revenue authorities to mobilise adequate funds from domestic sources. The annual development plan adopted by the deposed regime can no longer be implemented with the present weakened financial condition, which is the outcome of ruthless plundering of the national resources by the deposed regime. Revision of development programme and budgetary allocation is nothing wrong and unusual; in fact, it is done almost every year. Not just resource constraint, inclusion of many unnecessary and politically-motivated projects, recasting of ADP is a must do job. Such a budgetary modification should rather be viewed as a pragmatic way of doing things in a changed situation. If efforts are made to execute the unmodified version of the ADP in spite of financial constraint, the government will have to depend more on bank borrowing, leading to crowding out effect.

Besides, the rate of execution of development projects by government agencies, which was less than 8.0 per cent during the first four months of the current financial year is an issue that the government can hardly ignore. The execution rate was one of the poorest in recent years. So, while asking the agencies to concentrate more on raising their project execution rate, it would be more prudent to divert unused funds to meet some pressing needs including payment of arrear bills in the power sector.​