[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Budget support from WB, IMF, ADB: Bangladesh may get $5.65b by this fiscal year

The government is expecting at least $5.65 billion in budget support this fiscal year from the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB) to expedite reforms.

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Budget support from WB, IMF, ADB: Bangladesh may get $5.65b by this fiscal year

The government is expecting at least $5.65 billion in budget support this fiscal year from the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB) to expedite reforms.

Of the expected funds, the IMF is likely to provide $3 billion, the World Bank $1.5 billion and the ADB $1.15 billion.

Around $3 billion of the funds could come by December for stronger support to ensure good governance in banking and other sectors, according to officials at the finance ministry, Bangladesh Bank and the three development partners.

The global and regional lenders may impose several conditions for the loans, including some on revenue, public expenditure, and dissemination of data, finance ministry officials said.

A high-powered government delegation led by Finance Adviser Salehuddin Ahmed will visit the US from October 21-29 to attend the World Bank-IMF Annual Meetings.

They will sit with World Bank and IMF officials on the sidelines of the main event to discuss the fresh financings, their modalities, and reform conditions.

High-ranking officials of the World Bank and the IMF have assured the government of providing necessary funds to boost the depleting foreign currency reserves after the interim government took charge in August.

The IMF is likely to approve $3 billion in fresh loans under a separate programme, in addition to the $4.7 billion in funds approved in January last year, under which Bangladesh has got $2.3 billion in three tranches so far.

The IMF may disburse the fresh funds in multiple tranches as well. However, the modality of the loans will be finalised during talks in Washington this month.

A finance ministry official said they are hopeful about getting more than $1 billion under the two IMF programmes this year, subject to the IMF board's approval in December.

An IMF team is likely to visit Dhaka in November to set the reform conditions for the fresh funds and also review the existing loan programme.

The World Bank is expected to clear $1.5 billion in fresh funds in the ongoing fiscal year, including $1 billion under two programmes by December.

A finance ministry official said the World Bank will provide $750 million to strengthen economic governance and reform programmes.

Another $250 million will be provided for capacity building of the finance ministry, Bangladesh Bank, National Board of Revenue (NBR), and Bangladesh Bureau of Statistics (BBS), said the official.

From the ADB, the government expects $1.15 billion by the end of this fiscal year. The funds will include $650 million expected by December for a programme to strengthen economic management and governance.

The interim government also sought $1 billion from the ADB for the banking sector and another $1 billion for the energy sector.

Out of these, there has been significant progress in getting the $1 billion for the banking sector. The ADB could provide $500 million of the funds by June next year.

The Bangladesh delegation will also hold talks with officials of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA) and International Finance Corporation (IFC), and the US Treasury Department during the WB-IMF Annual Meetings.

IFC in 2022 proposed to issue Taka-denominated bonds worth $4 billion among local investors, either through public issuance or private placement, to lend the proceeds to projects in Bangladesh.

There has not been much progress regarding the proposal, but recently the member of the World Bank Group has shown renewed interest in the matter.

MIGA has offered Bangladesh Bank $1 billion in guarantee facilities for international trade to reduce import costs.

MIGA and IFC's proposals will be discussed further during the Bangladesh delegation's visit to Washington, a central bank official said.

POSSIBLE CONDITIONS

Officials said the conditions for the fresh World Bank and IMF loans may include the separation of tax policy from revenue collection administration. The lenders have been raising the issue for a long time, but it could not be realised due to a lack of interest from NBR officials.

The lenders may also want the existing multiple VAT rates replaced with a uniform rate, and the introduction of a modern electronic VAT system to increase revenues and improve compliance.

The World Bank recommended these reforms in its latest development update for Bangladesh last week.

It suggested enhancing efficiency in expenditure by aligning national savings certificate interest payments with market rates and controlling subsidy spending.

The report recommended implementing market-based tariffs in the power sector and transitioning from fertiliser subsidies to a voucher-based programme. It suggested replacing emergency procurement with competitive bidding to reduce generation costs.

A finance ministry official said the lenders may impose a condition under which the BBS will have autonomy and publish data independently.

Currently, BBS sends data to government high-ups for approval before publication.​

 

[Saif]

Bangladesh Remittance Fair to begin in NY October 20

Two-day Bangladesh Remittance Fair will begin at Jamaica Performing Arts Centre in New York on October 20 to increase remittance flow from the USA to Bangladesh.

www.newagebd.net

Bangladesh Remittance Fair to begin in NY October 20
Bangladesh Sangbad Sangstha . Dhaka 18 October, 2024, 23:57

Two-day Bangladesh Remittance Fair will begin at Jamaica Performing Arts Centre in New York on October 20 to increase remittance flow from the USA to Bangladesh.

The theme of the fair is ‘New Opportunities, New Markets, New Partnerships’.

The Bangladesh-American Chamber of Commerce and Industry, Mukto Dhara New York and the US-Bangla Business Link are jointly organising the event powered by Dhaka Bank.

Islamic Bank, National Bank and Bank Asia will be honoured in the event as the top remittance-receiving banks.

Focusing on promoting legal remittance flows and sustainable growth, the fair aims to explore how to increase these foreign earnings and encourage expatriates to utilise legitimate channels for remittance, thereby further energizing the economy.

The participating institutions include banks, financial institutions, money transfer operators, remittance channel partners, mobile financial services, offshore banking service providers and expatriate small entrepreneurs.

Over 30 financial institutions from both Bangladesh and the United States, including IFIC Bank, Islami Bank, Standard Bank, Social Islamic Bank Limited, Dhaka Bank, Chevron Express and Standard Express, will take part in the event.

The fair will also feature seminars and symposiums on remittances, along with awards for the top 10 Bangladeshi-American remittance senders.

Moreover, awards will be given to the top three money exchange or remittance channel companies.

The fair will remain open from 4:00pm to 10:00pm NY time on both days at the venue where popular artists Pousali Banerjee and Shah Mahbub will enthral the audience through performances on October 20.​

 

[Saif]

High tax expenditure: A paradox in Bangladesh’s tax system

Bangladesh has an unusually high tax expenditure to GDP ratio despite having low revenue generation through direct tax.

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High tax expenditure: A paradox in Bangladesh’s tax system
High tax expenditure in Bangladesh

VISUAL: ANWAR SOHEL

Revenue efforts—i.e., revenue generated from the national income or GDP, which is defined as tax to GDP ratio—have historically been low in Bangladesh. Between 2011 and 2023, the country's revenue efforts declined from 11 percent to 8.3 percent in 2023—a 2.7 percentage point drop over the 12-year period when the per capita GDP increased by about 200 percent. Since the trend in per capita GDP is increasing, suggesting that income is increasing (hence broader tax base), more revenue should be generated (even when the tax rates remain the same). Thus, the falling trend of revenue efforts point to an inefficient revenue system in Bangladesh.

A paradox in our tax system is maintaining a high tax expenditure ratio (or simply put, revenue forgone) when the revenue efforts are dismal. Tax expenditure refers to special provisions of the tax code, such as exclusions, deductions, deferrals, credits, and tax rates that benefit specific activities or groups of taxpayers. The outcome is a loss of revenue. Although data on tax expenditure in Bangladesh is not available every year, according to a recent study (March 2024) by the National Board of Revenue (NBR), the estimated total tax expenditure for direct tax in FY21 amounts to 3.56 percent of GDP. Although some of the tax expenditures may be justified on merit grounds, such a high level of tax expenditure against very low revenue efforts is clearly untenable. If one adds VAT and custom duty, the total tax expenditure may well be above five percent of GDP.

Furthermore, since the methodology to estimate tax expenditure is usually subjective, the final estimate is generally underestimated. The Global Tax Expenditure Database (GTED) progress report published in 2022 highlights this aspect. According to the report, over the past three decades, "the global average of reported revenue forgone from TEs was close to four percent of GDP and more than 24 percent of tax revenues. Yet, real numbers are probably significantly higher, since one of the main issues we encountered when building up the GTED was widespread underreporting." If this aspect is considered in Bangladesh, tax expenditure may be even higher, perhaps around seven to eight percent of GDP.

The GTED progress report compiled tax expenditure data of 95 countries who have been grouped into four categories: lower income countries (LICs); lower-middle-income countries (LMICs); upper-middle-income countries (UMICs); and high-income countries (HICs). The average tax expenditure of LICs (14 countries) in 2021 was 2.8 percent of GDP. In the same year, it was three percent for LMICs (20 countries), four percent for UMICs (23 countries), and 4.7 percent for HICs (38 countries). Compared to this data, Bangladesh's tax expenditure estimate (only for the direct tax) of 3.6 percent appears to be high.

Since transparency in this field has been limited, it is difficult to measure the benefits of this mechanism. Thus, a major concern with such high tax expenditure is uncertainty or ambiguity regarding its impacts on the economy and society. Since there has been no assessment to justify the existing tax expenditure, this practice should be limited. Consider a situation where a one percent cap has been imposed on the tax expenditure, which would release revenue of about four percent. In such a situation, revenue efforts will jump to 15 percent of GDP. The forgone revenue of four percent may be put to better use where one percent may go to social sectors, one percent may go to infrastructure, one percent to agriculture, and the rest to skills and productivity enhancement programmes.

Another justification for such an approach—i.e., enhanced public expenditure through realised revenue by capping the tax expenditure—is that expenditure allocations are usually subject to better transparency and scrutiny via the medium-term budget framework (MBTF) carried out by line ministries and the finance ministry, and the Annual Development Programme (ADP) conducted by the Planning Commission.

In 2023, the Policy Research Institute's (PRI) Centre for Domestic Revenue Mobilisation (DRM) carried out an exercise to justify the need to enhance expenditure in the merits sector through additional revenue mobilised through the direct tax system. Simulations were conducted to identify the impact of raising revenue from personal income tax with an analysis to understand the effects on the national economy. The simulations assume that the additional revenue raised is spent on infrastructure, social sector, social protection, agriculture and other public spending areas. Specifying public spending assumes the same proportional split between sectors, as is currently the case. The core finding from PRI's exercise shows that increases in personal income tax led to increases in GDP growth and labour income. This is primarily through the effect of allowing the government to invest more in public services. If revenue from personal income tax were to increase by two percentage points, economic growth would likely rise by 0.5 percent on top of the existing growth rates. Moreover, such a move may increase labour income by three percent.

The above analysis suggests that the practice of maintaining high tax expenditure is not feasible on grounds of forgone revenue, lack of transparency, and low value for money. Immediate action must be taken to improve the fiscal system in Bangladesh utilising this low-hanging fruit. Some strategic recommendations in this regard are: i) put a cap on the overall size of tax expenditure at the maximum level of one percent of GDP for the next two fiscal years; ii) form a high power committee to make decisions on who should be eligible for receiving tax expenditure benefits. The criteria may focus on employment generation, poverty reduction, productivity growth, and welfare of women, children and minority groups; and iii) the NBR/government should earn the right to provide tax expenditure. For instance, it could implement a formula where an additional 0.25 percent of tax expenditure is provided for every two-percentage-point gain in tax efforts. However, the overall ceiling should be around two percent of GDP.

Dr Bazlul Haque Khondker is chairman of South Asian Network on Economic Modeling (SANEM) and director at Policy Research Institute (PRI) of Bangladesh.​

 

[Saif]

Macroeconomic recovery for whom?

Fitch, the US-based global credit-rating agency, forecasts a good tiding for Bangladesh economy provided that the government pursues reform. The uncertainty arising out of the political changeover over the economy, the agency maintains, is likely to be short-lived and the country's mid-term macroec

thefinancialexpress.com.bd

Macroeconomic recovery for whom?
FE
Published :
Oct 23, 2024 22:13
Updated :
Oct 23, 2024 22:13

Fitch, the US-based global credit-rating agency, forecasts a good tiding for Bangladesh economy provided that the government pursues reform. The uncertainty arising out of the political changeover over the economy, the agency maintains, is likely to be short-lived and the country's mid-term macroeconomic outlook is positive. However, the rating agency duly recognises the adverse effects of the shockwaves of the violent movement that toppled the immediate past government. Thus it has downgraded the country's output growth from its earlier projected 5.3 per cent to 4.5 per cent following identical slashing of growth projection by the International Monetary Fund (IMF) from 6.6 per cent for the fiscal year 2024-25. The other Bretton Woods Institution, the World Bank, also revised the growth projection downward to 4.0 per cent last week. The rating agency, however, sees an economic recovery in 2026 when the country may witness an economic upturn riding on a 5.7 GDP growth rate.

This recovery is, however, conditional. If external metrics like that of remittance sent by workers abroad remain stable, only then can it experience a turnaround. Improved macroeconomic performance alone cannot guarantee a country's social progress because much depends on how the national wealth is created and distributed. Under oligarchy, plutocracy or kleptocracy, outsize wealth may be created depriving the majority of its benefits. International agencies may wax eloquent about developments of any such order but outrageous socio-economic inequality marked by abject poverty for a hapless segment of society can negate the macroeconomic success. As many as 41.7 million people in Bangladesh now live in extreme poverty, according to a report titled "2024 Global Multidimensional Poverty Index released jointly by the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative of the Oxford University. Of them 6.5 per cent are particularly vulnerable to food insecurity.

Right now, inflation has been raging after a slight lull in the previous month. Earlier, disruption of the supply chain was thought to be responsible for the latest soaring inflation but it has proved wrong. Although the World Bank projects an easing of inflation to 9.0 per cent in the fiscal 2025, signs are to the contrary. Market manipulation and exchange of several hands all along the supply chain before agricultural produce and other commodities reach the consumers have now been blamed for abnormal price escalation. The low-income segments in society are increasingly becoming disillusioned with the administrative measures because they read in the anti-discrimination movement some relief was on their way. Many of the lower classes also felt prompted to join the movement with hope for better days. Now they are utterly disappointed.

The year 2026, when Bangladesh economy is expected to recover reasonably and create employment opportunities, is a long way off for the poor and the marginal and even the lower-middle class people. Their urgency is so pressing that any further wait for brighter economic prospects proves very painful. Yet another round of price rise of essentials including rice of late makes matters worse for them. It would be prudent to focus on microeconomic resurgence. The sector of small and medium enterprises (SMEs) has failed to avail of the stimulus packages meant for industrial recovery in post-pandemic period mostly because of a lack of collateral. If appropriate policies are formulated and effective monitoring along with support for marketing products of such enterprises is put in place, economy at the grassroots level can buoy up and create employment opportunities.​

 

[Saif]

Six priority areas up for reforms

Six priority areas are up for reforms under conditions binding a World Bank-offered budget-support credit, including an overhaul in fiscal, revenue, and public-welfare arenas, officials said. The World Bank is providing the development-policy credit under its Building Economic and Institutional

thefinancialexpress.com.bd

Six priority areas up for reforms
Syful Islam
Published :
Oct 26, 2024 00:06
Updated :
Oct 26, 2024 00:06

Six priority areas are up for reforms under conditions binding a World Bank-offered budget-support credit, including an overhaul in fiscal, revenue, and public-welfare arenas, officials said.

The World Bank is providing the development-policy credit under its Building Economic and Institutional Resilience programme for tidying these areas of finance.

The Ministry of Finance has formed a policy actions-implementation committee headed by an additional secretary of the finance division to push through the reforms.

As part of the spadework for such major changes, policy matrix has already been prepared in consultation with the ministries and divisions concerned, the officials said.

In the six-point reform recipe are rationalisation of tax expenditure, a new definition of non-performing loan (NPL) classification, establishment of bank-restructuring department in Bangladesh Bank, amendment of the statistics act, and the strengthening of Bangladesh Bureau of Statistics (BBS).

Officials concerned say Bangladesh's tax-to-GDP (gross domestic product) ratio is one of the lowest in the world and so needs a gradual raise. They see such low tax-revenue collection as a "big barrier facing economic development of the country",

Under this reform programme, the committee will work on implementation of policy actions aimed at finding potentials for broadening tax base, ways for additional revenue collection, and elimination of less-effective tax exemptions.

They say an updated definition of classified loans will also be prepared under this reform drive. Under the current definition loans which are at the stages of substandard, doubtful, or bad loan are called classified loans and they are considered NPL.

The banks and financial institutions fail to collect interest from the loans which fall in these categories. Recovery of both the interest and principal amount becomes uncertain when a loan is classified as bad loans.

Officials concerned have said the restructuring of some banks "has become very necessary as financial health of many public-and private-sector lenders has deteriorated following wanton plunder in the recent past".

The central bank, they say, will soon begin assessment of the asset quality of the banks before restructuring. Under the budget-support credit of the World Bank a bank-restructuring department is going to open in the Bangladesh Bank.

The central bank governor few weeks back sought some $270 million from the World Bank under Financial-Sector Support Project II from where some $70 million will be spent on strengthening Bangladesh Bank's technical capability and capacity for effective regulation and supervision.

Officials say the Statistics Act 2013 will also be amended under the budget-support programme of the World Bank. Also, the Public Procurement Act 2006 will be amended to make it more time-befitting.

The strengthening of the Bangladesh Bureau of Statistics (BBS) is also in the ambit of reforms under the Word Bank's budget-support credit to make statistics produced by the state agency more authentic and credible to remove a credibility gap.

Officials say in the past, the statistics produced by the BBS "used to be called in question home and abroad for a lack of accuracy".

Dr Zahid Hussain, a former lead economist at the World Bank's Dhaka office, earlier told the FE that reform is necessary in various public institutions and acts in Bangladesh to make them fit in international best practices.

On a question over data accuracy, he said, "There is a common perception in Bangladesh for many years that the GDP data produced by the BBS are inflated. Also, the accuracy of many social-indicator data remained under question for years which the government did not pay heed too."

He underscored the need for strengthening the BBS and for generating accurate data for their well acceptance.​

 

[Saif]

IMF team due in Dec to review fourth tranche of $4.7b loan

The International Monetary Fund (IMF) is sending a team within the first week of December to review whether Bangladesh qualifies for the fourth tranche of a $4.7 billion loan programme.

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IMF team due in Dec to review fourth tranche of $4.7b loan

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

The International Monetary Fund (IMF) is sending a team within the first week of December to review whether Bangladesh qualifies for the fourth tranche of a $4.7 billion loan programme.

The IMF delegation, led by mission chief Chris Papadakis, will also suggest potential reforms required for securing an additional $3 billion loan, which was sought by the interim government to improve the country's forex reserve.

Officials of the multilateral lender informed Finance Adviser Salehuddin Ahmed about these decisions during a meeting at the IMF headquarters in Washington last week.

A delegation from Bangladesh, led by Ahmed, is currently visiting the US to participate in the annual meetings of the IMF and The World Bank.

"Bangladesh is making good progress on the $4.7 billion loan programme. So, discussions are ongoing for the next review," said Krishna Srinivasan, director of the IMF's regional office for Asia and the Pacific.

The IMF delegation will also suggest potential reforms required for securing an additional $3 billion loan

She was addressing a press conference on October 24 on the economic outlook of Asia and the Pacific in Washington, DC.

"We had discussions in Dhaka and discussions are ongoing in Washington on how to move forward in terms of financing. All those will be part of the upcoming discussions," she added.

The IMF mission will review whether Bangladesh has met seven conditions for the fourth tranche of the $4.7 billion loan as of June this year.

Bangladesh has fulfilled all of these conditions, except the one regarding tax collection targets.

As per the IMF target, the government was supposed to collect Tk 394,530 crore in taxes by June.

Data from the Finance Division showed that the government collected Tk 369,209 crore by June, meaning that it fell Tk 25,321 crore behind the IMF target.

Another major condition set by the IMF was to increase the country's net international reserves (NIR), which was fulfilled after the IMF lowered the required threshold in May upon request by the then government.

The initial NIF collection target was $20.11 billion by June 30. However, the IMF lowered it to $14.79 billion later in May. As of June 30, Bangladesh had an NIR of $16.7 billion.

Previously, Bangladesh failed to fulfil the NIR target for each instalment of the loan, which was also revised by the IMF.​

 

[Saif]

Opportunity economy: An inclusive economic system for new Bangladesh

The Opportunity Economy (OE) is not only an inclusive economic system, but a new paradigm.

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Opportunity economy: An inclusive economic system for new Bangladesh

File visual: ANWAR SOHEL

The Opportunity Economy (OE) is not only an inclusive economic system, but a new paradigm. It is considered to be an alternative economic model making economic opportunities available to all citizens of a nation. Its definition consists of concepts such as inclusion in growth, which includes segments of the population who are excluded from economic growth, thereby increasing diversity by creating opportunities available to all to utilise their potential.

Many countries, affluent or impoverished, use the Opportunity Economy in a flexible way to meet their national economic and political goals. The goal is to benefit the underprivileged people in society as they do not have meaningful access to resources and education.

People, culture, and collaboration create the Opportunity Economy ecosystem that enables success in achieving the desired goals of the economy. Furthermore, the Opportunity Economy requires a holistic approach.

It addresses the issue of communities and individuals who are left behind owing to the political and economic systems of the country. This could be in terms of them not having adequate or proper access to education, skills training and job opportunities along with them being the victims of existing inequality in society. In many societies, like in Bangladesh, fascism and corruption defeated attempts to reach needy and underprivileged populations. If the OE is implemented in Bangladesh with a national mandate, it will recognise human potential, and open doors to creativity and innovation for all, thus creating opportunities for all to succeed.

The question of the Opportunity Economy arises because economic capitalism, trickle-down economics (supply side economics), fails to meet the aspirations of the masses in any society, whether it is affluent or impoverished. Trickle-down economics is defined as "economic policies that disproportionately favor the upper tiers of the economic spectrum", comprising of wealthy people and large businesses. US Vice-President Kamala Harris, also a 2024 presidential candidate, included the Opportunity Economy in her economic plan to meet the aspirations of common people, as trickle-down capitalism failed to meet the aspirations of people and communities who were left behind.

An Opportunity Economy is built on three pillars: first, there is inclusive growth, where all segments of the population or society have access to economic growth; second, there is access to education and skills development, meaning equal access to education, and skills to compete in the modern workforce; and third, entrepreneurship and innovation. When Dr Yunus said 'everyone in the world is an entrepreneur, he recognised the potential of individuals in villages and economically poor communities.

Among the countries implementing the opportunity economy are Singapore Denmark, Canada, New Zealand, and Sweden. These countries invest in creating opportunities for every segment of their societies and their primary areas of investment are education, skills training and supporting entrepreneurs and innovation.

Here is a list of alternative economic models that are being used to create opportunities and can be considered as OE initiatives:

1.Three Zero Economic System (Zero Unemployment, and Zero Net Carbon Emissions)

2.SDG (the Sustainable Development Goals)

3.OECD (Organization for Economic Co-operation and Development)-Bangladesh participates in UN sponsored SDG and is not a member of OECD

Three Zero initiatives-There are a few such significant initiatives under Dr Muhammad Yunus

Among these four approaches, the Three Zero Economic System and OECD initiatives are more aligned with Opportunity Economy than SDG.

Dr Muhammad Yunus's book, A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions, offers a new paradigm for an emerging economic system. The Three Zero Economy it speaks of is based on four key principles which are social business, microfinance, sustainable energy, and inclusive growth. It is a form of social capitalism, which incorporates "innovative social businesses designed to serve human needs rather than accumulate wealth".

The United Nations adopted the SDGs in 2015 and it consisted of a set of 17 goals to end poverty, protect the planet, and ensure peace and prosperity. The past corrupt Bangladesh government adopted the SDGs and showed that attempts were being made to achieve them. However, in the 2023 achievement report, there was no data on progress made, instead only reporting on goals to be achieved by 2030. All government departments, the parliament and the prime minister's office were involved. Yet, it did not involve the public and had no citizens' input, output, or reporting.

Thirty-eight member countries of the OECD created WISE (Centre on Well-being, Inclusion, Sustainability and Equal Opportunity) to focus on generating higher well-being, fewer inequalities, and better health for people. Though they consider GDP (Gross Domestic Product) as an important measure, they believe it fails to capture many aspects of human life along with activities in terms of well-being. They believe multiple measures are necessary to develop a holistic perspective, and as such, WISE reports include civic engagement, social connections, work-life balance, social safety, environmental quality, knowledge and skills, health, work and job quality, housing, and income and wealth. Businesses have a responsibility to make positive contributions to the society and meet stakeholder expectations and demands. In contrast, the SDGs are focused on development only. The OECD's comprehensive approach supports OE.

I believe that, under the leadership of Dr Muhammad Yunus, Bangladesh can be an ideal Opportunity Economy system with a public mandate. The country needs motivated, honest, and sincere people who are engaged in planning and implementing the new economy to create an inclusive and fair economic system that provides opportunities to all as the fruits of liberation.

Mawdudur Rahman, PhD is professor emeritus, Suffolk University, Boston, US.​

 

[Saif]

Will the country achieve high growth next year?

The World Bank recently announced Bangladesh's GDP growth rate for the ongoing fiscal year 2024-25 will decrease from 5.2 per cent in the previous fiscal year to 4 per cent. Earlier, the global lender had forecasted a GDP growth rate of 5.7 per cent for this period. The IMF has projected a...

en.prothomalo.com

Will the country achieve high growth next year?
By increasing government spending through local and foreign loans, GDP has grown rapidly. But increasing government debt does not lead to a decrease in GDP
Moinul Islam
Published: 29 Oct 2024, 11: 27

Bangladesh has become one of the world's countries with 'high income inequality' Prothom Alo

The World Bank recently projected Bangladesh’s GDP growth rate for the ongoing fiscal year 2024-25 will decrease to 4 per cent, which was 5.2 per cent in the previous fiscal year. Earlier, the global lender had forecasted a GDP growth rate of 5.7 per cent for this period. The IMF has projected a growth rate of 4.5 per cent. Many are trying to find fault with the interim government’s performance for this. After a mass uprising, it would not be surprising if GDP growth turned negative. In that context, these new forecasts are rather encouraging.

Over the last 15 and a half years, Hasina’s government has implemented a policy of increasing investment and government spending through various internal and external loans. The measures taken to artificially boost the country’s GDP resulted in an annual increase in the growth rate, which was not sustainable.

Despite taking foreign loans, private sector investment in proportion of GDP has fluctuated between 23 and 24 per cent over the past decade. However, GDP has increased as foreign and domestic loan funds have been spent on unnecessary projects. Government revenue collection in the country has decreased to 8 per cent of GDP. By increasing government spending through local and foreign loans, GDP has grown rapidly. But increasing government debt does not lead to a decrease in GDP.

According to a report published in the daily Bonik Barta on 7 August this year, the total internal and external debt of the Bangladesh government stood at over Tk 18.35 trillion as of 5 August 2024. In contrast, on 6 January 2009, when Sheikh Hasina assumed power, the total debt was only Tk 2.76 trillion. The difference in the figures is Tk 15.58 trillion.

“In 2009, Sheikh Hasina stated that the BNP has made a lot of money. Now we need to make money with two hands,” Sohel Taj, son of Bangladesh’s first prime minister Tajuddin Ahmad, quoted Sheikh Hasina as saying while making the allegation
Before fleeing the country on 5 August, Hasina left the country in a sea of debt amounting to Tk 18.35 trillion, while showcasing high per capita GDP growth. In 2024, the per capita debt burden exceeded Tk 100,000. For at least the next decade, the repayment of foreign loans will severely impact the economy.

Per capita GDP is obtained by dividing total GDP by the total population. Former finance minister Mustafa Kamal turned the Bangladesh Bureau of Statistics into a hub for “data doctoring” during his tenure as planning minister. Under his directive, the bureau began to inflate total GDP while understating the population figures.

Over the last decade, Hasina’s government has garnered praise both at home and abroad by promoting stories of high GDP growth. However, much of this was fictitious and baseless. The concept of per capita GDP itself is fundamentally flawed. Its most serious limitation is that it obscures income distribution disparities between a small number of wealthy individuals and the majority of low-income and marginal people. This means that if the income of a multimillionaire is averaged with that of a poor person with zero income, the latter’s per capita income would appear in millions.

If income inequality increases alongside per capita GDP growth, the benefits of GDP growth accumulate in the hands of a few wealthy individuals, leaving the majority deprived of their fair share. One way to measure this inequality is through the Gini coefficient. When everyone’s income is equal, the Gini index is zero; if all income is concentrated in one person’s hands, the index will be one. The greater the index between these two limits, the more inequality exists.

In Bangladesh, the Gini coefficient was 0.36 in 1973. It increased steadily from the 1980s to reach a staggering 0.499 in 2022. A Gini coefficient above 0.5 categorises a country as having “high income inequality”. Therefore, it is undeniable that by 2024, Bangladesh has become one of the countries with “high income inequality”.

This strategy of artificially increasing the GDP growth rate through excessive borrowing has plunged the entire nation into a massive long-term debt crisis. This is particularly dangerous because a significant portion of this debt has simply been siphoned off abroad through capital flight. Capital flight became the “number one problem” during Hasina’s tenure. A New York-based research organisation, Global Financial Integrity, claims that from 2009 to 2024, approximately $149.20 billion has been siphoned off from Bangladesh.

Hasina’s authoritarian regime has crafted a narrative of impressive per capita GDP growth for the past 15 and a half years, while looting the country and transferring most of the wealth abroad. Allegations of capital flight are particularly directed against many associated with the Sheikh family, alongside corrupt oligarchs, politicians, and bureaucrats. “In 2009, Sheikh Hasina stated that the BNP has made a lot of money. Now we need to make money with two hands,” Sohel Taj, son of Bangladesh’s first prime minister Tajuddin Ahmad, quoted Sheikh Hasina as saying while making the allegation.

Now, during the interim government, capital flight has significantly decreased. Consequently, both private sector investment and government expenditure are expected to decline considerably in the current fiscal year. So, the GDP growth rate is also expected to drop.

Additionally, political instability following protests and uprising in July, August, and September, coupled with production crises in the garment sector, has disrupted overall output. These negative effects have harmed GDP growth. Thus, if the growth rate falls to 4 per cent or 4.5 per cent this fiscal year, it would not be surprising.

However, there is also reason for hope. Under the leadership of professor Yunus, the government is adopting and implementing appropriate policies to steer the banking sector and the overall economy back on track. Due to professor Yunus’ personal reputation, approximately US $10 billion in foreign aid is expected to flow into the economy within the next few months. This assistance will boost the country’s foreign currency reserves by several billion dollars. Bangladeshi expatriates have created a surge in remittances sent through formal channels. If this trend continues, the economy is bound to see positive changes.

Most importantly, the current government is patriotic and committed to remaining free from corruption. Therefore, it is logical to expect that in the upcoming fiscal year, the country will return to the path of high growth.

* Dr. Moinul Islam, is an economist and former professor at the Economics Department, Chittagong University.​