[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

REDUCING INCOME DISPARITY: Rural development for balanced economic growth

New Age, a Dhaka-based leading English language daily newspaper, is a major source of news of Bangladesh and international affairs

www.newagebd.net

REDUCING INCOME DISPARITY: Rural development for balanced economic growth
Imran Hossain 27 February, 2025, 00:00

OVER the past few decades, Bangladesh has achieved tremendous progress in reducing poverty and economic progress with consistent gross domestic product growth and improvements in human development indicators, scoring 0.67 according to a report of UNDP in 2022, positioning it at 129 out of 193 countries and territories in the world. However, not everyone has benefitted from this expansion, with rural areas frequently falling behind urban centres in terms of economic possibilities, amenities, and service accessibility. Promoting rural development must be a top priority if balanced and sustained economic growth is to be attained.

State of income inequality

INCOME inequality in Bangladesh is apparent, with a Gini coefficient of 0.5 in 2022, indicating a substantial level of income disparities. The Gini coefficient, a measure of income inequality where 0 denotes perfect equality and 1 per fect inequality, has demonstrated persistently high levels in Bangladesh. While urban areas have benefitted from industrialisation, export-oriented manufacturing and service sector growth, rural areas remain over-reliant on agriculture, which employs 40 per cent of the labour force but only contributes roughly 13 per cent of GDP. This disparity is intensified by restrained access to education, healthcare and financial services in rural regions, perpetuating a cycle of poverty and inequality. According to the Bangladesh Bureau of Statistics report on the households income and expenditure survey in 2022, the richest 10 per cent of the population hold 41 per cent of the nation’s total income, while the poorest 10 per cent hold just 1.31 per cent. Consequently, this income disparity caused wealth inequality which denotes 0.84 in 2022 from 0.82 in 2016.

The World Bank reports that per capita income in rural areas is nearly half that of metropolitan areas, meaning that rural households make much less than their urban counterparts. Additionally, rural people are disproportionately impacted by environmental degradation and climate change, which increases their vulnerability and widens the income disparity.

Impression of rural development

RURAL development is one of the main forces for balanced economic growth and poverty alleviation. Rural areas are home to nearly 65 per cent of Bangladesh’s population, and agriculture remains the backbone of the rural economy, employing around 40 per cent of the rural labour force. Bangladesh can create a fairer society by addressing the structural barriers that hinder rural prosperity. Rural development not only improves the livelihoods of rural populations but also contributes to national economic growth and long-term economic sustainability by unlocking the agricultural sector’s potential, fostering entrepreneurship, and generating new markets.

Drawbacks

DESPITE some positive initials on rural development to foster balanced economic growth, our nation has some drawbacks to implementing economic sustainability in rural areas. Bangladesh’s agriculture is mostly dependent on traditional practices, with little use of contemporary technologies. Low yields result from smallholder farmers’ frequent lack of access to high-quality seeds, fertiliser, and irrigation equipment. Food security is also at risk from regular floods, cyclones and salinity intrusions, making the sector extremely vulnerable to climate change.

Flawed road networks, restricted access to energy and a lack of storage and processing facilities are just a few of the problems that rural communities face due to their inadequate infrastructure. These shortcomings restrict rural producers’ access to markets, raise production costs and impede the effective flow of goods and services.

Institutional financial services are frequently unavailable to small enterprises and people in rural areas. The Bangladesh Bureau of Statistics reports that only 34 per cent of rural adults have access to formal banking services, compared to 52 per cent in urban areas.

There are also notable differences in education and skill development between rural and urban communities. There are fewer options for non-farm work and income diversification in rural Bangladesh due to the lower literacy rate of 64 per cent compared to 74 per cent in metropolitan areas. On the other hand, climate vulnerability is a curse for rural farmers in Bangladesh. Rising sea levels, unpredictable rainfall and extreme weather events endanger livelihoods and food security, disproportionately affecting rural areas.

Initiatives

THE government and private sector should make investments in cutting-edge farming technologies including precision agriculture, high-yield crop types and effective irrigation systems for agricultural modernisation and diversification. To give farmers the information and resources they need to implement new technologies, extension services should be improved.

Diversifying into high-value livestock, fisheries and crops can also increase rural earnings. Rural infrastructures such as roads, bridges, electrification, and digital connectivity — must be expanded to lower production costs and increase market accessibility. When it comes to funding and carrying out these projects, public-private partnerships projects can be quite important. For example, the ‘rural electrification and renewable energy development project’ has improved the quality of life and enabled economic activity by bringing electricity to more than 20 million rural households.

To foster entrepreneurship and investment, rural families and small companies must have greater access to credit and financial services. Digital financial services, mobile banking and microfinance organizations like Grameen Bank and BRAC can all aid in closing the gap, especially for women and underrepresented populations.

Developing efficient value chains and market linkages can help rural producers access larger markets and obtain better prices for their goods. E-commerce platforms and farmer cooperatives can play a significant role in connecting rural producers with urban and international markets. For example, the ‘digital initiative’ has enabled farmers to access market information and sell their produce online.

Rural communities can better adapt to climate change by investing in climate-resilient infrastructure, such as saline-tolerant crops and flood-resistant houses. Crop rotation, organic farming and agroforestry are examples of sustainable agricultural methods that can be promoted to improve livelihoods and the environment. A framework for incorporating climate resilience into projects aimed at rural development is offered by the ‘Bangladesh Climate Change Strategy and Action Plan.’

To guarantee that development projects are in line with the requirements of rural communities, local governance and community involvement in decision-making processes should be strengthened. Decentralisation of resources and authority can enhance the effectiveness of rural development programs. The ‘union parishad governance project’ has empowered local governments to deliver better services and promote inclusive development.

Role of technology

INNOVATION and technology have the power to revolutionize Bangladesh’s rural development. Rural communities can benefit from affordable and sustainable power from renewable energy technology, while digital platforms can enhance access to information, markets and financial services. Farmers have benefited from mobile-based agricultural advising services, such as the ‘agriculture information service,’ which have assisted them in making well-informed choices on pest management, irrigation and planting.

Rural development must be promoted to foster equitable and balanced economic growth. The nation can realise the full potential of its rural economy by tackling the issues that rural areas face and taking advantage of the opportunities that technology and innovation bring. A coordinated effort from the government and corporate sectors as well as civil society is required to guarantee that rural development becomes a pillar of Bangladesh’s development plan. Only then can the nation achieve its vision of becoming a prosperous and equitable society.

Imran Hossain is a lecturer in business administration at the Rabindra Maitree University, Kushtia.​

 

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Govt faces challenges not to default on foreign debts

The government is facing multiple challenges to maintain the country’s non-defaulting status in the current financial year after it had to struggle to pay $6.07 billion in overseas debts in the past financial year (2023-24).

www.newagebd.net

Govt faces challenges not to default on foreign debts
Shakhawat Hossain 27 February, 2025, 23:47

Country struggled to clear $6b foreign loans in FY24

The government is facing multiple challenges to maintain the country’s non-defaulting status in the current financial year after it had to struggle to pay $6.07 billion in overseas debts in the past financial year (2023-24).

Economists blamed wrong economic management by the Awami League government, which was ousted on August 5, 2024 amid a mass uprising, for the sharp rise in overseas debt payments in the past several financial years, including FY24.

The interim government that assumed power on August 8, 2024, has inherited the challenges like the fallout of a persistent devaluation of the local currency taka against the US dollar from the previous political regime.

Until the July-January period of FY25, the government’s debt payments rose by 33 per cent over the same period of FY24, according to the ERD update released on Thursday.

The financial year 2023-24 was the most inauspicious one as the government had to incur additional $1 billion in debt because of a sharp devaluation of the taka against the dollar, according to the Flow of External Resources into Bangladesh 2023-2024, a publication of the Economic Relations Division.

The chronic shortage of dollars caused the devaluation of the taka by about 35 per cent in the FY2022-23 and the FY 2023-24 with about 26 per cent alone in the FY 2022-23, the sharpest in 46 years.

The taka had suffered about 71 per cent devaluation in the FY 1974–75.

Former World Bank Dhaka office chief economist Zahid Hussain said that the devaluation of the local currency would continue to impact the overall debts in the coming years.

The interim government needs to take a more pragmatic approach to the challenge management, he said.

The annual ERD publication released this month said that the elevated global commodity prices due to the war in Ukraine and the synchronised global monetary policy tightening were the first two challenges making the external borrowing costly.

The publication mentioned borrowing from bilateral sources on non-concessional terms as the third challenge despite the fact that additional amount of budget support and project support was essential to address the finance recovery-related and regular projects.

The adverse situation deepened because of a phenomenal increase in external debts, still the government became able to conduct servicing its debts, said the publication.

In the FY 2023-24, external resources amounting to $10.74 billion were mobilised and the disbursement crossed the $10 billion mark for the third consecutive year.

However, the total amount for debt servicing jumped to $6.07 billion in the FY 2023-24 from $4.7 billion in the FY 2022-23, said the ERD publication.

Of the overall amount paid in the past financial year, $4.1 billion was paid for servicing the principal amount and the rest $1.9 billion for servicing the interest payment.

The ERD publication identified the devaluation of the taka against the dollar by about 35 per cent in the FY 2023-24 as the major factor causing the government to incur extra $1 billion in debts.

Liquidity risk, solvency risk and re-setting and interest rate risk have remained as major concerns for the government in the upcoming financial year, said the economists.

They said megaprojects implemented mostly with foreign loans by the Awami League regime had left the nation with concerns over the debt trap amid the questionable expected returns.

The views have also been expressed in the recently released ‘White paper on the state of Bangladesh economy’.

M Masrur Reaz, chairman of the Policy Exchange Bangladesh, said that the interim government needed to start negotiation over debt restructuring with it main creditors.

It is good to see that the interim government has already convinced China, the country’s third biggest bilateral creditor after Japan and Russia, to increase the repayment period of loan to 30 years from 20 years, he added.​

 

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Forex reserves rebound to $21b, propelled by export, remittance

Rising inflow of remittances and export receipts largely prop up Bangladesh's foreign-exchange reserves with the figure crossing the US$21-billion mark set in IMF arithmetic on the country's macroeconomic parameter. A sustained growth in export earnings also helped out. The country's expor

thefinancialexpress.com.bd

Forex reserves rebound to $21b, propelled by export, remittance
Remittances from expats growing, export earnings also help in reserves upturn over IMF-set mark
JUBAIR HASAN
Published :
Feb 28, 2025 00:23
Updated :
Feb 28, 2025 00:23

Rising inflow of remittances and export receipts largely prop up Bangladesh's foreign-exchange reserves with the figure crossing the US$21-billion mark set in IMF arithmetic on the country's macroeconomic parameter.

A sustained growth in export earnings also helped out. The country's export earnings in the first seven months (July-January) of the fiscal year (FY'25) increased by 11.68 per cent to $28.97billion, according to the data of the Export Promotion Bureau (EPB). Exports fetched $25.94 billion during the same period of time last fiscal (FY'24).

Apart from increased remittance netting, the central bank's current decision not to sell foreign currencies, the American greenback in particular, from its stock to commercial banks to facilitate the lenders to meet their overseas payments against imports helps in stopping forex bleeding, officials and bankers said.

According to the data with Bangladesh Bank (BB), the central bank, the country received remittances worth around $2.38 billion in the first 26 days of this February, nearly $200 million higher from the remittance receipts in the 31-day-long month of January 2025.

On the other hand, the banking regulator as part of its reserve-boosting move skipped selling the US dollar on the market. The BB in the last fiscal year (FY'24) sold $12.80 billion on the market but it sold only $1.10 billion until February 26th of this current financial year (FY'25).

The prudence pays off: the volume in the country's forex reverses continues rising to reach $21.08 billion in BPM6 calculation prescribed by the International Monetary Fund or IMF and $26.26 billion in BB count as on February 26, 2025, according to the data.

Even three days ago, the cumulative reserves size was below $21 billion in accordance with the calculation by the Bretton Woods institution.

Seeking anonymity, a BB official says they have been observing a significant rise in inward-remittance flow in recent weeks, bolstering the reserves stock.

"The way it (remittance flow) is growing, it could cross $2.50 billion this month. We're expecting more remittance in next month ahead of Eid-ul-Fitr," the official says.

Not only the remittance uptrend, the central banker says, the BB's decision not to sell dollars from the reserve contributes to preventing the forex depletion as the central bank did not sell anything from the reserves so far this month.

While briefing reporters to share latest data of classified loans in banks on Wednesday, BB Governor Dr Ahsan H. Mansur said the forex reserves kept rising gradually in recent times.

In accordance with the BPM6 calculation, he said, the reserves reached close to four months' import costs of the country, which was the target of the IMF. In terms of BB calculation, the reserves size is equivalent to over four months' import expenses.

Former lead economist of World Bank's Dhaka office Dr Zahid Hossain says the reserves dropped every two months after ACU (Asian Clearing Union) payment and that they have been observing some types of stability in the low level of the reserves for the last few months, which is good.

"But the puzzling matter is there are some allegations in the market that the regulatory policy is being tilted to state-owned commercial banks as far as exchange rates are concerned," he said.

"If the central bank is really in comfortable position, then why the dual policy is in place?" the noted economist questioned.​

 

[Saif]

FINANCIAL SECTOR: Avoiding sanctions trap

SANCTIONS have become a pressing issue in recent times, gaining renewed attention following the re-election of Donald Trump as president of the United States. Many countries and business entities fear that his administration...

www.newagebd.net

FINANCIAL SECTOR: Avoiding sanctions trap
by Mohammad Zonaed Emran 01 March, 2025, 00:00

SANCTIONS have become a pressing issue in recent times, gaining renewed attention following the re-election of Donald Trump as president of the United States. Many countries and business entities fear that his administration may impose stringent sanctions on political grounds, further weaponising economic restrictions to achieve foreign policy objectives. Sanctions are frequently used as a tool to exert pressure, serving economic and security goals without resorting to military intervention.

The impact of sanctions has been evident in recent years. Following Russia’s invasion of Ukraine in 2022, the United States imposed a series of measures targeting Russian individuals, entities, ports and ships. These included sectoral sanctions, asset freezes and restrictions on financial transactions. The exclusion of seven major Russian banks from the SWIFT system — a crucial network for international banking — further crippled the Russian economy, demonstrating the far-reaching consequences of such actions.

However, it would be naive to assume that only countries embroiled in major geopolitical conflicts face such risks. Bangladesh, despite its status as a developing nation, is not immune. There exists a perception that sanctions from international bodies such as the United Nations or the US Treasury’s Office of Foreign Assets Control are unlikely to directly affect Bangladesh. Yet history tells a different story.

In 2021, the administration of outgoing US president Joe Biden imposed sanctions on Bangladesh’s Rapid Action Battalion and six high-ranking law enforcement officials, citing human rights violations, including extrajudicial killings and enforced disappearances. The sanctions, imposed under the Magnitsky Act, placed the RAB and these individuals on the Specially Designated Nationals and blocked persons list. This move strained relations between Bangladesh and the United States, with the Bangladeshi government making repeated but unsuccessful attempts to have the sanctions lifted. Furthermore, before the last general election, the US government imposed travel bans on individuals accused of undermining the democratic process — an implicit sanction designed to curb election interference.

The sanctions against the RAB had a significant impact, leading to a notable reduction in human rights abuses and extrajudicial killings. Over time, the force’s authority diminished, underscoring the effectiveness of targeted sanctions in compelling behavioural change. However, Bangladesh’s vulnerability to sanctions extends beyond law enforcement. The country’s banking sector remains particularly exposed, especially if financial institutions fail to maintain stringent compliance with international sanctions regulations. Ensuring adherence to global financial norms is therefore critical to mitigating risks.

Sanctions, at their core, are an extension of foreign policy, employed to coerce targeted nations, entities, or individuals into altering their behaviour. They are often viewed as an alternative to war, offering a means of conflict resolution without direct military engagement. Their objectives range from promoting peace and preventing human rights abuses to discouraging illegal activities and exerting economic pressure.

Sanctions vary in nature, scope and purpose. Economic sanctions target a country’s financial and trade activities through restrictions such as trade bans, asset freezes and exclusion from global banking networks. Military sanctions impose arms embargoes and prohibit military aid. Travel sanctions restrict movement by imposing visa bans. Sectoral sanctions focus on specific industries, such as energy or technology, while targeted sanctions home in on individuals, corporations, or organisations. The most severe form, comprehensive sanctions, involves complete trade embargoes, as seen in US sanctions against Cuba and North Korea.

Sanctions can be imposed unilaterally by individual states or multilaterally through organisations like the United Nations or the European Union. International financial institutions such as the World Bank and International Monetary Fund may also enforce sanctions to ensure compliance with economic regulations. The targets of these measures are diverse, encompassing governments, individuals, corporations, economic sectors and even terrorist networks.

The consequences for sanctioned entities can be severe. Financial restrictions include asset freezes and blocked access to international banking. Trade limitations can prohibit imports, exports and investments. Travel bans restrict international movement, while blacklisting prevents companies and individuals from conducting business on the global stage. Violations of sanctions can result in criminal prosecution, hefty fines and irreparable reputational damage.

The extraterritorial reach of US sanctions adds another layer of complexity. American regulations often extend beyond its borders, impacting foreign entities conducting transactions with sanctioned individuals or nations. The case of Huawei, which faced restrictions on accessing American technology, illustrates this principle. Similarly, the French bank BNP Paribas was fined $9 billion in 2014 for violating US sanctions by processing transactions linked to Sudan, Iran and Cuba. Such examples highlight how sanctions enforcement transcends national boundaries, compelling international compliance with US policies.

A particularly potent mechanism is secondary sanctions, which target not only primary sanctioned entities but also third parties engaging with them. These measures deter businesses and governments worldwide from interacting with designated targets, effectively enforcing global compliance. The penalties for violating sanctions are steep, with financial fines reaching millions of dollars, asset seizures, restricted access to banking systems, export bans and even criminal prosecution.

Given the intricate nature of sanctions and their far-reaching implications, Bangladeshi financial institutions must take proactive steps to ensure compliance. Establishing a robust compliance framework is essential. Banks must implement rigorous customer due diligence procedures, verifying identities through know your customer protocols and screening transactions against global sanctions lists, including those maintained by Office of Foreign Assets Control, the United Nations and the European Union.

Advanced transaction monitoring systems should be in place to flag high-risk activities, such as trade with sanctioned countries or entities. Automated screening of financial messages, such as SWIFT transactions, can help identify suspicious dealings. Additionally, financial institutions must stay abreast of evolving sanctions regulations, subscribing to updates from international regulatory bodies and integrating policy changes into their compliance strategies.

Strengthening correspondent banking relationships is also crucial. Bangladeshi banks must collaborate with reputable global partners that maintain strict compliance with international financial laws. Avoiding transactions linked to sanctioned entities, particularly in high-risk jurisdictions like Iran or North Korea, is paramount. Furthermore, financial institutions must provide ongoing staff training to enhance awareness of sanctions risks, ensuring employees can identify red flags and respond appropriately.

Beyond the banking sector, the broader business community in Bangladesh must also remain vigilant. Companies engaged in international trade should establish internal compliance mechanisms, ensuring that suppliers, customers and business partners are not linked to sanctioned entities. Legal teams must conduct due diligence on contracts and transactions to avoid inadvertent violations that could lead to punitive measures.

By adopting these measures, Bangladeshi banks and businesses can safeguard their operations against sanctions-related vulnerabilities, maintain their standing in the global financial system, and uphold international regulatory standards. The evolving nature of sanctions underscores the importance of vigilance — compliance is not just a legal necessity but a strategic imperative for the country’s financial stability and international credibility.

Mohammad Zonaed Emran is a certified global sanction specialist.​

 

[Saif]

Hundred economic zones scaled down to five priority EZs

Bangladesh scales back its big-dream plan to establish 100 economic zones across the country by 2030 and the current government prioritizes five full-blown EZs to deliver the desired goods. It now focuses on select few zones "to maximize the attraction of foreign investment and impact on the count

thefinancialexpress.com.bd

Hundred economic zones scaled down to five priority EZs
FE REPORT
Published :
Mar 01, 2025 00:30
Updated :
Mar 01, 2025 00:30

Bangladesh scales back its big-dream plan to establish 100 economic zones across the country by 2030 and the current government prioritizes five full-blown EZs to deliver the desired goods.

It now focuses on select few zones "to maximize the attraction of foreign investment and impact on the country's economy", according to a top government official.

Bangladesh Economic Zones Authority (BEZA) planned to create 100 special economic zones across the country to promote economic growth and employment by 2030, according to a report published by fdi intelligence in its February-March issue.

Once completed, these EZs were envisaged to create 10 million jobs and provide a manufacturing base for US$40 billion worth of exports.

The plan was announced in 2010 by the ousted Awami League government soon after assuming power in 2009. But the reality was that only a small portion of the plan has been implemented.

Executive chairman of BEZA Ashik Chowdhury says that it will prioritize five economic zones to ensure they reach these goals.

The select five are National Special Economic Zone in Chattogram, Srihatta Economic Zone in Sylhet, Japanese Economic Zone in Narayanganj, Maheshkhali Economic Zone in Cox's Bazar and Jamalpur Economic Zone in Jamapur.

All are under development.

"Our commitment is to ensure that these zones are equipped with the necessary infrastructure and utility services," says Mr. Chowdhury.

He says water, electricity, gas, and road connectivity of the five zones will be made within next two years.

However, the Mirsharai economic zone or national special economic zone has already developed and there are many industrial units being built. It is built over 33,800 acres encompassing Mirsharaui and Sitakunda of Chattogram and Sonagazi of Feni. Trial production began there at several factories in the first half of 2022.

By September 2023, five factories had been in commercial production.

The BEZA was created under the Prime Minister's Office in 2010. The initial objective was to develop 100 EZs both at public and private initiatives.

The incentives structure for investment includes exemption of taxes and customs/excise duties, non-fiscal incentives, and issuance of work permits along with recommendation for residency or citizenship and no FDI ceiling.

After promulgation of the BEZA act in 2010, the establishment of export-processing zones or EPZs was discontinued . Currently Bangladesh has eight EPZs.​

 

[Saif]

What does high default loan mean for the economy?

At the end of 2024, one-fifth of the total loans in the banking sector turned into bad loans, mainly because the true extent of fund embezzlement by willful defaulters is now coming to light

www.thedailystar.net

What does high default loan mean for the economy?

At the end of 2024, one-fifth of the total loans in the banking sector turned into bad loans, mainly because the true extent of fund embezzlement by willful defaulters is now coming to light.

In actual terms, defaulted loans stood at Tk 3,45,765 crore—the highest on record. However, considering distressed assets—including written-off loans, rescheduled loans, and loans tied up in the Money Loan Court—the banking sector's situation is even more alarming, as distressed assets are almost double the amount of bad loans.

It is now evident who is responsible for draining funds from banks and pushing the sector into distress. Bangladesh Bank Governor Ahsan H Mansur has repeatedly said that some politically influential individuals took the funds and laundered them abroad.

In some cases, loans turned bad due to business struggles amid global economic pressure from the Russia-Ukraine war. Banks can absorb such shocks through their own financial strength.

However, it becomes difficult to withstand the surge in bad loans caused by willful defaulters, especially when they operate under political protection.

Who pays the price?

Ultimately, innocent depositors, honest borrowers, and minority shareholders bear the brunt of bad loans.

If the central bank prints money to keep struggling banks afloat or if the government provides budgetary support to state-run banks, taxpayers and the general public suffer.

Before assessing how the burden is distributed, it is crucial to compare Bangladesh's bad loan scenario with that of other countries.

In India, the proportion of bad loans to total loans dropped to 2.5 percent at the end of September 2024, according to the Reserve Bank of India.

The non-performing loan (NPL) ratio was below 5 percent in Vietnam, 8.4 percent in Pakistan, and 3.7 percent in Nepal. Even in crisis-ridden Sri Lanka, the NPL ratio was 12.8 percent.

War-torn Ukraine recorded a 30 percent NPL ratio, while Ghana's stood above 24 percent—both higher than Bangladesh's.

How do rising bad loans impact the economy?

When NPLs increase, banks must keep higher provisions, which directly hit their profitability. Lower profits limit a bank's ability to pay dividends to shareholders.

High NPLs also reduce banks' interest income. To compensate for the loss and continue paying depositors, banks either raise lending rates or lower deposit rates—both of which negatively impact businesses and savers.

While all stakeholders suffer, willful defaulters continue to benefit by siphoning off money without consequences.

The crisis does not end there. Recently, the central bank provided around Tk 22,000 crore in liquidity support to troubled banks to ensure they could meet withdrawal demands.

Such measures come at a significant economic cost, particularly by fueling inflation. Economists strongly criticise these fundings as they have a cascading effect on inflation, but the central bank had little choice to prevent panic in the banking sector.

To keep state-run banks afloat, the government has injected hundreds of crores of taka through the national budget, effectively using taxpayers' money to cover default loans. These funds could have been directed toward education, healthcare, or other essential sectors.

A shrinking credit market

High NPLs also make banks more cautious in lending, limiting access to credit for businesses and individuals. Small and medium enterprises (SMEs), which depend heavily on bank loans, are the worst affected, slowing overall economic growth.

Already, banks are shifting their focus to treasury bonds, as these provide guaranteed returns without the risk of defaults.

Foreign investors and credit rating agencies see high NPL ratios as a sign of systemic risk, discouraging foreign investment and increasing borrowing costs for the country.

"When defaulted loans rise, banks must keep higher provisions, reducing their capacity to issue new loans," said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development.

For instance, a bank has Tk 100 in assets. It gave a loan of Tk 20, which became sour. So it now has Tk 20 worth of defaulted loans, for which it must set aside Tk 20 as provisions. So the bank's capacity for fresh lending comes down to only Tk 60 now.

Moreover, high NPLs incentivise good borrowers to delay repayments, further weakening the financial sector. "With rising bad loans, banks are becoming financially weaker, which ultimately shrinks their contribution to the economy," Mujeri added.

A fragile financial sector with limited credit availability hinders a country's economic development. To address this crisis, the government must take strong measures to control bad loans.

"There should be a concerted effort to prevent new default loans and recover existing ones," Mujeri said.

The way forward

To improve the situation, banks must adopt better governance, enforce legal actions against defaulters, enhance risk management, and strengthen regulatory oversight.

Most importantly, eliminating political influence in the banking sector is crucial for restoring discipline and stability.​

 

[Saif]

Bangladesh’s bad loan saga

Non-performing loans (NPLs) in Bangladesh soared by Tk 1.34 lakh crore in the second half of 2024, reaching Tk 3.45 lakh crore by December.

www.thedailystar.net

Bangladesh’s bad loan saga

Non-performing loans (NPLs) in Bangladesh soared by Tk 1.34 lakh crore in the second half of 2024, reaching Tk 3.45 lakh crore by December.

Governor Ahsan Mansur mentioned that after the fall of the Awami League government in August, previously concealed defaulted loans began to come to light.

The current volume of defaulted loans accounts for 20.2% of the banking sector's total loans. There is every hunch that the exact figure may be much higher if we apply qualitative judgement here.

NPLs stood at Tk 2.11 lakh crore at the end of June 2024, accounting for 12.56% of total loans, when the Awami League was in power. According to Bangladesh Bank (BB) data, in December 2023, NPLs stood at Tk 1.45 lakh crore, accounting for 9% of the total bank loans at that time.

The surge in bad loans follows the end of Sheikh Hasina's 15-year-plus rule that allowed banks to conceal the real picture of bad loans through various "window dressing" efforts.

The central bank governor also said the rise in NPLs is largely due to the end of a long-standing lack of transparency in reporting bad loans and recent changes in loan classification policies.

So what is changing now? Previously, loans were classified as overdue after 270 days, but the timeframe has now been reduced to 180 days. Furthermore, starting from April 2025, loans will be classified as non-performing within just 90 days.

As of December 2024, at least 42% of total loans in state-owned banks were classified as non-performing, while 15% of total loans in private banks were non-performing, said the governor, warning that with this new strict policy, NPLs are expected to rise even further in the coming months.

Early February, the BB announced its monetary policy for the January-June period of the ongoing fiscal year. According to its monetary policy statement, NPLs in the banking sector are expected to exceed 30% by June this year, if not more.

Factors contributing to the rise in NPLs include systemic weaknesses, regulatory gaps, and exploitative practices such as money laundering and illicit capital flight, the statement stated.

In the last six months, both new loan disbursement and loan renewals have decreased in banks, while the amount of defaulted loans has increased. Additionally, many loans have defaulted due to the reduction in the overdue period for term loans.

Analysts also attribute the NPL increase to the reinstatement of international standards for defining NPLs. These stringent measures, which were suspended during the pandemic in 2020, have provided a more accurate, though sobering, assessment of banking health.

The increase in default loans is due to several factors. One key reason is that banks previously classified loans as regular for many influential customers whose loans were actually in default. Now, those loans are being classified as defaulted again.

Some loans have become defaulted because the central bank has aligned its loan classification process with international standards.

It is also true that many borrowers couldn't repay their loans due to student protests and internet outages in July and August last year. The SME sector has been severely affected, leading many customers to default. Additionally, many plants have struggled to operate properly due to insufficient gas and electricity supply. Prolonged unrest in RMG belts could be another reason. Besides, massive depreciation of taka against the greenback also impacted the importing clients very badly.

However, there is no denying that the true extent of defaulted loans must be revealed to gain proper visibility. Only then can appropriate reform measures be taken.

The writer is the chairman of Financial Excellence Limited​

 

[Saif]

Enhancing transparency in public procurement

A sound public procurement system that prevents corruption through enhanced transparency and accountability, if ever implemented substantively and meaningfully, can bring multifarious benefits. It can remedy the problem of corruption in the public procurement process. It can maximise value for taxp

thefinancialexpress.com.bd

Enhancing transparency in public procurement
Atiqul Kabir Tuhin
Published :
Mar 01, 2025 22:04
Updated :
Mar 01, 2025 22:04

A sound public procurement system that prevents corruption through enhanced transparency and accountability, if ever implemented substantively and meaningfully, can bring multifarious benefits. It can remedy the problem of corruption in the public procurement process. It can maximise value for taxpayers' money by ensuring that the government obtains necessary goods and services and the people are benefitted. It can also stimulate the economy and build overall confidence in government. But even after a decade of the introduction of an Electronic Government Procurement (e-GP), the public procurement process remains riddled with corruption.

A recent study of Transparency International Bangladesh (TIB) has shed light on the troubling state of government procurement in the country. It reveals that the sector is held hostage to monopolistic contractors who dominate the system through collusion, political influence, and market capture. The study shows that in the Ministry of Housing and Public Works, the top 5 per cent of contractors control nearly 75 per cent of the total project value. In the Road Transport and Highways sector, a mere 11 per cent of contractors control a staggering 93.55 per cent of the total project value. Such monopolistic practices not only reduce competition but also inflate costs, compromise project quality, and limit opportunities for new contractors.

As part of the ongoing reform initiative of the public procurement system, the government is reportedly contemplating to abolish the 10 per cent bidding cap. This cap, which disqualifies any bid that exceeds or falls below the quoted price by more than 10 per cent, was initially introduced to prevent contractors from submitting abnormally low bids to secure contracts. This measure, however, has created new avenues for corruption. Contractors have exploited this cap by submitting bids exactly 10 per cent below the quoted price, which indicates collusion and potential information leakage. The exact quoted price is supposed to remain confidential, but some officials disclose this information in exchange for bribes, allowing certain contractors to gain an unfair advantage. Furthermore, when multiple contractors submit identical bids, the contract is awarded through a 300-mark metrics, which predominantly favours those who have won previous contracts. Thus the bidding process systematically prevents the entry of new bidders, while certain parties keep getting multiple projects. Abolishment of the 10 per cent bidding cap is, therefore, could be a welcome move to make public tendering process more competitive.

Then again, removal of the 10 per cent cap raises concern about the resurgence of the old problem of contractors colluding to propose abnormally low prices. The authorities will have to devise a strategy to deal with the abnormally low bids as well, because entertaining such bids may lead to substandard work. In this regard, the Korean model, which involves averaging the prices of all submitted bids and awarding the contract to the bidder whose price is closest to the average, may offer a viable solution. This could be a potential way to mitigate the risks of both underbidding and overpricing.

Overall, there is a need for systematic reform and targeted measures at every stage of the supply chain. Corruption in the procurement process often starts with the deliberate inclusion of biased specifications that favour specific suppliers. Biased conditions in the tender document or vague specifications often undermine fair competition. Therefore, it is crucial to ensure that tender specifications are reviewed and validated by independent experts. Additionally, drafting tender conditions and technical specifications in a clear, comprehensible manner and publishing all relevant information on digital platforms can encourage broad participation. However, reforms in selection processes alone will not be enough. Rigorous supervision and monitoring of project execution are crucial to ensuring accountability and adherence to standards.

Bangladesh spends approximately US$30 billion annually on public procurement, constituting around 45 per cent of the national budget and 85 per cent of the Annual Development Programme (ADP). Given the magnitude of this expenditure, a transparent and accountable procurement system is crucial for effective utilisation of government funds. Otherwise, corruption in the procurement process will continue to drain the public exchequer.​

 

[Saif]

Bangladesh faces higher inflation risk

The interim government has been working hard over the last six months or so to guarantee political stability conducive to undertake economic repair work of macroeconomic crisis that it has inherited from the corrupt Hasina regime. This will be a difficult task to achieve in the foreseeable future g

thefinancialexpress.com.bd

Bangladesh faces higher inflation risk
Muhammad Mahmood
Published :
Mar 01, 2025 21:43
Updated :
Mar 01, 2025 21:43

The interim government has been working hard over the last six months or so to guarantee political stability conducive to undertake economic repair work of macroeconomic crisis that it has inherited from the corrupt Hasina regime. This will be a difficult task to achieve in the foreseeable future given the extent of the crisis. The interim government also needs to move forward to undertake a series of necessary reform measures to create a conducive environment for an enduring democratic system to function in the country.

This will be a stupendous task for the interim government given the country's tumultuous history since independence in 1971. Bangladresh's political landscape since then has been marked by one-party rule, military coups, and a gradual erosion of democracy under civilian governments reaching the point where for 15 years and a half until early August last year, the country was ruled by a highly corrupt and repressive authoritarian regime with a democratic pretence.

Bangladesh's annual inflation rate slowed to 9.94 per cent in January 2025 from 10.89 per cent in December 2024. This marked the lowest inflation rate since September, as prices moderated in most of the sub-indices; yet according to a World Economic Forum (WEF) report released on January 15, inflation has been identified as the biggest risk to Bangladesh in 2025.

Inflation will likely remain above the central bank's target rate of 7-8 per cent which was jacked up from the previous target of 6.5 per cent in February. Raising the inflation target may allow the central bank to adopt a looser monetary policy, but that will not solve the problem.

Bangladesh Bank maintained its policy rate at 10 per cent due to persistent high inflation at its February monetary policy meeting. The upcoming national elections may contribute to political uncertainty, causing high inflation. As a result, Bangladesh Bank is expected to hold its policy rate until the end of FY2024-2025.

The way in which monetary policy affects inflation and the real economy -- output and employment -- is referred to as the monetary policy transmission mechanism. The transmission from the policy rate to inflation works its way through the financial system via many channels into economic activity, with some degree of uncertainty about the timing and size of the impacts. One important element of the transmission mechanism is the bank lending channel, where market rates transmit to lending rates making borrowing for firms and households more expensive and savings more attractive.

Inflation has put a squeeze on private consumption, and cost of living pressures are still the defining challenge for most people in Bangladesh. So, the fight against inflation must remain the highest priority of the government. Rising inflation is also contributing to the higher cost of production.

As inflation continues to hover around 10 per cent (which many consider an underestimate), real wages are falling to keep pace with inflation and millions are facing food insecurity.

The inflationary surge was largely driven by rising food and fuel prices and the depreciation of the taka. The rise in food inflation could have resulted from developments in global commodity markets. Generally, when inflation is rising, it generates conditions appropriate for further price rises, thus increasing inflation risk.

Inflationary pressures are likely to continue in 2025 in Bangladesh. This is because of supply disruptions, high exchange rate of the US dollar, balance of payment deficits and delayed pass through of higher food and energy (of which Bangladesh is a net importer) prices to the rising price pressures.

According to the IMF, global food crisis may persist with prices still elevated. Despite a slight decrease in the general inflation rate in the last four months, food inflation remains stubbornly high, exceeding 12 per cent in December, which is hitting the country's 170 million people hard. On a monthly basis, consumer prices rose 0.15 per cent, rebounding from a 1.02 per cent fall in December 2024. High inflationary pressure disproportionately affects low-income households.

While economic theory is unsatisfactory about the root causes of and cures of chronic inflation, it is also well understood that it is not a natural phenomenon. Also, inflation does not proceed equally throughout the economy. However, we do know that real or monetary factors push up specific prices, wages, or interest rates. As these specific changes spread across an economy; consumers, producers and the governments respond accordingly. Overtime, the net outcome of these differing responses is the inflation rate.

Also, the relationship between inflation and growth remains inconclusive both in theory and empirics. However, there is a consensus that growth rates and inflation rates have a long-run relationship.

The current spate of inflation in Bangladesh has largely been attributed to costs transmitted by disrupted supply chains enabling large importers and domestic businesses to jack up prices far more than the transmitted increased costs notwithstanding hoarding by domestic business syndicates adding to further supply disruptions.

The government led by Hasina during its corrupt rule borrowed heavily from the central bank as it failed to mobilise adequate revenue to pay for its grandiose projects. This also stoked inflationary pressures as it put more money into circulation. These grandiose projects were also used by her and her family members and cronies to amass massive wealth through commissions and kickbacks.

In Bangladesh as inflation surged, it led to losses of purchasing power negatively impacting production. This is generally called stagflation which is the core of the problem faced by the central bank. If the central bank raises policy rate to fight inflation, that will further slowdown the economy and may lead to a recession.

Bangladesh Bank is also faced with further dilemma with the banking sector which is on the precipice of crisis. There is a mounting liquidity crisis faced by the banking sector mostly arising from massive burden of non-performing loans. According to the Financial Express (February 27) the volume of non-performing loans hit a record level to Taka 3.45 trillion by the end of December 2024, accounting for 20.20 per cent of total loans issued by commercial banks in the country. This banking crisis has already shaken Bangladesh's standing in the global financial stage and left the country in a fragile position.

In late last August, the Bangladesh Bank governor declared that the central bank would avoid "printing money" as a solution to the liquidity crisis faced by the banking sector to curb inflation. But by late November, it backtracked on its decision and began injecting liquidity into the banking system. This additional liquidity flowing into the banking system will interfere with the central bank's policy to fight inflation.

To add a further twist to the banking crisis, the Anti-Corruption Commission (ACC) in Bangladesh on February 20 filed a case against a former central bank governor accusing him and 23 others of embezzlement. Between 2009 and 2016, during the tenure of this very governor at Bangladesh's central bank, US$81 million was stolen from the bank's account at the Federal Reserve Bank of New York in a significant cybre-heist.

This central bank governor is among several other governors and high-level officials of the central bank whose activities are being investigated for financial corruption and fraud. Some are already in detention and one former governor is on the run. Bangladesh Bank was possibly the most corruptly-run central bank in the world during the previous Hasina regime. As a result, the country's banking system is currently experiencing not only a serious liquidity crisis but also this can lead to a significant financial crisis.

The current governor of the central bank has accused the tyrannical government of Hasina engineering the massive laundering of money estimated at US$17 billion out of the country often with the help of a military intelligence agency to accumulate assets overseas illegally.

Corruption and politicisation both in the central bank and financial institutions have led to a severe trust deficit, undermining public confidence at a time when inflation and economic pressures are already on the rise. Therefore, policy makers must clearly express that the current level of inflation is standing in the way to stabilise the economy, notwithstanding the severe financial hardship being experienced by most people in the country. Therefore, they wish to reduce it. Hence. Bangladesh Bank must take concrete measures, including with regard to the policy rate to curb inflation. Addressing inflation also requires the government to implement various other measures, including providing cost-of-living relief, investing in economic capacity such as skills, energy efficiency, and infrastructure, enhancing productivity, and improving the Budget's condition.

​

 

[Bilal9]

Alam also spoke on the Karnaphuli tunnel project in Chattogram, which connects Patenga on the river's west bank to Anwara on the east.

Built at a cost of Tk 10,689 crore, the 3.32-kilometre tunnel was opened to traffic on October 28, 2023.

He said the tunnel was not necessary under present circumstances and the expenditure was "wasteful".

There is barely any economic activity on the other side of the river and the burden of this "wasteful" expenditure has now fallen on all citizens, he said.

I don't agree with the Chief Adviser's Press Secretary Shafiqul Alam on this subject. Typical "Mukhostho Bidya" intellect and understanding, sadly.

AL leaders and MPs did get benefitted but that was not the only benefit. The tunnel was necessary.

The port (and jetties) are on the Western bank of the Karnaphuli and the Korean EPZ (as well as the Chinese EPZ) are on the other bank (Eastern bank). There may be more EPZs necessary on that Anowara side where factories will be located.

1. Given that jetties on that Eastern bank may not be built yet, how will the manufactured goods made in the Korean EPZ and the Chinese EPZ get to the port? The tunnel is the closest and most convenient solution.
2. More over - how will stuff unloaded at the Matarbari deep sea port get to Chittagong (or Dhaka and the rest of the country) when container port is finally built in Matarbari? Bridges to cross the Karnaphuli are neither modern nor in enough numbers for container traffic.
3. They are envisioning building more jetties near the Korean EPZ - connectivity is crucial.
4. Building the tunnel now was at least 50% cheaper than waiting and trying to build it 20 years later when we would really need it. This is called advanced roadway planning using GIS.
5. True that we have to run the tunnel at a slight loss for now, however you don't build critical infra like this every day, and the loss money will be recouped once traffic starts building, in no time flat. The tunnel's working life will be in the span of at least 50~60 years.

In my neck of the woods in Los Angeles, they can easily predict (using GIS) how many people will live in a neighborhood and what the residential and commercial traffic will be 20 years later (for road and infra planning purposes). They can even tell how many people are Muslim or Hindu or Buddhist in a specific neighborhood, what their income is and how many grocery trips they make in a month and how far (this is connected with road use, and commercial road traffic is similarly computed). The company involved is called ESRI. I am sure such a traffic feasibility study was done for the tunnel.

Esri Technology | GIS Software & Location Technology

Esri builds ArcGIS software, the leading mapping and spatial analytics technology designed to support organizations of any size. Create maps, analyze data, share and collaborate.

www.esri.com

This Alam guy has no idea for a strategic overall view. And a long-term one.

 

[Saif]

Record February: remittances climb 25% to $2.52b

Remittances have become a much-anticipated relief for the economy reeling under macroeconomic stress, growing steadily since August last year and providing the interim government with a breather amid a rapid erosion of foreign exchange reserves.

www.thedailystar.net

Record February: remittances climb 25% to $2.52b

Remittances have become a much-anticipated relief for the economy reeling under macroeconomic stress, growing steadily since August last year and providing the interim government with a breather amid a rapid erosion of foreign exchange reserves.

Last month, remittance inflows to Bangladesh rose by 25 percent year-on-year to $2.52 billion, as migrant Bangladeshi workers sent larger-than-expected amounts to their families back home for Ramadan related purchases and Eid shopping.

"This is the highest-ever remittance inflow in February in Bangladesh's history," said Arief Hossain Khan, spokesperson for the central bank.

In the eight months to February this year, inward remittances recorded a 23.8 percent year-on-year growth, according to Bangladesh Bank (BB) data.

Bangladesh received a total of $18.49 billion in remittances in the eight months, up from $14.93 billion in the same period the previous year.

"The surge in remittances is positive news, as it strengthens foreign exchange reserves and helps stabilise the exchange rate," said Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), a leading civil society think tank in Bangladesh.

He said higher remittance inflows are also a relief for the government, as they ease the country's debt servicing burden.

When the interim government took office in early August last year, gross foreign exchange reserves were falling rapidly.

According to BB data, the country's forex reserves reached a record high of $48 billion in August 2021 but declined to $25.92 billion by July 2024.

Over the three years leading up to August 2024, local currency Taka weakened by 42 percent.

Foreign exchange reserves were so depleted that many banks struggled to open letters of credit (LCs). However, the situation has improved somewhat and the erosion of reserves has slowed, due mainly to strong remittance inflows and export growth.

As of 27 February 2025, foreign exchange reserves rose by 1.5 percent year-on-year to $26.13 billion. Under the BPM6 calculation method, reserves increased by 1.8 percent to $20.90 billion, according to BB data.

"Remittance inflows may rise next month as well," said Rahman, adding that remittances usually remain strong during Ramadan and peak before Eid.

According to central bank data, Bangladeshi migrants sent home $153 million in the last two days of February (27-28), indicating a surge in remittance inflows ahead of Ramadan.

"On the other hand, informal money transfer channels such as hundi and hawala have been disrupted since the fall of the Sheikh Hasina government, leading to more remittances being sent through formal banking channels," Rahman added.

In the last five and a half years, around 46 lakh Bangladeshis have gone abroad, contributing to the increase in remittance inflows. Initially, some struggled to find stable jobs, but many have now settled into their roles and are sending money home regularly.

According to central bank data, Bangladesh recorded its highest-ever monthly remittance inflow of $2.64 billion in December last year.

The second-highest monthly inflow was $2.59 billion in July 2020, while the third-highest was $2.54 billion in June 2024, the data showed.

To further increase remittance inflows, Professor Rahman suggested focusing on sending skilled workers abroad and ensuring they are placed in suitable jobs.

"The government needs to identify which countries require specific skills and send trained workers accordingly," he said.

For instance, Saudi Arabia is set to host the FIFA World Cup in 2034. To organise such a large event, it will make significant investments, creating job opportunities. Bangladesh should anticipate this demand, he added.

The economist also emphasised market diversification, suggesting that Bangladesh explore opportunities in countries such as South Korea and Japan.​

 

[Saif]

Recalibration of SEZ plan is timely

The interim government's decision to abandon the previous Awami League government's over-ambitious and unrealistic plan for 100 economic zones, and instead prioritise the development of five strategically selected zones, is a prudent and commendable move. The AL government's so-called 100 economic-

thefinancialexpress.com.bd

Recalibration of SEZ plan is timely
Published :
Mar 02, 2025 22:23
Updated :
Mar 02, 2025 22:23

The interim government's decision to abandon the previous Awami League government's over-ambitious and unrealistic plan for 100 economic zones, and instead prioritise the development of five strategically selected zones, is a prudent and commendable move. The AL government's so-called 100 economic-zone project was not only impractical, but also promoted as a political agenda. The project was clearly destined to fail, had the AL even remained in power. This was because of the administration's focus on quantity over quality, coupled with a whimsical project implementation strategy, which undermined the project's potential. Notably, for well over a decade, the AL government touted the establishment of 100 SEZs by 2030, yet only a few zones showed visible progress before its tenure ended amidst a mass uprising on August 5, 2024. Moreover, the politically motivated selection of SEZ sites led to corruption and irregularities, with numerous sites selected in areas with minimal prospects for the viability of a SEZ. It also resulted in the widespread acquisition of agricultural land and river encroachment. The decision to ditch the plan, therefore, couldn't have come sooner.

In contrast, the interim government's decision to concentrate on five key economic zones - the National Special Economic Zone in Chattogram, Srihatta Economic Zone in Sylhet, Japanese Economic Zone in Narayanganj, Maheshkhali Economic Zone in Cox's Bazar, and Jamalpur Economic Zone in Jamalpur - demonstrates a more pragmatic and realistic understanding of the development of SEZs for economic purposes. By focusing on a select few of high-potential zones, the government can allocate resources more effectively for their timely development, ensuring that they are equipped with the necessary infrastructure, utilities, and support services to attract foreign investors.

However, the planned development of SEZs alone is not enough to attract a healthy flow of foreign investment. The government must also address the underlying issues hindering business operations in Bangladesh. Investors face a series of obstacles, chief among them being bureaucratic red tape, frequent policy flip-flops and political instability. The Bangladesh Economic Zones Authority (BEZA) and the Bangladesh Investment Development Authority (BIDA) have One Stop Service (OSS) platforms that cater to the needs of both local and foreign investors. While some progress has been made in enhancing systems and processes, the OSS remains far from a true "one-stop service." Investors still require access to 155 services across 44 institutions, while BIDA and BEZA can only expedite approximately 60 services from 23 institutions. For the remaining services, investors need to navigate cumbersome bureaucratic processes in various government offices, due to the lack of agreements between the regulatory bodies and all service-providing agencies. So, the government must strengthen the OSS service.

Another major challenge facing foreign investors is the frequency of policy changes in Bangladesh, which disrupts business operations. While policy adjustments can be necessary, investors often allege that the government resorts to policy flip-flops without consulting private sector partners, leading to uncertainty and reduced profitability. Furthermore, foreign investors have long demanded a consistent tax policy in Bangladesh. However, tax policy changes almost every fiscal year, further complicating investors' decision-making and affecting business confidence. Therefore, while the interim government's recalibration of SEZ projects is a timely and necessary step, it must also address the broader issues hindering foreign investment. Ultimately, the government must ensure a more attractive investment climate by implementing regulatory reforms, improving infrastructure, and ensuring political stability.​