[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Is decline in import concerning?

The moderate decline in the country's overall external trade with the rest of the world in the last fiscal year is not surprising. Both exports and imports dropped in FY24, leading to a fall in overall trade in terms of value. The decline in merchandise imports, which was much higher than that of e

thefinancialexpress.com.bd

Is decline in import concerning?
Asjadul Kibria
Published :
Sep 28, 2024 22:00
Updated :
Sep 28, 2024 22:00

The moderate decline in the country's overall external trade with the rest of the world in the last fiscal year is not surprising. Both exports and imports dropped in FY24, leading to a fall in overall trade in terms of value. The decline in merchandise imports, which was much higher than that of exports, indicates the sluggish internal demand and foreign exchange crisis in the country.

Statistics available with Bangladesh Bank showed that payment for merchandise import dropped by 11 per cent to US$66.73 billion in the last fiscal year from $75.06 billion in FY23. It was the second consecutive drop in import of goods in the country. In FY23, import value fell by 15.81 per cent from $89.16 billion in FY22. Again, the fall of imports in the last fiscal year was a decline for the third time in the past decade. During the decade, imports first dropped by 8.56 per cent in FY20, whereas the highest growth of imports was recorded at around 36 per cent in FY22. Payments for services import, however, almost unchanged at $10 billion in the last fiscal year. Merchandise exports declined by 4.35 per cent in FY24, reaching $44.48 billion, whereas services exports dropped by 9.78 per cent to around $6.30 billion.

The total value of external trade stood at $127.60 billion in the last fiscal year, a significant drop from $138.60 billion in FY23. This decline in trade is not just a number on a balance sheet; it has real implications for the country's national income. The trade-GDP ratio came down to 28.90 per cent in the last fiscal year from 31 per cent in FY23, according to the preliminary estimation of the Bangladesh Bureau of Statistics (BBS). This decrease in the trade-GDP ratio is a clear indicator of the impact of the trade decline on the country's economic health.

The requirements of higher import payments coupled with a gradual increase in external debt liability drove the rapid depletion of foreign exchange reserves since FY22. The gross forex reserve reached $41.82 billion at the end of FY22 from $46.40 billion in FY21. As it was not possible to suspend the debt repayments, the central bank started to allow currency depreciation and discourage luxury and less-essential imports of goods to contain the fast depletion of reserves. Nevertheless, the forex reserve further dropped to $31.20 billion at the end of FY23, and the declining trend continued till the end of FY24 when gross forex reserve came down to $26.71 billion while the net or disposable reserve slid to $21.69 billion.

In the meantime, the reduction in import payments continued due to various restrictive policy measures implemented by the central bank to curb import growth as well as to reduce the import-induced inflationary pressure. According to a brief analysis of the central bank, factors such as exchange rate depreciation and global price hikes also contributed to the downturn in the last two fiscal years. Specifically, the import cost of intermediate goods, constituting around three-fifths of the total import payments, declined by 20 per cent in FY23 and 9 per cent in FY24. Among the intermediate goods, the import cost of petroleum goods, however, increased by 6.10 per cent in the last fiscal year. The import of capital goods declined by 21.9 per cent, and the import of food grains declined by 20.80 per cent during the period under review.

The decline in imports is also linked to the country's aggregate demand, which also moderated slightly in the last fiscal year. In constant price, domestic demand increased by 4 per cent in FY24, which posted only 2 per cent growth in FY23 but 14 per cent in FY22.

Globally, Bangladesh is now the 51st largest country in terms of merchandise import, according to the World Trade Statistics 2023. Released by the World Trade Organization (WTO) in July last with a new interactive tool, it also showed that the country's annual merchandise import was 0.28 per cent of the global import trade last year. In 2022, the country ranked 47th having 0.34 per cent share in the world import trade. Bangladesh is also the second largest importer in South Asia, after India which ranked 9th in 2022 and 8th in 2023.

The WTO statistics also showed that in the last year, international trade in goods and commercial services dropped on average by 2 per cent to $30.5 trillion, on a balance of payments basis. Trade in goods declined by 5 per cent whereas services trade increased by 9 per cent. The situation in Bangladesh is also largely aliened with the global trend.

As Bangladesh used to import more than export, there is always a trade gap with the rest of the world. Bangladesh Bank data showed that merchandise trade gap stood at $22.43 billion in FY24 from $27.38 billion in FY23. This trade gap, while significant, is due to a slower decline in both exports and imports in the last fiscal year compared to FY23. It's important to note that a trade gap is not always a matter of concern, as it can be a result of strategic import decisions to support domestic industries and economic growth.

There is a misperception in the country that a decline in exports is always a matter of concern, whereas the same trend in imports is not an alarming issue. This is because exports bring foreign exchange from the outside world, and imports cause outflow of the foreign exchange. However, it's crucial to understand that the country's exports largely rely on imports, especially for various raw materials, intermediate goods and capital machinery. For instance, one-fourth of the gross export of ready-made garments (RMG) is the import of raw materials. In other words, the net export of RMG is around three-fourths of the gross export. Cotton, yarn, textile and fabrics are the four key components of RMG, largely imported from abroad. That's why Bangladesh was the fifth largest textile importer last year although the country ranked third as exporter of RMG. Again, the country also imports food grains and consumer items like wheat, edible oil, sugar, pulse, etc, to meet the domestic demand.

So, what is more challenging is importing at a relatively lower price and sourcing the products at a competitive rate. This will help reduce the cost of domestic production of many items and also exportable goods. To achieve this, the country could consider negotiating better trade deals, investing in domestic production capabilities, and improving trade infrastructure. Finally, a rebound in imports is necessary to attain higher economic growth.​

 

[Saif]

Restoring macroeconomic stability, law & order vital: Experts

Discussants at a seminar on Saturday said that restoring macroeconomic stability, law and order situation especially in industrial belts, and rebuilding confidence among entrepreneurs is now vital to streamline the country’s economy in the next development trajectory. They also put emphasis on...

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Restoring macroeconomic stability, law & order vital: Experts
BSS
Updated: 28 Sep 2024, 21: 56

Speakers addressing at a seminar on “Bi-annual Economic State & Future Outlook of Bangladesh Economy-Private Sector Perspective” held at Dhaka Chamber of Commerce and Industry (DCCI) auditorium in the capital on Saturday. BSS

Discussants at a seminar on Saturday said that restoring macroeconomic stability, law and order situation especially in industrial belts, and rebuilding confidence among entrepreneurs is now vital to streamline the country’s economy in the next development trajectory.

They also put emphasis on ensuring food security, containing inflation and boosting tax-GDP ratio among some of the key issues where the interim government should put urgent focus in the days ahead.

The speakers made the remarks at a seminar on “Bi-annual Economic State & Future Outlook of Bangladesh Economy-Private Sector Perspective” held at Dhaka Chamber of Commerce and Industry (DCCI) auditorium in the capital.

Former director general of Bangladesh Institute of Development Studies (BIDS) KAS Murshid, professor of Dhaka University and executive director for Research and Policy Integration for Development (RAPID) Mohammad Abu Eusuf and director (research), Chief Economist’s Unit, Bangladesh Bank Md Salim Al Mamun spoke as panel discussants.

DCCI president Ashraf Ahmed made the key-note presentation on the topic.

Speaking on the occasion, noted economist KAS Murshid said in the future, growth has to be broad-based while there is a need to think highly about education, health, and social justice.

“We’ve to be inclusive as only growth itself won’t be enough, rather quality of growth will make a sense,” he said.

Murshid, also the chief of the taskforce to reframe the development strategies, said that for attaining quality growth, there is a need to continue investment in food security as well as in energy security.

In securing energy security, he said that energy mix and pricing policy is very much vital as the pricing policy over the years was a total mess. “We need to streamline it so that it becomes beneficial economically. We also need to ensure that there is no decision taken arbitrary and on ad-hoc basis."

Besides, the former director general of BIDS suggested that the government needs to have a national upskilling policy where the thrust should be on technology.

He noted that over the next 10 years, AI and digital-based knowledge economy would transform production, employments and industrial ecosystem where the government needs to put urgent attention.

Noting that it would not be possible in the future to become competitive with the low-wage labour, he said that the country would have to go for generating more highly productive labour.

The noted economist also stressed on restoring law and order situation in the country as well as trust and confidence among the entrepreneurs and industrialists, focusing more on broad-based growth, undertaking some regulatory reforms, putting more focus on research and development, diversifying exportable items and markets and attracting more investment especially FDI.

Prof Mohammad Abu Eusuf said maintaining macroeconomic stability is now crucial than ever for the sake of overall economic development.

“Moreover, we’ve to have actual realistic data of number of population, GDP size and other statistical components to research the actual scenario of the economy,” he added.

Prof Eusuf termed three ‘R’ namely RMG, remittance and rice production as the most important issues now while underscored the need for product diversification for increased export growth.

He further said that if the leather sector of Bangladesh gets adequate support, then it can fetch at least $10 billion a year.

The RAPID executive director also urged for enhancing tax-GDP ratio, revenue from the direct tax, preparing a roadmap for 5 to 10 years and thus taking action plan.

Besides, he proposed for recognizing the expatriate Bangladeshis as ‘remittance warriors’ through providing them with extra facilities as the inward remittance flow is likely to hit $27 billion to $30 billion in this financial year.

He also underscored the need for better coordination among the monetary policy, fiscal policy and market management.

Besides, he proposed for recognizing the expatriate Bangladeshis as ‘remittance warriors’ through providing them with extra facilities as the inward remittance flow is likely to hit $27 billion to $30 billion in this financial year.

Salim Al Mamun said that holistic approach has been taken for the reforms in the financial sector.

“The Bangladesh Bank has also been trying to modernize policies concerned. To contain inflation, BB has taken few measures like policy rate hike, tightening monetary policy etc. which may bring positive results soon,” he added.

He also echoed that the main challenge is now to face the challenge of macroeconomic stability.

Regarding the central bank’s current strategy of higher interest rates and tighter liquidity management, DCCI president Ashraf Ahmed suggested that the strategy should be reversed as soon as inflation comes under control.

He expected that the balance of payment issues to be resolved soon, the trend of devaluation of taka will come down once US dollar rate falls which could help cut the energy prices as well.

He underscored the importance of mid-term reforms in various policies, investments and operating procedures of various government bodies for creating a better business environment and investment climate.

To control inflation, he suggested for strong domestic supply chain mechanism, minimizing wastages, improvement of age-old market logistic system and implementing modern market mechanism in place.
“We’re also witnessing few issues with NPL within a small segment of the banking system—reportedly only ten banks are badly affected, indicating that the remaining banks are in acceptable health,” he added.

Ashraf pointed out that due to high interest rate, higher exchange rate and increasing cost of capital, the actual effective credit flow to CMSME sector has been on a downward trend.

He requested to maintain the flow of loan disbursement in the CMSME sector so that they have enough working capital in hand.

To control inflation, he suggested for strong domestic supply chain mechanism, minimizing wastages, improvement of age-old market logistic system and implementing modern market mechanism in place.

Regarding the labour unrest in the industrial belt including in Ashulia, the DCCI president termed it as ‘fearful’ and said that such situation could not be allowed to continue. Otherwise, growth and employment generation will be affected, he added.

Ashraf also termed electronics and semiconductor sector as one of the most promising areas in the export basket after RMG.​

 

[Saif]

IMF reaffirms support in fighting economic challenges

The International Monetary Fund (IMF) has reaffirmed its support for Bangladesh’s interim government in overcoming the various economic challenges the country has been facing in recent times.

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IMF reaffirms support in fighting economic challenges

The International Monetary Fund (IMF) has reaffirmed its support for Bangladesh's interim government in overcoming the various economic challenges the country has been facing in recent times.

In a statement issued yesterday upon completion of its fact-finding mission's visit to Dhaka, the IMF said the country's financial sector vulnerabilities have become more pronounced.

"We support the authorities' efforts to initiate policy adjustments, including continued monetary tightening and rationalising non-priority capital spending, in response to these challenging circumstances," the lender said in the statement.

After assuming office, the interim government sought a fresh $3 billion loan from the IMF in addition to the ongoing $4.7 billion loan programme approved in January of last year.

Of the $4.7 billion, $2.3 billion has already been disbursed.

The multilateral lender said further discussions on renewed support would be held during the upcoming 2024 IMF-World Bank Annual Meetings in Washington DC from October 22.

From September 24 to 30, the IMF mission team, led by Chris Papageorgiou, visited Dhaka to discuss needs assessments and identify economic challenges.

After the visit, the IMF said that "economic activity has slowed markedly while inflation remains at double-digit levels owing to the recent turbulence and major floods.

"The deterioration in the balance of payments has put additional pressure on foreign exchange reserves. Concurrently, tax revenue collection has declined, while spending pressures have increased and domestic payment arrears have accumulated.

"Financial sector vulnerabilities have become more pronounced," the IMF said.

"In this context, the authorities and IMF staff have held open and productive discussions on the policies and reforms needed to address these emerging challenges," the statement continued.

"The IMF remains a steadfast partner, fully committed to supporting Bangladesh and its people," it added.

"Within the framework of the ongoing IMF-supported programme, we will continue to work closely with the authorities to advance Bangladesh's reform agenda, which aims to ensure macroeconomic stability, promote job creation, strengthen institutions, and foster strong, sustainable and equitable growth."

"We welcome the authorities' renewed commitment to implementing the reforms under the IMF-supported programme. Discussions on how to proceed with programme reviews will continue during the upcoming 2024 IMF-World Bank Annual Meetings," the statement added.

IMF Managing Director Kristalina Georgieva met with Chief Adviser Prof Muhammad Yunus in New York on the sidelines of the United Nations General Assembly last week.

At the meeting, the IMF assured the interim government of providing more loans on a "fast-track" basis.

Georgieva said the IMF "would fast-track financial support for the government" and that she had sent a team to Bangladesh "quickly".

The team will submit its report to the IMF management board this month.

Georgieva also said the IMF board could initiate a new lending programme for Bangladesh based on the team's report or could extend the existing loan program.

During their visit to Dhaka, the IMF team met with Finance Adviser Salehuddin Ahmed, Bangladesh Bank Governor Ahsan H Mansur and other senior officials.

They also met with representatives from the private sector, think-tanks, bilateral donors and development partners.

In the statement, the global lender expressed sorrow over the deaths during the student-led mass uprising.

"We are deeply saddened by the loss of lives and injuries during the recent public uprising and stand in solidarity with the people of Bangladesh during these difficult times," it said.

"The timely formation of an interim government has helped stabilise political and security conditions, fostering a gradual return to normalcy in the economy," it added.​

 

[Saif]

Sustaining higher remittance inflow

What amounts of remittance dollars the wage earners are sending home every month from abroad had never been so concerning as it is now. This is for the simple reason that remittance is the major source of hard currency to supplement the country's declining foreign exchange reserve. Notably, the res

thefinancialexpress.com.bd

Sustaining higher remittance inflow
Published :
Oct 04, 2024 22:02
Updated :
Oct 04, 2024 22:02

What amounts of remittance dollars the wage earners are sending home every month from abroad had never been so concerning as it is now. This is for the simple reason that remittance is the major source of hard currency to supplement the country's declining foreign exchange reserve. Notably, the reserve has been falling after reaching a peak in August 2021 at US$48 billion. At that time, inflow of remittance increased but the outflow of foreign currency reduced significantly as the economy came to a virtual standstill thanks to the Covid-19 pandemic. But from the following months the scenario began to change as economic activities resumed with increase in the expenditure of foreign currency to meet obligations of external trade such as footing the import bills, servicing debts, etc. In consequence, the net reserve started to shrink and the trend has shown no respite since despite the austerity measures like discouraging non-essential imports, restricting foreign travels and so on adopted by the previous government.

Amid this gloom, the report that the country recorded last month the third highest remittance receipt of US$2.40 billion in the last 50 years is indeed uplifting. In comparison with the remittance receipt of US$1.33 billion in September 2023, this is an 80 per cent increase year-on-year. Why was this sudden surge in remittance inflow without any Muslim religious festival when higher remittance is received? The higher amounts of remittance receipt of US$2.22 billion recorded in August and in September have left observers guessing what exactly prompted remitters to send more money. This may be a mark of the remitters' confidence in the interim government.

However, the highest ever remittance amounting to US$2.59 billion was sent by expatriate wage earners in July 2020 followed by the second highest at US$2.54 billion in last June, 2024. Now the question is, if this rising trend in remittance receipts would sustain in the long run. According to some central bank (Bangladesh Bank, BB) officials as reported in this paper, proactive measures taken by the BB under the new government like further depreciation of Bangladesh Taka against US dollar, increasing flexibility of BDT-USD exchange rate regime by expanding the so-called 'crawling peg mid-band', thereby bringing the exchange rate closer to the informal forex market, etc. have been behind this improved picture of remittance. These steps by BB definitely encouraged expatriate wage earners to send money through official banking channels as it proved more rewarding than before.

Now to sustain the trend of higher remittance inflow, praise for the remitters will not be enough. They don't get any effective protection from the government even when they seek employment through registered recruiting agencies. They are exploited, maltreated and cheated at every step of their journey abroad. Worse yet, as they are mostly manual labourers and do not have much education, officials at Bangladesh's diplomatic missions in the host countries often fail to cooperate at the expected level when expatriate workers approach them for any service. So, alongside a change in attitude on the part of officials, the focus should be more on sending trained and qualified workers and professionals abroad with better-paying jobs so that they may send higher amounts of remittance home. Sooner the government will take these measures, the better the prospect of remittance inflow for improving the reserve situation.​

 

[Saif]

The role of remittance in buoying economy

As problems continue to plague exports from Bangladesh, particularly on account of the ongoing protests, vandalism and closure of readymade apparel factories, the one good thing that helps keep the economy buoyant is remittance sent by expatriate workers. In fact, remittance is a huge driver for gr

thefinancialexpress.com.bd

The role of remittance in buoying economy
Syed Mansur Hashim
Published :
Oct 04, 2024 21:57
Updated :
Oct 04, 2024 21:57

As problems continue to plague exports from Bangladesh, particularly on account of the ongoing protests, vandalism and closure of readymade apparel factories, the one good thing that helps keep the economy buoyant is remittance sent by expatriate workers. In fact, remittance is a huge driver for growth for many other Asian countries including the Philippines and India to name but a few, as every nation requires hard currency to pay for imports. In case of Bangladesh, the ballooning foreign loan repayment is being met to a large extent from the remittances sent to the home country by Bangladeshi workers living and working abroad.

There has been a profound rebound in remittance coming in through official and unofficial channels to Bangladesh. There is a renewed hope amongst people that despite many short-term problems being faced due to the change in government, people at home need the extra cash and the economy can meet the need with dollars earned abroad. As one looks at the data, remittance earnings over the last quarter (July - September, 2024), the figure has jumped from US$1.91 billion in July to $2.40 billion in September, 2024. Sceptics are quick to point out that this is temporary and may fall anytime due to changed economic circumstances in destination countries where bulk of our workers are concentrated.

This is partly true. But the other side of the argument is seldom highlighted. People are sending more money through official channels regardless of the difficulties encountered in doing so. More and more expatriates understand the need to send it through formal financial channels because this will directly help the country to defray the costs of development. The remittance surge over the last quarter has only the second time it has happened over a 39-month long period.

Sustaining the momentum, however, will require a lot of work. According to information made available by the central bank (BB) and reported by the Financial Express, "This September receipt got enhanced by over 80 per cent year on year from $1.33 billion recorded in September 2023. Compared with the remittance earnings in August 2024 worth $2.22 billion, the September figure is around $200-million higher." Some constructive measures taken thus far are paying off. The depreciation of the national currency (BDT) against the greenback and expansion of the crawling peg mid-band, according to experts, have encouraged remitters to send home more money back home.

Despite the uptick in remittances, the net payments being made in foreign exchange (forex) for both imports and repayments on foreign loans together with interest are still in the negative. Much needs to be done to make it more difficult for business entities to launder money abroad. It is not only a question of employing 'hundi', but also addressing trade mis-invoicing. Despite protestations to the contrary by exporters, there is enough evidence available that puts the amount of foreign exchange laundered abroad at around $8.0 billion annually. That is a massive amount of forex the equivalent of which is not entering the local economy every year. These problems continue to pester because no political government in the past has worked to plug the loopholes, as it worked in their self-interest to move huge sums of money abroad. Getting back to inward remittance, banking insiders agree that tighter control over policy have helped. Today, the BB has lifted the restriction in controlling the exchange rate. So, remitters sending money through banking channels get their money's worth since the exchange rate is now more attractive. This has dealt a blow to the grey market, but are the measures enough? Certainly not!

Until now, all the focus has remained on banks and formal financial institutions. One has to remember that the bulk of Bangladeshi workers are blue-collar, not white-collar, i.e. they are not very comfortable with banking procedures and paperwork. As Bangladesh has spent considerable resources to upgrade its digital footprint, financial institutions and the central bank have also become online. It is necessary now to open up the various digital applications available to people globally so that they may remit money directly from their mobile phones. What has to be worked on are regulatory issues about precisely how people can send money using cellphone technology to cut through the hassle of formal banking.

Of course, such a step may face resistance from formal financial institutions as they will fear loss of business. On the contrary, this will help their business if Bangladeshi banks and BB work together to make mobile applications that will work with cell phones, and the money sent are disbursed through banks and / or non-banking financial institutions. Now that the technology exists, it is the mindset to make it happen. This is the only way to bring the so-called "un-bankable" on board and double the inward remittance basket. The Bangladesh Bank needs to start working on this policy framework without delay.​

 

[Saif]

Wage growth still below inflation

Unskilled workers wage grew 8.01% in September this year when inflation was 9.92%

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Wage growth still below inflation
Unskilled workers wage grew 8.01% in September this year when inflation was 9.92%

Photo: Sk Enamul Haq

Many low-income and unskilled workers in the agriculture, industrial and service sectors of Bangladesh are being forced to reduce consumption as higher inflationary pressure is eating away their real income.

According to the Bangladesh Bureau of Statistics (BBS), inflation has outpaced wage growth in the country for more than two and a half years now.

The wages of low-income and unskilled workers across 63 employment categories grew by an average of 8.01 percent in September while the inflation rate was 9.92 percent, shows the Wage Rate Index of the BBS.

The situation was even worse in August as the inflation rate stood at 10.49 percent, thereby exceeding wage growth by 2.53 percentage points in a trend that has been continuing for the past 32 months.

The data also indicates that earning levels across all three of the economic sectors registered month-on-month growth of less than 1 percentage point in September.

Wage growth in the industrial sector was 7.61 percent that month, up by 0.07 percentage points from August, while that of the agriculture sector increased by 0.03 percentage points to 8.28 percent.

Likewise, wage growth in the service sector advanced by 0.05 percentage points to 8.29 percent.​

 

[Saif]

ADB-funded projects face fresh hurdles

Many ongoing development projects, funded by the Asian Development Bank, is facing additional implementation challenges due to the current political climate and changes in the government, a document says.

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ADB-funded projects face fresh hurdles
Change in govt, political turmoil key reasons; review meeting starts today

Many ongoing development projects, funded by the Asian Development Bank, is facing additional implementation challenges due to the current political climate and changes in the government, a document says.

The ADB has also initiated a "rapid market assessment" to "better understand the impact of the prevailing socio-economic conditions", it said.

Against this backdrop, a three-day Tripartite Portfolio Review Meeting (TPRM) for the ADB-funded projects starts in Dhaka today.

The critical implementation issues, including additional challenges that projects have faced during the recent unrest and changes of the government, are on the agenda of the meeting.

The meeting was supposed to be held in July 2024 but got delayed due to the uprising, which led to the changes in the government.

Representatives of implementing agencies of all the projects will join the meeting virtually.

The third and final day of the meeting will be co-chaired by the secretary of the Economic Relations Division and the country director of the ADB's Bangladesh Resident Mission.

Currently, 53 investment projects in six sectors are being implemented with ADB's fund of $12.262 billion.

Of the projects, five are in the agriculture, food, nature, and rural development sector; 10 in the human and social development sector; nine in the energy sector; 12 in the transport sector; 11 in the water and urban development sector; and six in the finance, public sector management, and governance sector.

Implementation of all major projects, particularly the infrastructure ones, was halted or almost stopped amid the quota reforms protests, which eventually turned into a student-led mass uprising that toppled the Hasina-led government on August 5.

"Almost all work remained halted for two months [July and August]. Work resumed in September, but it is yet to get momentum," a director of a major ADB-funded project told The Daily Star yesterday.

"Situation of other projects were almost same, and I think ADB wanted to mention this problem as additional challenges," the director said seeking anonymity.

WHAT ADB SAYS

According to a background paper made ahead of the tripartite portfolio review meeting, awarding of contract achieved is $392.5 million (59.6 percent) against the annual target of $663.8 million this year.

The disbursement is $890.2 million (61.6 percent) against the annual target of $1,445 million, it says.

Insufficient financial and human resources to prepare projects, complex and lengthy approval process of projects and bid documents, challenges in land acquisition, limited experience and capacity of the project implementing agencies are major factors that led to poor project readiness and frequent extension of loan implementation periods, ADB said.

It said Bangladesh portfolio in general is composed of infrastructure projects, which are about 67 percent of the portfolio, and involve large and challenging procurement packages.

In 2023, all sectors exceeded their contract award targets except agriculture, food, nature, and rural development (73.6 percent) and energy (59.8 percent) sectors.

As of September 20 this year, the annual progress is 60.62 percent with 72 percent of the time elapsed, and the contract award and disbursement performances are "on track" as per year-to-date performance.

"However, we have observed additional implementation challenges in many ongoing projects due to the current political turbulence and changes in the government," ADB document reads.

The ADB, however, is committed to working even more closely with the interim government to ensure continuous improvement of Bangladesh portfolio management, it said.

The multilateral lender, with support from the project implementation units, initiated a rapid market assessment to better understand the impact of the prevailing socio-economic conditions.

The purpose of the assessment was to obtain information on the progress and quality of existing contracts, as well as the interest of potential companies to participate in future bidding opportunities in Bangladesh.​

 

[Saif]

We must rethink our foreign reserve strategy

If Bangladesh is to safeguard its economic stability and ensure sustained growth, the time for reform is now.

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We must rethink our foreign reserve strategy
Foreign reserve strategy

VISUAL: BIPLOB CHAKRABORTY

In the intricate dance of international economics, Bangladesh finds itself at a pivotal crossroads. As we grapple with the challenges posed by dwindling foreign reserves and escalating project costs, the nation's ability to manage foreign reserves effectively and negotiate loans prudently has never been more critical. Yet, the glaring inefficiencies in our current approach to government-to-government (G2G) funded projects are cause for alarm. If Bangladesh is to safeguard its economic stability and ensure sustained growth, the time for reform is now.

The negotiation crisis

At the heart of the problem is a failure in negotiation strategy. Too often, we find ourselves locked into agreements that seem to serve everyone except Bangladesh. Project delays, cost escalations, and contracts signed under unfavourable terms have become the norm. These outcomes stem from a lack of expertise and patriotism among the negotiators representing our national interests.

Effective negotiation requires more than just a senior government official with academic credentials. What Bangladesh truly needs are skilled negotiators—successful businesspeople with substantial international experience who possess both the knowledge and confidence to engage with countries like the US, China, and India. Such individuals must be fluent in the language of international trade, able to protect not only their company's interests but, more importantly, those of Bangladesh.

Reassessing the management of foreign reserves

The interim government's foremost challenge is the preservation of our foreign currency reserves. Maintaining even the current levels will be difficult unless we renegotiate existing contracts with countries like Russia, Japan, China, and India. Such renegotiations must be conducted strategically, without animosity, but with firm resolve.

Bangladesh is not a minor player on the global stage. With a population of 170-plus million, we represent a significant market, and our geopolitical importance should not be underestimated. We are not in the business of begging for loans. Instead, we seek win-win agreements, ensuring that both Bangladesh and its lenders benefit equally.

Our immediate focus should be on renegotiating the terms of projects like the Rooppur Nuclear Power Plant and the Padma Bridge. These mega-projects, funded through G2G agreements, were often politically motivated, with large portions of the funds diverted to local agents and commissions. As a result, the terms were not negotiated in the country's best interest. This is evident in the case of the Rooppur project, where repayments are set to begin before the plant becomes operational—an inexplicable failure in negotiation.

Learning from the Adani Power deal

One glaring example of poor negotiation is the contract signed with Adani Power, rushed through in just 30 days under highly unfavorable terms. The rate at which Bangladesh buys power from Adani is nearly double that of other sources in India. Local entrepreneurs, who set up power plants with their own investment, offer electricity at better rates. This contract, like others, needs to be re-examined and renegotiated.

A skilled negotiation team can sit down with foreign governments and companies, making it clear that while they are our friends, the terms must change. A grace period of 5-7 years, as is standard practice, should be included in repayment terms. Extending the grace period by a few years without reducing the total repayment period can be achieved through proper dialogue.

Deferred payments: A potential lifeline

One promising solution to our foreign reserve crisis is the introduction of deferred payment systems for imports. For example, Bangladesh imports $23 billion worth of goods from China. To ease the immediate pressure on our reserves, if we could negotiate a deferred payment system with the Chinese government for $5-10 billion worth of industrial raw materials, to be repaid over 3-5 years, it would provide significant relief. Such deals are not only feasible but also beneficial for both parties. Deferred payments would allow Bangladesh to continue industrial growth without the immediate outflow of foreign currency, thus stabilising our reserves while simultaneously fostering job creation and increasing productivity.

Addressing project delays and cost escalations

One of the most significant obstacles to Bangladesh's economic growth is the repeated delays in completing foreign-funded projects. Extending a project's timeline from three years to five or seven years inflates loan commitment charges, worsening our already unfavourable terms.

A primary culprit in these delays is the practice of hiring consultants on a man-month basis, which incentivises them to prolong projects to increase their fees. This system must be overhauled. Consultants should be hired with a vision for the country's development, and project management teams should prioritise national interests over personal gain.

For 20 years, we have seen the same cycle of delays and cost escalations. A new approach is long overdue.

Reforming the G2G scheme

Finally, we must confront the inherent weaknesses in the G2G funding model. Lack of international competition, high-interest rates, and politically motivated contracts are just a few of the systemic problems. Worse, Bangladeshi companies are often excluded from joint ventures, preventing the transfer of technology that could benefit our economy.

Foreign reserves do not benefit either, as funds from these projects are repatriated directly. This must change. Bangladesh must negotiate terms that allow for joint ventures and local involvement, ensuring that our economy reaps the rewards of these mega-projects.

A call for reform

The path forward is clear—Bangladesh must take control of its future by engaging in more effective negotiations and selecting the right individuals to represent its interests. We need to introduce deferred payment systems and renegotiate existing projects to alleviate the immediate pressure on our foreign reserves. Above all, we must stop signing unfavourable contracts that burden future generations.

By taking these steps, Bangladesh can achieve economic stability, foster growth, and avoid the traps of cost escalations and project delays that have plagued us for far too long.

It's time for change, before it's too late.

Ghulam Mohammed Alomgir is a BUET graduate and chairman of a group of companies. He is the founder president of BUET Graduate Club Ltd.​