[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Expectations for a good budget

How do you define a good budget? Should it be all-inclusive? Should it be too large? Or should it only focus on the possible future of the nation and allocate more to education and healthcare?

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Expectations for a good budget

How do you define a good budget? Should it be all-inclusive? Should it be too large? Or should it only focus on the possible future of the nation and allocate more to education and healthcare?

One may also argue for creating more space for the people belonging to the bottom of the pyramid by expanding the social safety net.

With a lot of historic pinches on our revenue earnings as well as earnings from external sources, we all possibly agree on applying a bit more caution while delineating the fund deployment or allocation strategy through budget formulation and management of resources.

Senior citizens and development partners are already talking about maintaining austerity in government expenditures. In a country facing a revenue shortfall, there is no doubt that an all-out drive should be given to revenue generation.

However, as many agencies have recommended, given inflationary pressure, the ceiling for tax-free individual income should be increased. This, on the face of it, may deprive the government from some tax revenue but this can easily be made up by efficient taxation and management and relooking at the tax exemption parameters.

First, the collection should be improved through the adoption of various means followed in similar countries. Second, some sectors have been getting tax exemptions for many years. There should no doubt be an end to that. There must be a sunset clause to end such tax exemption.

This will also help the government to prepare for its graduation from the least-developed country category which is due in 2026. Following graduation, such discretionary tax exemption will not be possible.

The tax structure should also be made progressive and reliant more on direct tax rather than indirect tax, which impacts the poorer section largely.

The other part of the budget is expenditure. Given high inflation, the budget for fiscal year 2024-25 should be contractionary. This calls for prioritising projects that are critically important and employment-creating. Policy-makers should pick only a few high-impact projects and smaller or less important projects should get less attention.

The operational cost should be kept to a minimum by looking more diligently at the wastage side of it. Next comes the mostly politically motivated block allocation. Though I don't have a correct recipe, the time has possibly come to rethink the use of public offices or resources for personal wealth-building or siphoning off money abroad.

Enough allocation must be kept for social safety net programmes for the downtrodden people.

Choosing the right projects with well-trained project managers and getting those revalidated by the expert groups have been discussed for a long time. We need to walk the talk now. It is for the greater interest of public good and better utilisation of hard-earned public money.

The budget for the next fiscal year comes at a critical juncture as the government has targeted higher economic growth. On the other hand, the economy is faced with several challenges, including high inflation, low revenue collection, the volatile exchange rate, and declining forex reserves.

Therefore, the budgetary measures should show the way to overcome these challenges. It is not the time to experiment with too many avenues or to be too hung up on growth phobia.

Like the corporate bodies, the government may also try to follow the norm -- earn money, spend money and spend more money to generate investment and thereby employment. Any penny saved should go for future nation-building through education and healthcare.

The author is an economic analyst.​

 

[Saif]

Bangladesh enjoys better economic stability than Pakistan: Shehbaz Sharif

Commenting on Bangladesh’s economic growth, Pakistan Prime Minister Shehbaz Sharif has said although the then ‘West Pakistan’ once considered ‘East Pakistan’ as a burden, independent Bangladesh has made tremendous strides in industrial growth. According to Shehbaz Sha

thefinancialexpress.com.bd

Bangladesh enjoys better economic stability than Pakistan: Shehbaz Sharif
FE ONLINE DESK
Published :
Apr 27, 2024 11:19
Updated :
Apr 27, 2024 11:19

Commenting on Bangladesh's economic growth, Pakistan Prime Minister Shehbaz Sharif has said although the then 'West Pakistan' once considered 'East Pakistan' as a burden, independent Bangladesh has made tremendous strides in industrial growth.

According to Shehbaz Sharif, Bangladesh now enjoys better economic stability than his own country.

During recent interactive session with the business leaders of Pakistan, Sharif recalled, "I was quite young when... we were told that it's a burden on our shoulders...Today you all know where that 'burden' has reached (in terms of economic growth)."

"And we feel ashamed when we look towards them," he added.​

 

[Saif]

Banks asked to increase forex inflow

Bangladesh Bank today sat with five leading private commercial banks

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Banks asked to increase forex inflow
Bangladesh Bank today sat with five leading private commercial banks

Bangladesh Bank has asked managing directors of different banks to find out ways to raise foreign currency inflow to give a boost to the country depleting forex reserves.

They were also ordered to bring foreign currencies through banks' offshore banking units as the central bank has recently relaxed the rules for such units.

Bangladesh Bank Governor Abdur Rouf Talukder made the call in a meeting with the managing directors of five leading private commercial banks— Brac, City, Eastern, Mutual Trust and Dutch-Bangla—at the BB headquarters in Dhaka today.

Bangladesh has huge payments to make in the days to come, but its forex reserves continue to fall, as it stood at $19.97 billion as on April 24, down from $23.3 billion in July 26 of last year, BB data showed.

Meanwhile, the Offshore Banking Act 2024 passed in parliament on March 5 has barred the government to charge any tax on the profits that foreigners make in the offshore banking units of Bangladeshi banks.​

 

[Saif]

Rationalise tariff to protect local industry

Entrepreneurs yesterday emphasised the need to follow Bangladesh’s tariff policy when imposing duties on imported goods.

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Rationalise tariff to protect local industry
Entrepreneurs demand

Entrepreneurs yesterday emphasised the need to follow Bangladesh's tariff policy when imposing duties on imported goods.

They raised the issue at a seminar, titled "Role of Bangladesh Trade and Tariff Commission in protecting interests of local industries".

The event was organised by the Chittagong Chamber of Commerce and Industry (CCCI) at the World Trade Centre in the port city.

Omar Hazzaz, president of the CCCI, chaired the event while Ahmed Munirus Saleheen, chairman of the Bangladesh Trade and Tariff Commission, spoke as chief guest.

Shish Haider Chowdhury, a member of the commission, presented a paper while Customs Commissioner Faizur Rahman spoke as special guest.

Speakers also highlighted the need to protect local industries and also requested the commission to rationalise tariffs so that local industries can do better.​

 

[Saif]

IMF Loan: Govt may miss two key targets set for fourth tranche

The government is likely to ask the International Monetary Fund (IMF) to revise down two key targets related to Net International Reserves (NIR) and tax revenue collection, set for June this year for the release of the fourth tranche of its $4.7 billion loan, finance ministry officials said.

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IMF Loan: Govt may miss two key targets set for fourth tranche

The government is likely to ask the International Monetary Fund (IMF) to revise down two key targets related to Net International Reserves (NIR) and tax revenue collection, set for June this year for the release of the fourth tranche of its $4.7 billion loan, finance ministry officials said.

An eight-member IMF mission, led by Chris Papageorgiou, has been in Dhaka since April 24 for the second review of the loan programme before releasing the third tranche worth $681 million, expected in June.

The mission held a series of meetings with key government bodies, including the finance ministry, Bangladesh Bank and National Board of Revenue (NBR) over the last few days, and is now assessing Bangladesh's progress related to the conditions set for the third tranche.

The meetings also discussed the key conditions for the fourth and fifth tranches, officials said.

The fourth tranche is expected in December this year.

Yesterday, the IMF mission held a meeting with government officials and came up with a mid-term review on the outcome of the meetings held in the past few days.

Already, finance ministry and Bangladesh Bank officials communicated with the IMF mission that the government may fail to meet the NIR and revenue collection targets set for the fourth tranche on time.

For the third tranche, Bangladesh has met all but one conditions related to NIR set for December last year. The revised NIR target was $17.78 billion in December, but the country fell short by $58 million.

For the fourth tranche, the IMF set the NIR target for June this year at $20.1 billion.

As its loan condition, IMF considers NIR by deducting about $3 billion from the gross reserves. So, if Bangladesh is to meet the $20.1 billion NIR condition, its gross reserves have to cross $23 billion in June.

However, the reserve situation has not improved much since the commencement of the loan programme January last year. The country's gross forex reserves have been around $20 billion in recent months, as per an IMF calculation. It was $19.97 billion on April 24.

The government had expected the reserve to improve after the January 7 election, but it did not.

The central bank blames it on the huge deficit of financial account of balance of payment, which crossed $8 billion in the first eight months of the current fiscal year.

According to the IMF assessment, the reason behind the deficit in the financial account is that the exchange rate is not market-based. As a result, export proceeds are not coming to the country while remittances are coming through unofficial channels.

A finance ministry official said even if IMF revised down the NIR condition, it could put various conditions to make the exchange rate market-oriented.

Meanwhile, although Bangladesh has met the floor tax revenue collection target for the third tranche, it may fail to meet the target of collecting Tk 3,94,530 crore by June set for the fourth tranche, finance ministry sources said.

To meet the June target, 20.39 percent growth in tax revenue collection is required. However, in the first seven months of the current fiscal year, tax revenue collection growth was 12 percent.

As per the finance ministry estimate, highest Tk 3,80,000 crore could be collected by the end of June.

For the $4.7 billion loan, the IMF has set two types of conditions -- six performance conditions and several structural conditions.

For the next tranches, the government has been discussing structural conditions with IMF.

A finance ministry official said IMF may set a condition for the government to reduce its spending on subsidy.

The government has already introduced an automated pricing formula for fuel as it no longer subsidises the sector.

However, as the government still provides subsidy for electricity and gas, the IMF may set conditions to follow a timeline for gradually reducing subsidy for these two items.

Already, IMF has collected data on government spending in subsidy for electricity and gas.

The global lender has also put several conditions for NBR to increase revenue collection.

Under one condition, NBR has to finalise its medium- and long-term revenue strategies covering indirect and direct taxes and accompanying implementation framework by September this year.

Another condition is requirement of e-return filing and online payment for tax years starting after June 30, 2024, for all large corporations and any corporation that claims any tax performance (such as an exemption, lower tax rate, or tax holiday) by the end of June 2025.

Also, IMF may put a condition to reduce default loan including setting a ceiling on the percentage of classified loan.​

 

[Saif]

Move to check forex reserve depletion: Govt wooing quick release of foreign loan

Breaking News, International News & Multimedia

thedailynewnation.com

Move to check forex reserve depletion: Govt wooing quick release of foreign loan
30 Apr 2024, 12:00 am

Staff Reporter :

The government is waxing its policy to obtain more foreign loans as a strategic measure to prevent the depletion of the country's foreign exchange reserves and to bolster the supply of dollars.

The Economic Relations Department (ERD) under the Finance Ministry is actively engaging with development partners, aiming to secure at least $1 billion from pledged foreign loans by June.

Ministry officials have disclosed that they are urging development partners to expedite the disbursement process for pledged funds from foreign-funded projects, emphasising the need for ease and speed in accessing these funds.

Additionally, the government is vigorously advocating for flexible or low-interest loans and assistance. Furthermore, there are plans to expand the scope of acquiring hard-term or rigid loans to strengthen foreign exchange management.

Despite efforts to address the ongoing dollar crisis, which has persisted for more than two years, challenges remain.

Remittance flows and export earnings are not showing significant improvement to alleviate the crisis. Meanwhile, the inability to reduce the cost of imports exacerbates the dollar shortage, posing a significant challenge for policymakers, especially with the government facing a current account deficit.

Given the circumstances, external borrowing is viewed as a viable solution to mitigate the deficit. Over the past few years, the government has increasingly leaned towards securing hard loans, a trend that is expected to continue, according to ERD officials.

At the same time, initiatives have been taken to increase the flow of foreign currency to deal with the long-standing dollar crisis in the country, implement foreign-aided projects, and speed up loan repayments, they said.

Policymakers believe that the quick disbursement of the loans will help to increase foreign exchange reserves as well as the dollar supply in the country.

Meanwhile, the Planning Commission feels that proper utilisation of foreign loans and grants plays a helpful role in maintaining sustainable growth and a balanced trade situation.

Economists said that it is very important to take measures to disburse the foreign aid at the time, as there is no alternative to increasing the supply of dollars to overcome the dollar crisis and to maintain foreign exchange reserves.

Dr. Zahid Hussain, former lead economist of the World Bank Dhaka office, told The New Nation, "As the reserves are not growing much relying on remittances and export earnings, the government has no alternative to being dependent on foreign loans. If the flow of foreign loans rises, the flow of dollars in the country will increase."

According to the latest report prepared by the ERD on the current situation of the country's foreign debt, the Asian Development Bank (ADB) is at the top of the list of foreign loan disbursements to Bangladesh.
ADB disbursed $1.4 billion in the first nine months (July–March) of the current fiscal year.

Japan is in second place, as the country gave $1.35 billion. The World Bank, which is in third place, has released $0.96 billion. Russia and China are ranked fourth and fifth, respectively. These two countries have disbursed $0.8 billion and $0.36 billion, respectively, during the mentioned period.​

 

[Saif]

IMF prescribes ending tax exemptions

It recommended the National Board of Revenue (NBR) discontinue the tax holiday for the information and communication technology industry and abolish the tax benefit for mining and petroleum extracting companies.

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IMF prescribes ending tax exemptions

The International Monetary Fund (IMF) has prescribed that Bangladesh must abolish VAT and income tax exemptions in various areas in order to accelerate revenue collections from the next fiscal year.

It recommended the National Board of Revenue (NBR) discontinue the tax holiday for the information and communication technology industry and abolish the tax benefit for mining and petroleum extracting companies.

The multilateral agency also proposed imposition of a 15 percent VAT on all businesses with over Tk 3 crore annual turnover and offering them input tax credits. It suggested elimination of truncated VAT rates to accelerate overall revenue collection.

The recommendations were made by the visiting mission of the IMF during a meeting with the NBR at the latter's headquarters in Dhaka.

The delegation is in the capital to review the progress of the $4.7 billion loan programme before releasing around $681 million in the third tranche in May to help the country overcome severe economic challenges.

The team is meeting officials of the finance division, the Bangladesh Bank, the NBR and other government bodies.

Bangladesh's revenue as a share of GDP is among the lowest in the world and significantly below peers. This has significantly limited the fiscal space necessary for critical public investments and social sector spending.

As part of the conditions attached with the IMF loan approved in January last year, the NBR will have to collect Tk 394,530 crore in the current fiscal year ending in June. Until March, the tax collector raised Tk 259,866 crore, posting a 15 percent year-on-year growth.

In a presentation, the NBR's income tax wing projected to collect Tk 15,300 crore in tax in 2024-25 through policy measures, including enforcing tax compliance and limiting tax expenditures such as exemptions and rebates.

The IMF suggested the NBR scrap the VAT exemptions for clothing and footwear, liquefied petroleum gas (LPG), and mobile phone manufacturing.

At present, customers pay 7.5 percent VAT on clothing. However, they do not need to pay any VAT for sandals priced below Tk 150 a pair.

The existing VAT on LPG cylinders is 5 percent, and locally manufactured mobile phones are subject to a 2 percent to 7.5 percent VAT.

The IMF wants the NBR to replace these reduced rates with a 15 percent VAT.

If the tax administration ends the tax expenditures on clothing, footwear, LPG, mobile phones, and other products, it would provide additional taxes that are equivalent to 0.31 percent of gross domestic product (GDP), according to an estimate by the IMF presented at the meeting.

An NBR official said they would implement IMF's recommendations gradually since any abrupt move would affect domestic trade and industries.

"We must take into account the country's socio-economic situation before withdrawing tax exemptions fully."

The IMF urged the VAT wing to submit the VAT exemption report and the medium and long-term revenue strategy by June. It wants the NBR to move away from multiple VAT rates and impose a 15 percent standard rate.

The official, however, said multiple VAT rates exist in many countries, including those in the European Union.

"If they can have multiple VAT rates, why can't Bangladesh have the same? We are not avoiding the global best practices."

The Washington-based lender recommended advancing short and medium-term reforms in the next budget and called for fresh measures that would fetch revenues worth 0.5 percent of GDP in FY25.

It set new structural benchmarks for the NBR and suggested the revenue administration finalise a medium- and long-term revenue strategy covering indirect and direct taxes and an accompanying implementation framework by September this year.

The IMF called for rolling out e-return filing and the online payments facility for large corporations and companies that claim tax preferences such as exemptions, lower rates, or a tax holiday.​

 

[Saif]

Bangladesh’s financial account not performing well: IMF

The financial account of Bangladesh is not performing very well, said Krishna Srinivasan, the director of the Asia and Pacific department of the International Monetary Fund, during a virtual briefing from Singapore on Tuesday...

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Bangladesh's financial account not performing well: IMF
Bangladesh Sangbad Sangstha . Dhaka 30 April, 2024, 22:50

The financial account of Bangladesh is not performing very well, said Krishna Srinivasan, the director of the Asia and Pacific department of the International Monetary Fund, during a virtual briefing from Singapore on Tuesday.

'So, in some sense, you could see the depletion in the foreign exchange reserve, and the taka was coming under pressure,' he mentioned.

He said Bangladesh should allow greater flexibility in its exchange rate to address issues in its external account, particularly the deficit in the financial account.

'Once you implement this, you will see a greater sense of stability returning to the external account,' he added.

Srinivasan said that with reforms in the exchange rate and improvements in fiscal policy, Bangladesh should see a more sustained recovery from the crisis that every country in the region has faced due to multiple shocks.

Bangladesh has achieved significant improvement in macroeconomic performance, he said.

'Bangladesh was a country that proactively showed the IMF support for the country's home-grown programmes, which have two components — one is macroeconomic stability and the other is addressing the longer-term structural issues related to climate change. On macroeconomic performance, so far there have been significant improvements,' said Srinivasan.

He made the remarks in response to a question at the briefing on the regional economic outlook for Asia and the Pacific.

He said there have been improvements in the monetary policy framework and fiscal performance.

'I think where Bangladesh was struggling was with the current account, which was just balanced partly because there was restraint on imports,' he added.​

 

[Saif]

Frequent loan rescheduling fuels inflation: Farashuddin

Former Bangladesh Bank governor Mohammed Farashuddin on Thursday blamed the frequent rescheduling of classified loans for high inflation persisting in the country...

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Frequent loan rescheduling fuels inflation: Farashuddin
Staff Correspondent 02 May, 2024, 22:25

Mohammed Farashuddin | — Collected photo

Former Bangladesh Bank governor Mohammed Farashuddin on Thursday blamed the frequent rescheduling of classified loans for high inflation persisting in the country.

He made the remark during a programme organised by the Economic Reporters' Forum.

Farashuddin said that loan rescheduling created a liquidity crisis for banks.

To compensate, the central bank is forced to print money, which he believes contributes to inflation instead of curbing it.

He also criticised the ineffectiveness in recovering defaulted loans.

The former governor observed that a crucial problem he believes was originated in 1992 – issuing long-term loans using short-term deposits. He suggested businesses explore the stock market as an alternative source for long-term financing.

Farashuddin expressed concern about the apparent connection between loan defaulters, tax evaders and money launderers.

The former BB governor said that it seemed the government was silent on the money laundering.

The publication of money launderers' list was discussed in parliament, but has not published yet.

Along with the government, the International Monetary Fund is silent on trafficking, which he described as extremely detrimental to the country.

Regarding inflation, Farashuddin stated that despite the 9-per cent inflation rate, government ministers were claiming that people were doing well, which he believes was far from reality.

It could be said that people are faring well in this inflationary environment, he said.

He emphasised that the wealth gap between the rich and the poor has widened, and addressing this disparity requires not only economic but also political measures.

Farashuddin criticised the use of multiple exchange rates, stating that it benefits only intermediaries.

He highlighted that other countries have successfully curbed inflation, raising concerns about Bangladesh's lack of progress.

The former governor criticised the harsh treatment of small loan defaulters, contrasting it with the apparent inaction against those responsible for larger defaults.

He also said the waiver of interest on loans was not a good thing.

He said that merger is an international practice of acquiring a weak bank by a good a bank.

However, both banks must give their consent for the merger as a forced one will be wrong, he said.

He also said that there were other ways than mergers to turn a weak bank into a good one.

ERF president Mohammad Refayet Ullah chaired, while its general secretary Abul Kashem conducted the event.​

 

[Saif]

What does new remittance, export data mean for economy?

The fall in exports in April led to a slowdown in overall exports, which hit 3.93 percent in the ten months since July, the first month of the current fiscal year, compared to 4.39 percent in the July-March period of the same fiscal.

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What does new remittance, export data mean for economy?

The slowdown in exports is not good news at a time when Bangladesh needs foreign currency to overcome both the pressure on its external account and sluggish growth, said two economists today.

The reaction comes as export and remittance, two vital sources of foreign exchange, showed mixed readings.

In April, exports dropped first time in four months while remittances grew 21 percent year-on-year, official data showed.

The fall in exports in April led to a slowdown in overall exports, which hit 3.93 percent in the ten months since July, the first month of the current fiscal year, compared to 4.39 percent in the July-March period of the same fiscal.

Meanwhile, a rise took the overall growth of remittances to 8 percent in the July-April period.

"While the growth of remittance is welcoming, the slowdown in export is not a good sign for the economic growth and balance of payments (BoP)," said Sadiq Ahmed, vice-chairman of the Policy Research Institute (PRI) of Bangladesh.

Economic growth will not pick up without an acceleration in exports, he added, saying that more export is needed to address foreign currency crunch.

Bangladesh has been suffering from the depletion of its foreign exchange reserves and the devaluation of the taka against the US dollar for more than two years. The greenback crisis has persisted despite authorities taking measures to curb imports.

Bangladesh's gross domestic product (GDP), which posted over 6 percent annual average growth in the last 10 years, increased 5.78 percent in the fiscal year 2023-24.

Last month, the International Monetary Fund revised down its GDP forecast to 5.7 percent in 2023-24, from 6 percent forecasted in October amid local and global economic challenges.

The World Bank put the GDP growth figure at 5.6 percent for the same year owing to numerous factors, including high inflation.

Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development (InM), said if the slow growth rate in export and remittance earnings prevails, the economic crisis will deepen.

He said although there had been growth in exports and remittances in the July-April period of the current fiscal year, it is not adequate enough to solve the existing dollar crisis.

"It also can impact the manufacturing sector negatively, thus the whole economy, because the industrial sector needs foreign exchange to import raw materials," said Mujeri, a former director general of the Bangladesh Institute of Development Studies and a former chief economist of Bangladesh Bank.

"In this situation, the government needs to rethink and review the export policy and find new and innovative ways to boost export earnings."

Ahmed said supportive policies should be adopted to diversify and boost exports.​

 

[Saif]

LDC graduation: ADB for promoting export diversification

The Asian Development Bank (ADB), in its latest policy brief, has given several recommendations for promoting export diversification of Bangladesh. Given the urgency of the current economic situation, focusing on trade policy issues and improving export competitiveness should be a central part of

thefinancialexpress.com.bd

LDC graduation: ADB for promoting export diversification
FTAs within a short period of time will not be feasible for Bangladesh, it says
FE ONLINE DESK
Published :
Apr 30, 2024 13:33
Updated :
Apr 30, 2024 13:33

The Asian Development Bank (ADB), in its latest policy brief, has given several recommendations for promoting export diversification of Bangladesh.

Given the urgency of the current economic situation, focusing on trade policy issues and improving export competitiveness should be a central part of Bangladesh's reform agenda, it said.

In the context of Bangladesh's upcoming LDC graduation in 2026 and the current economic challenges, there is a growing realisation that policy reforms to enhance export competitiveness might receive stronger domestic support than in the past, ADB said.

While national planning documents like the 6th, 7th, and 8th Five-Year Plans have recommended relevant reforms, these have not been adequately prioritised for implementation, according to the document, reports UNB.

The policy brief, "Expanding and Diversifying Exports in Bangladesh: Challenges and the Way Forward", is authored by Mohammad Abdur Razzaque, an economist (Consultant), South Asia Department (SARD), ADB; Rabiul Islam Rabi, Research Analyst (Consultant) SARD, ADB; and Barun Kumar Dey, Senior Economics Officer, SARD, ADB.

Despite the success in garments exports, Bangladesh's overall export volume remains modest and suffers from a staggering concentration.

Recent unfavourable macroeconomic developments and the impending graduation from least developed country (LDC) status, underscore the importance of expanding and diversifying exports.

High tariff protection favouring import-competing sectors, coupled with weak domestic product standards and compliance, have created policy-induced disincentives for non-readymade garments exports.

With over 70 per cent of Bangladesh's exports benefiting from LDC-specific trade preferences, graduation could impact export competitiveness.

Improving export competitiveness and achieving diversification will necessitate various actions, including tackling policy induced anti-export bias, enhancing product quality and standards, attracting foreign direct investment to connect with global supply chains, conducting prudent exchange rate management to promote external competitiveness, dealing with sector-specific supply-side constraints, and addressing the high business costs.

Proactively seeking trade preferences post-LDC graduation is also crucial for sustaining export competitiveness.

POLICY RECOMMENDATIONS

Tackling policy-induced export disincentives is crucial for export diversification. Bangladesh's protective measures, through high tariffs and para-tariffs, encourage a focus on the domestic market over exports, creating an anti-export bias.

Tariff rationalisation is thus critical in dealing with this policy-induced bias. Lowering tariffs can stimulate domestic manufacturing, potentially balancing any revenue loss from reduced import tariffs.

Enhancing the export performance of non-RMG sectors requires eliminating discriminatory access to policy incentives. The bonded warehouse facilities, in particular, should be granted to all export sectors and units irrespective of whether they are 100% export-oriented or not. Many firms can serve both domestic and international markets, and requiring separate production facilities for exports to access bonded warehouses is impractical. Instead, all exporting firms should have access to bonded warehouses, with import duties adjusted later based on the proportion of goods for domestic and export use. In getting finance, subsidised loans, and other policy support measures, non-RMG sectors should be given equal access.

For non-RMG export items, enhancing product quality and meeting international standards are key for market expansion, as higher standards often yield higher prices. Investing in capacity building to meet international quality and safety standards is essential for potential exporters. Acquiring relevant certifications is critical for building credibility and trust in global markets.

The government can further aid businesses by establishing or supporting accessible testing and certification facilities. Strengthening institutions responsible for quality control and compliance is also crucial, which involves investing in laboratories, equipment, and skilled personnel for efficient testing and certification.

Attracting foreign direct investment can be a driver of export growth and diversification. It can facilitate knowledge and technology transfers and better management practices.

FDI firms are well-integrated into global value chains and can command higher export prices. Bangladesh needs to improve its investment climate, streamline investment procedures, and promote sustainable investment practices to attract foreign investors.

Tackling the high cost of doing business is critical for boosting investment and trade competitiveness. Bangladesh faces a significant disadvantage due to the high cost of doing business.

Weak infrastructure, inefficient inland road transport, complex customs procedures, inadequate port facilities, and inefficient trade logistics contribute to longer lead times and higher costs, which undermine competitiveness.

The two-way shipping costs for exporters importing raw materials and exporting final products exacerbate the problem. Addressing these infrastructural and logistical inefficiencies presents an opportunity to offset some of the losses from the withdrawal of LDC trade preferences and to improve Bangladesh's standing in international markets.

A prudent exchange rate management strategy could significantly enhance export competitiveness, benefiting sectors beyond the RMG industry. Maintaining a competitive and stable exchange rate ensures that exports remain attractively priced in international markets.

This is particularly beneficial for non-RMG exporters who may be trying to establish a foothold in global markets and are more sensitive to price competitiveness. An effectively managed exchange rate can offset some of the cost disadvantages faced by these sectors, making their products more appealing to international buyers.

Addressing the sector-specific supply-side constraints can help with export response from non-RMG sectors. To enhance the supply response of potential export sectors in Bangladesh, it is recommended to address sector-specific supply-side issues through a time-bound action plan.

This plan should be based on the constraints identified in studies like the Diagnostic Trade Integration Study and its 2023 update. The action plan should include specific measures tailored to the unique challenges of each sector, setting clear timelines and responsibilities for implementation.

This targeted approach will ensure that interventions are focused and effective, directly addressing the issues that hinder the productivity and competitiveness of these sectors on the global stage. By systematically tackling these identified constraints, Bangladesh can significantly improve its export performance in these key sectors.

Devising WTO-consistent export-incentive mechanisms is crucial for Bangladesh, given its impending LDC graduation. As export subsidies may not be possible after LDC graduation, learning from non-LDC countries can guide in formulating effective support measures. For example, how the PRC and Vietnam support their export industries can provide important lessons for Bangladesh. Complying with WTO guidelines, especially regarding subsidies and sector-specific support should be important.

Seeking trade preferences beyond LDC graduation comprises an important strategy for export competitiveness. Graduating from the LDC group does not imply the cessation of preferential treatment altogether.

The UK's Developing Countries Trading

Scheme, for instance, will continue to provide improved market access even after LDC graduation. Proactive engagements with the EU may be critical to secure similar preferences. Seeking unilateral trade preferences in the post-graduation period will be essential for Bangladesh, as many competitor countries have taken advantage of free trade agreements (FTAs) to obtain preferential market access.

For instance, Vietnam has secured FTA arrangements with Canada, the EU, and the UK; Cambodia, Myanmar, and Vietnam benefit from duty-free access in India due to the Association of Southeast Asian Nations (ASEAN) free trade agreement; and in Japan and the PRC under the Regional Comprehensive Economic Partnership, among others.

For Bangladesh, striking FTAs within a short period of time will not be feasible. Thus, a renewed focus on retaining trade preferences will be an utmost policy priority.

In preparation for Bangladesh's upcoming LDC graduation, strengthening trade policy and negotiation capabilities to support the export sector is important.

This involves developing a comprehensive capacity-building strategy that focuses on enhancing the skills and knowledge of trade officials, negotiators, and policymakers. It is also important to enhance the capacity of the private sector so it can comprehend the changes in trade preferences and policy space following LDC graduation and thus can take other measures for improving firm-level competitiveness​

 

[Saif]

Navigating development pathways in the evolving global order

The fundamental principles of a country’s development policy originate from the aspirations of the people through their struggles.

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Navigating development pathways in the evolving global order

VISUAL: REHNUMA PROSHOON

The world, at present, is in an indeterminate state. Covid-19 reaffirmed that no event can be predicted with certainty, and that the entire continuum of any event occurring is possible. There could be known-knowns, known-unknowns, unknown-knowns and unknown-unknowns. Thus, any projected outcomes can be inconclusive, uncertain, chaotic or stochastic. Maximum likelihood estimation or thought experiment could end up like the proverbial Schrödinger's cat—dead and/or alive. A paradoxical trajectory is also a possibility.

The known-unknown quandary has become subtle, with geopolitics and geo-economics added into the development discourse. Thus, knowns and unknowns characterise the global order. The prevalent known-unknown quandary, however, could also create perplexing situations.

These provoke, and agitate us with, many questions. Some of them are: What are the transformational strategies to navigate complexities of the evolving global order? What could be the ways to overcome democratic deficit and governance failure? What are the appropriate approaches for economic diversification for achieving equitable and sustainable development? How will the developing world attain green transition amidst geopolitical tensions and energy politics by charting a path for a planetary resilience? How would such a task be financed?

The fundamental principles of a country's development policy originate from the aspirations of the people through their struggles. Hence, an aspirational development policy is an understanding of the type of society people want to live in. The transformation is deeply rooted in economy, society and polity. There are, therefore, unceasing contradictions and struggles between the two polar opposites: aspirations vis-à-vis impositions.

In recent years, both state and market have become more coercive and unaccountable. Markets have adopted predatory routes. Again, states have been more coercive, and violated their constitutions from which they derive their power. The fragile social contract, consequentially, alienates the state from its citizens. Societal norms and values, over the years, have made citizens conform to discrimination, precipitating clientelist networks to accumulate power.

The configuration of power determines allocation and distribution of public resources. A rentier political settlement dismantles institutions in the absence of accountability, and thus, vested interest is prioritised over citizens' welfare.

The well-being of people is contingent upon "public society." Public society emerges when power lies in the median population, similar to the normal distribution. In reality, though, there is a skewed distribution.

The Covid-19 pandemic exposed fault lines, triggered significant income erosion, and gnawed away at the standard of living due to the absence of social protection, while governments were at a loss, exacerbating the economic divide. The ongoing conflicts have exasperated the woes further. The gap between the income groups is widening.

Some countries are recovering relatively quicker than others owing to existing social coping mechanisms—universal social security, well-structured healthcare, fiscal capacity and technological advancement. Most LDCs are stagnating, even recoiling in their path towards achieving the SDGs and struggling to address the new poor and defenceless population. Hence, between and within countries, the recovery is taking the shape of a diverging K-curve due to the disproportionate policies and embedded structural differences in economic, social and geospatial vulnerabilities.

Many developing countries are yet to acknowledge healthcare, education and social security as people's rights. Many constitutions endorse these as fundamental principles, with no obligation on the state. There is silence about establishing healthcare, education and social security as citizens' rights.

A skewed political settlement breeds unequal economic opportunities. Often, policies, in effect, bail out the very system that causes the crisis in the first place. The rent-distributing government favours Wall Street over Main Street, rescuing financial institutions and patronising ruling elites using public money as opposed to provisioning equal rights to all. Ill-fated citizens, consequentially, suffer through losses of their jobs, savings, and homes.

Old orthodoxies are breaking down, necessitating a new paradigm of development and a new form of cooperation for a course correction from the reversal of the gains made in socio-economic progress in the last three decades. A new social contract amongst and within nations could lead to having a greener, safer and better future for the people and the planet.

The asymmetries—like Covid-19 and artificial intelligence—have stirred public debates in favour of fostering socio-economic, financial and technological resilience against future complex shocks and uncertainties. In order for a transformative change with inter-generational equity, policies require addressing compound risk multipliers such as climate change vulnerabilities, economic and financial shocks, ecological damages, technological uncertainties, and public health emergencies. The world is far away from convergence and entitlements of equality, human rights and social justice.

Bangladesh has travelled over 50 years as an independent state. From the infamous "basket case," the country has transformed into a curious case of "development surprise." Alongside the achievements, major challenges loom large.

Bangladesh is the eighth most populated country in the world, although it ranks 94th in terms of geographic size. Most of the land area is bordered by India and some parts by Myanmar, with China in close vicinity. It occupies a strategically significant position in the Bay of Bengal. It lies at the centre of South and Southeast Asia, and is a source of connecting China's southern landlocked region. The Bay is also a reservoir of huge natural resources. Bangladesh, having experience in engagements with actors in the region and beyond, is now passing a critical moment in its quest for prosperity.

The rise and fall of civilisations, based on scientific historiography, can be a pointer. The grain-based agriculture connected civilisations of Asia, joining civilisations of different geographies. Not only did the two different monsoons help in growing crops—the summer blowing from the southwest, and the winter from northeast—but also allowed for the shipping of goods.

Rice, the monsoon's product, linked Asia. Rice is the least allergenic of grains and produces significant calories per hectare, feeding densely populated societies. Nevertheless, institution and political settlement are key. For example, in Angkor, the hydraulic system broke down and the empire fell.

A recent systematic archaeobotanical evidence, from Wari-Bateshwar ruins in Bangladesh, found Japonica rice, indicating diffusion from the East. This indicates the two-way connectivity of the past. This could herald an optimistic future since the aspirations of the people of Bangladesh are immense.

This article is an abridged version of a presentation prepared for the First Development Studies International Conference, to be held on May 5-6, 2024 by the Department of Development Studies, University of Dhaka, and daily Bonik Barta.

Dr Rashed Al Mahmud Titumir is Professor and Chairman, Department of Development Studies, University of Dhaka.​

 

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Taka to trade more freely by next month

Bangladesh will introduce a crawling peg system by next month to make the exchange rate more flexible and improve the foreign currency reserves, a key prescription from the International Monetary Fund.

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Taka to trade more freely by next month
BB to introduce crawling peg system to give more freedom to exchange rate

The Bangladesh Bank headquarters in Dhaka.Photo: Star

Bangladesh will introduce a crawling peg system by next month to make the exchange rate more flexible and improve the foreign currency reserves, a key prescription from the International Monetary Fund.

The crawling peg system is a method of exchange rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate to some extent. Typically, the system helps control currency swings, usually during threats of devaluation. Currency pegs are established by developing economies whose currencies are linked to the dollar or the euro.

Bangladesh Bank has already informed the IMF about the system being implemented for the taka.

Bangladesh entered an IMF loan programme for $4.7 billion in January last year. An IMF mission has been in Dhaka since April 24 to review the economic health of the country and whether it is meeting the loan conditions before the third tranche is released. The mission will also finalise new or revised conditions, which could include a lower reserves target.

A central bank high official said they were hopeful of launching the crawling peg system by June, as preparations were at the final stages. Since November last year, the IMF has urged Bangladesh to go for the system.

"I think where Bangladesh was struggling a little bit was the fact that while the current account was adjusting well, partly because they were restraints on imports and so on, the financial account wasn't doing very well," Krishna Srinivasan, IMF director of the Asia and Pacific, said on April 30 during a virtual briefing.

"You could see that in the bleeding of reserves and the taka coming under pressure. Now, it's important that the next stage of the reform agenda is to allow greater exchange rate flexibility, which would help you address the problems in the external sector in the financial account," he said. "Once you do that, you'll see a greater sense of stability coming back in the external accounts."

Although the central bank in its Monetary Policy Statement (MPS) in January mentioned introducing the crawling peg system, there had been no visible step in this regard.

The crawling peg system would be linked to a carefully selected set of currencies and operate within a predefined exchange rate band. This strategy is aimed at tempering unusual fluctuations in the currency's value.

"The central bank would establish a stable benchmark while retaining the flexibility to intervene in the market as necessary to maintain the currency within the designated boundaries," Bangladesh Bank said.

On paper, the central bank introduced the market-based exchange rate in July last year. In practice, however, the exchange rate is fixed by the Bangladesh Foreign Exchange Dealers' Association and the Association of Bankers, Bangladesh on unofficial instructions from the central bank.

The existing exchange rate was fixed about three months ago.

According to the central bank statistics, during the July-February period of the current fiscal year, the current account balance, a major component of the Balance of Payment (BoP), was in surplus by $4.7 billion.

In contrast, the financial account, another key part of the BoP that includes foreign direct investments and short-, medium-, and long-term loans, suffered an $8.3 billion deficit.

This is nearly four times the deficit from the same period a year ago, as shown by the central bank.

On the other hand, the net trade credit deficit stood at $10.75 billion in the same period, which was $3.55 billion in the same period of the last fiscal year.

According to the IMF assessment, the exchange rate not being market-based is the reason behind the deficit in the financial account. As a result, export proceeds were not coming to the country while remittances were coming through unofficial channels.

Since the launch of the IMF's loan programme, Bangladesh has been unable to meet the conditions set for net international reserves.

As Bangladesh could not meet the target set for June last year, the country had to get a waiver to secure the second tranche.

For the third tranche, the net international reserves target was revised down to $17.78 billion for December, but the country fell short by $58 million.

For the fourth tranche, the IMF set the net international reserves target for June this year at $20.1 billion.

Bangladesh is unlikely to meet the target.

In this context, the country has sought IMF's consideration to lower the latest net international reserves target as well. A central bank official said the visiting IMF mission, which leaves on May 8, has agreed to revise down the target. However, the figure has not been fixed yet.​

 

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IMF to make concession once again

The Bangladesh Bank is likely to get concession in maintaining the net international reserve once again under the current $4.7 billion loan programme with the...

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IMF to make concession once again
Staff Correspondent 06 May, 2024, 23:58

The Bangladesh Bank is likely to get concession in maintaining the net international reserve once again under the current $4.7 billion loan programme with the International Monetary Fund.

The forex reserve requirement may be revised down to around $18 billion from $20.10 billion for the deadline of June this year, said Finance Division officials.

They said that the IMF mission, now in the capital to review the criteria until December for the disbursement of the third tranche by this month, has given green signal for readjustment of the forex reserve requirement linked to the disbursement of the next tranche in December.

During the previous review held in October, the international lender also brought down the forex reserve requirement to $17.78 billion from $26.8 billion for the deadline of December following requests by the government .

But the BB failed to achieve due to a shortfall of around $58 million.

The IMF mission is likely to meet with the BB governor today to finalise the readjustment of the forex reserve targets under the programme that will expire in May 2026.

The government sought the IMF loan to tackle the shortage of foreign currencies as well as downturns in the overall economic activities.

The Washington-based multilateral lender has already disbursed $1.1 billion in two installments.

Forex reserve requirement is one of the main criteria of the IMF loan agreement.

The lender has been suggesting the BB to introduce the proposed crawling peg for determining the exchange rate and ease pressure on forex reserves.

The central bank sold $11.67 billion from the forex reserves between July and April.

Finance ministry officials said that the IMF has also agreed to give concession on the revenue collection target set under the June performance indicators.

The revenue collection target set at Tk 3.94 lakh crore is likely to be revised down by around Tk 10,000 crore.

The National Board of Revenue, however, exceeded its revised target in collecting taxes in the July–December period of FY24 in which it collected Tk 1,65,630 crore against the revised target of Tk 1,43,640 crore.​

 

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Three difficult choices to heal economy

Bangladesh yesterday made three major decisions to cushion the economy against critical risks such as stubborn inflation and depletion of foreign currency reserves.

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Three difficult choices to heal economy
Central bank devalues local currency by Tk 7, raises key policy rate and makes lending rates fully market-based

The Bangladesh Bank headquarters in Dhaka.Photo: Star

Bangladesh yesterday made three major decisions to cushion the economy against critical risks such as stubborn inflation and depletion of foreign currency reserves.

In a rare move, the central bank devalued the local currency by Tk 7 to Tk 117, the steepest slide in a day against the mighty dollar. What is more, it loosened its age-old grip on the taka as it will now follow the crawling peg, a flexible exchange rate system.

Bangladesh Bank has also made lending rates fully market-based, abandoning a treasury bill-linked formula for banks. This marks a major shift from the command-and-control mechanism imposed on banks four years ago.

The monetary authority also raised the overnight repurchase agreement rate, a form of short-term borrowing cost for banks, by 50 basis points to 8.5 percent, the second straight hike this year.

The three decisions coincided with the International Monetary Fund's pledge to give Bangladesh $1.15 billion in loans. The steps reflect the authorities' struggle to bring the economy back on track.

IMF Loan to Bangladesh: IMF recommends calibrated monetary tightening, exchange rate flexibility

According to the monetary policy committee of the BB, the economy faced two critical challenges -- persistently high inflation and depleting foreign exchange reserves.

Although the BB and the government have taken various measures to curb inflation, stabilise the exchange rate and protect the erosion of foreign exchange reserves, inflation remains stubbornly high and the foreign exchange reserve situation is not improving to the desired level, the central bank said.

Inflation has stayed above 9 percent since March last year, and the local currency weakened by 35 percent against the US dollar in the past two years. The country's reserves have more than halved, bringing about one of the worst economic crises for the low-middle-income nation. It has been struggling to raise enough taxes to meet its growing expenses.

The central bank's decisions came as an IMF team, led by Chris Papageorgiou, wrapped up its 15-day visit to Bangladesh yesterday. During the visit, it discussed economic and financial policies in the context of the second review of the loan programme.

In a statement, Chris Papageorgiou described the BB's actions as bold, which are aimed at realigning the exchange rate and simultaneously adopting a crawling peg regime.

Talking to The Daily Star, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, welcomed the scrapping of the SMART formula. "Now, the interest rate will be market-driven," he said.

Since the policy rate has been revised upwards and the reference lending rate, known as SMART, has also been scrapped, the interest rate may rise. This will make funds costlier, which may help the central bank contain the demand but deal a blow to borrowers.

Similarly, the spike in the exchange rate may come as a boon for exporters and remitters because they will get a better US dollar rate whereas importers will have to pay more to buy goods and inputs from the global market.

"The flexible exchange rate was necessary for us as the cost of doing business has risen significantly due to increasing gas and power tariffs. The government also reduced the cash incentive on export receipts," said SM Mannan Kochi, president of the Bangladesh Garment Manufacturers and Exporters Association.

Ashraf Ahmed, president of Dhaka Chamber of Commerce and Industry, said the move towards a market-based exchange rate was a step in the right direction.

Subir Kumar Ghose, chief executive officer of Partex Petro Ltd, predicts that the interest rate in the banking sector may soar up to 20 percent.

The average lending rate was less than 14 percent yesterday.

Humayun Rashid, managing director of Energypac Power Generation, said the rate of interest will go up immediately as banks are collecting deposits at higher rates.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh, thinks the flexible interest rate and the exchange rate would help reduce capital flights from Bangladesh.

Ahsan H Mansur, executive director of the Policy Research Institute, said the spike in interest rates may slow the economy further. "But it is necessary to overcome the challenges."

He said the introduction of the crawling peg would stabilise the taka-dollar exchange rate and improve foreign exchange reserves.

"The taka may depreciate further," he said, urging the government to discontinue the subsidy on remittances.

Asked whether the measures will bring back stability to the economy, the former economist of the IMF, said, "These are necessary steps, but not sufficient. However, without these steps, it will not be possible to help the economy overcome the crisis."

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said that of the three BB steps, the abolition of the SMART system was the most significant.

"The market-based interest rate is nothing new for us. Bangladesh has been following it since the economic liberalisation in the 1990s. Therefore, there is nothing to be worried about, and banks and other financial institutions are well-experienced in running operations under such a system."

The former WB official thinks the spike in the policy rate is appropriate, and it has to be kept at an elevated level until inflation comes down.

Hussain, however, said he was confused about the crawling peg system.

He said the central bank has narrowed the gap between the official exchange rate and the prevailing market rate by setting the dollar rate at Tk 117.

"With this, we have just moved from one exchange rate to another.

"Importers were already paying around Tk 120 per dollar before the crawling peg was introduced. So, the latest move might not be helpful. Rather, it might backfire," he added.

Speaking at a media briefing at the finance ministry, Chris Papageorgiou said the reserves have been declining for a real confluence of external shocks such as the Ukraine war, hike in interest rates globally and higher commodity prices.

The higher prices have trickled down to the economy more quickly than other economies, raising inflation to a decade-high, he said.

The authorities took a bold action -- a package of real reforms to deal with the current situation, he noted.

Papageorgiou said the introduction of a new flexible exchange rate and the elimination of SMART could help create more flexibility.

The IMF official mentioned that for many decades, the country has had a tax-to-GDP ratio of about 10 percent, one of the lowest in the world. "We think that there is room for improvement."

The IMF said it is imperative to prioritise sustainable revenue generation to bolster investments in social welfare and development initiatives.​

 

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Market-driven interest rate returns after four years

The central bank took the decision as people have been struggling with the high level of prices for around two years.

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Market-driven interest rate returns after four years

After a gap of four years, the banking sector in Bangladesh has returned to a market-driven interest rate regime at the prescription of the International Monetary Fund (IMF), in order to step up its fight against elevated level of inflation.

The central bank also raised the policy rate by 50 basis points to 8.5 percent, aiming to make money costlier.

The central bank took the decision as people have been struggling with the high level of prices for around two years.

Analysts expect the interest rate in the banking sector to rise in the upcoming days and inflationary pressures to ease.

The move to a market-based lending rate was one of the conditions for the IMF's $4.7 billion loan to Bangladesh, the third tranche of which is expected soon.

Bankers welcomed the decision, opining that the lending rate may rise initially and a market-based rate was necessary to reduce inflationary pressures and make the banking sector healthy.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB), told The Daily Star that adopting a market-based interest rate was a bold step.

Hussain, also the managing director of BRAC Bank, said when the government interferes in the economy, the market can become unstable.

The new decision will bring governance to the economy, he said.

"The flexible interest rate and the exchange rate will also help reduce capital flight from Bangladesh. This is good news for the economy."

Now, the interest rate will be fixed based on the bank-client relationships and the demand for loans and the supply of loanable funds in the banking sector.

"Inflation will also come down to the expected level due to the hike in the policy rate," Hussain added.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, welcomed the central bank's decision to scrap the rates based on the Six-months Moving Average Rate of Treasury bills, abbreviated as SMART, and opt for a market-based interest rate.

In July last year, the central bank introduced the SMART rate, withdrawing the 9 percent lending rate cap and 6 percent deposit rate cap which it had imposed in April 2020. Under the SMART formula, banks were not allowed to raise the interest rate after a certain point.

Now, the banks can impose the interest rate considering their costs of fund. So, the interest rate will be market-driven. "Bankers always want the market to determine the interest rate," Rahman said.

He thinks the interest rate will not rise significantly after the withdrawal of the SMART rate. Moreover, as the central bank has hiked the policy rate, it will make money costlier.

As both policy changes came simultaneously, the interest rate may rise for a few days but not to a major extent.

Rahman, also a former chairman of the Association of Bankers' Bangladesh, said raising the policy rate was an expected move as the central bank announced a contractionary monetary policy last January to tame inflation.

The policy rate, the rate at which the central bank lends to financial institutions, was the ninth straight spike since the tightening cycle began in May 2022, as inflation showed no signs of cooling.

Stock market analysts also welcomed BB's decisions.

Shahidul Islam, chief executive officer of VIPB Asset Management Company, said macroeconomic stabilisation is a pre-condition for a good stock market.

"The new decisions will be helpful for macroeconomic stabilisation, so it will be helpful for the market in the long-run. The market-based interest rate will make loans available to those who need them."

Subir Kumar Ghose, chief executive officer of Partex Petro Ltd, said it was really tough to instantly predict the impact of the decision.

However, he opined that interest rates would increase initially, which would impact overall business negatively.

Ghose also said it would depend on supply and demand of loans.

He assumed the interest rate may grow to 18 to 20 percent and would be reflected by higher costs of production.

"But ultimately the burden will fall on the shoulders of the consumers as businesses will pass on the rise in costs to consumers."

Regarding the crawling peg exchange rate system, Ghose said it was a good solution to stabilise the exchange rate and appreciated that banks could no longer charge as per their wishes.

According to him, banks had charged higher rates for US dollars than the rate fixed by the government, causing importers to suffer when opening letters of credit.

Humayun Rashid, managing director and CEO of Energypac Power Generation, thinks the interest rate would go up immediately because banks would look to increase the lending rate since they are paying higher interest for deposits.

"The market-based interest rate would definitely increase the cost of doing business. Against this backdrop, investment will slow as businessmen will be discouraged from investing in new projects, which in turn will narrow employment opportunities."

Rashid expressed concerns over the crawling peg, saying although the export sector would benefit, it would increase import costs.

Amirul Haque, managing director of Premier Cement Mill, said the central bank relinquished the control to private banks since the BB will no longer have any say about interest rates.

This system can also lead to all kinds of investment getting stuck as investors who took the initiative to expand or adopt new plans will not implement them due to high interest rates, he added.

"As a result, money will flow to unproductive sectors and economic growth will be hampered greatly."​

 

[Saif]

Forex reserves decline by $133 million in a week

The reserves hit $19.83 billion on May 8

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Forex reserves decline by $133 million in a week
The reserves hit $19.83 billion on May 8

Bangladesh's foreign currency reserves declined by $133 million to $19.83 billion on May 8 in the span of a week, central bank data showed.

The reserves stood at $19.96 billion on April 30. The forex figure is based on the balance of payments and investment position manual (BPM6) of the International Monetary Fund (IMF).

Wednesday's figure means the reserves have stayed at less than $20 billion for nearly a month as inflows have not improved in line with outflows.

Since the reserves are not picking up, the IMF has drastically slashed the Net International Reserves (NIR) requirement for Bangladesh for the fourth tranche of the $4.7 billion loans.

The Washington-based multilateral lender had given the country a target to maintain $20.11 billion for June. But after its 15-day review mission in Dhaka that ended on Wednesday, it has reduced the NIR threshold for the central bank to $14.76 billion.

It came as exports and remittances inflows are not showing much improvement.

The country shipped products worth $3.91 billion last month, down 0.99 percent year-on-year. However, remittance inflow rose 21.31 percent to $2.04 billion thanks to Eid-ul-Fitr as the country's migrant workers typically send more money home ahead of the major religious festival for Muslims.

Because of higher commodity prices driven by the supply chain disruptions caused by the coronavirus pandemic, the Russia-Ukraine War, and the latest Middle East Crisis, the forex reserves of Bangladesh, an import-dependent nation, have been declining since August 2021 from the record level.

According to the IMF manual, gross foreign reserves include gold, cash US dollars, bonds and treasury bills, reserve position in the IMF, and special drawing rights holdings.

The NIR is defined as reserves assets minus reserve liabilities to residents and non-residents, including commitments to sell foreign exchange arising from derivatives and all credit outstanding with the IMF.

Thus, the NIR is usually lower than the gross reserves.​

 

[Saif]

'Evaluate country's debt sustainability to avoid debt-trap'

Country’s debt sustainability needs proper assessment as it has been failing to address repayment issues tarnishing its long-established reputation on payback.Dr Debapriya Bhattacharya said the repayment period for the Rooppur power plant has been awaiting an extension by another two years wh

thefinancialexpress.com.bd

'Evaluate country's debt sustainability to avoid debt-trap'
FE ONLINE REPORT
Published :
May 07, 2024 15:04
Updated :
May 07, 2024 15:06

Dr Debapriya Bhattacharya, the distinguished fellow of the Centre for Policy Dialogue (CPD), addressing 'Moazzem Hossain Commemorative Lecture' on 'Macroeconomic challenge and way forward', organized by Economic Reporters Forum (ERF) at its premises in Dhaka on Tuesday –FE photo

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Country's debt sustainability needs proper assessment as it has been failing to address repayment issues tarnishing its long-established reputation on payback.

Dr Debapriya Bhattacharya said the repayment period for the Rooppur power plant has been awaiting an extension by another two years while footing the airlines fuel bills became irregular.

Such incidents of defaulting the loans like Rooppur may appear again as the country may fall into a debt trap by 2026 due to showing inflated economic growth with poor domestic revenue, he said.

"Economic Relations Division (ERD) is designated to assess the debt sustainability but it can be questioned whether it is coming out with real data or compromising it to satisfy politicians," the Distinguished fellow of the Center for Policy Dialogue (CPD) said at 'Moazzem Hossain Commemorative Lecture', on 'Macroeconomic challenge and way forward', organized by Economic Reporters Forum (ERF) at its premises.

It is the second programme honouring the contribution of the late Moazzem Hossain, former editor of the Financial Express, and former ERF President.

Incumbent editor of the FE Shamsul Huq Zahid also attended the programme and spoke on the contribution of Mr Hossain to developing the country's economic reporting area.

ERF President Refayet Ullah Mirdha and General Secretary Abul Kashem also attended the programme.

On recent restrictions in the Bangladesh Bank (BB) for journalists, Dr Bhattacharya said something is fishy in the BB prompting it to impose the ban.

"It seems as if economic journalists' access to information may cause sabotage if transparency is ensured," he added.

Such restrictions in access to data contradict the government's vision to build a smart Bangladesh, he said.​

 

[Saif]

Exporters cheer weaker taka

Owing to a chaotic and volatile exchange rate, local exporters were desperate for the introduction of a floating exchange rate so they could draw more money and be more competitive.

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Exporters cheer weaker taka

In a historic move, the central bank of Bangladesh has depreciated the local currency against the US dollar mainly to make the country more competitive in international trade, a move that exporters and businesses welcomed.

In fact, the taka has been losing ground over the past three years, both during and after the Covid-19 pandemic, as Bangladesh's banking system struggled to supply dollars as per surging demand.

Owing to a chaotic and volatile exchange rate, local exporters were desperate for the introduction of a floating exchange rate so they could draw more money and be more competitive.

The taka stayed firm at Tk 85 per dollar for over a decade, but started weakening amid increasing pressure on the foreign exchange reserves.

The local currency depreciated 28 percent, to Tk 110 per dollar, between January 2022 and April 2024. In informal curb markets, the rate even crossed Tk 120 per dollar

Following the latest depreciation through the crawling peg, which was introduced for the first time in the history of Bangladesh, the taka lost 6.36 percent of its value, falling to Tk 117 per dollar.

Including yesterday's depreciation, the taka has lost 36 percent of its value against the greenback since January 2022.

However, exporters welcomed the decision to introduce the crawling peg, which saw the exchange rate hiked to Tk 117 per dollar from Tk 110, as it will make them more competitive.

It will provide a boost as the government has already reduced incentives on export receipts as the country is going to graduate from least developed country status in 2026.

Under the rules of the World Trade Organisation, developing and developed countries cannot directly provide subsidies on export receipts. But the government can offer benefits indirectly, such as by hiking the exchange rate, providing policy support or offering technological upgradation or skill development funds to make export-oriented sectors more competitive.

"It was necessary for us as the cost of doing business rose significantly due to increasing gas and power tariffs. The government also reduced the cash incentive on export receipts," said SM Mannan Kochi, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

A suffocating situation was created for garment exporters because of the higher cost of doing business and the latest move by the central bank will provide some relief, Kochi said.

But exporters will have to keep in mind that they must negotiate higher prices from international retailers and brands so they are not deprived of the benefits provided by such a decision, the BGMEA chief also said.

Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industry (DCCI), said it was a proper step towards a market-based exchange rate.

"We expect this move to ease the balance of payment pressure despite its impact on costs. We hope this will precipitate a single exchange rate across the board," the DCCI chief said.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said: "I welcome the move to introduce the crawling peg, which will eventually make us strong in exchange rate of dollar and taka."

However, if the exchange rate for remittances is higher than for exports, there will a problem, he said. Hatem added that if the new exchange rate could be standardised in the banking system, it would be better.

But if the rate varies between Tk 120 and Tk 122 per dollar in case of buying dollars to open letters of credit, then exporters will face difficulties.

Hatem also urged the government to ease business rules and reduce harassment of exporters to facilitate more trade. Reducing harassment would also work as an incentive for businessmen, he added.

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, also welcomed the move.

"In fact, I have been talking about introducing the crawling peg for many months as businessmen have been getting less due to the exchange rate," Khokon told The Daily Star over phone.

He added that the government should not interfere with the crawling peg system directly or indirectly.

Bangladesh adopted a floating exchange rate regime in May 2003 as part of a comprehensive medium-term economic programme to promote growth and alleviate poverty, according to the International Monetary Fund.

However, the floating rate was on paper as the central bank officially or unofficially directed the course of the exchange rate.​

 

[Saif]

Will BB steps build up reserves? Not so soon

Bangladesh Bank’s steps to boost the country’s foreign currency reserves will not yield any positive results overnight.

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Will BB steps build up reserves? Not so soon

The Bangladesh Bank headquarters is seen in Dhaka. Photo: Star/File

Bangladesh Bank's steps to boost the country's foreign currency reserves will not yield any positive results overnight.

According to the government and IMF projections, the reserves will not increase until June next year despite the latest measures taken in line with the International Monetary Fund prescriptions.

Bangladesh's net international reserves (NIR) will be between $14 billion and $16 billion till March next year, according to the projections.

In June next year, the NIR might be close to $20 billion. This means the country's gross reserves could be around $25 billion at that time.

The NIR refers to gross reserves (based on the International Monetary Fund method) minus the central bank's forex liabilities and reserves earmarked for quasi-fiscal activities that involve state-owned banks and enterprises.

Speaking at a press briefing in the capital on Wednesday, IMF mission chief Chris Papageorgiou said Bangladesh will need some time to get the expected results from the BB steps.

He said the authorities have now taken "bold actions", a package of reforms.

"So, all of the measures, I think, will create more flexibility, more return. We see Bangladesh slowly coming out of these challenges," he added.

Talking to The Daily Star, Ahsan H Mansur, executive director of the think-tank Policy Research Institute (PRI), said it might take six to nine months to get the expected results from the BB's new measures given that the policy is implemented properly.

In a rare instance, the BB on Wednesday devalued the local currency by Tk 7 to Tk 117, the steepest fall in a day against the dollar. Moreover, the central bank loosened its age-old grip on the taka as it will now follow the crawling peg, a flexible exchange rate system.

The BB also made lending rates fully market-based and raised the overnight repurchase agreement rate, a form of short-term borrowing cost for banks, by 50 basis points to 8.5 percent.

Seeking anonymity, a central bank official said the new system will allow authorised dealers to trade with clients and between themselves at freely negotiated rates.

People will be able to buy and sell foreign currency at a price which reflects the current market supply and demand.

The new crawling peg regime will help rebuild reserves, added the official.

Ahsan H Mansur said the new system's success will depend on how efficiently and successfully the government and the central bank execute it.

"New systems are introduced in this country at different times, but those are not implemented properly," he said.

The latest system has brought about a unified exchange rate, removing the previous distortions. This will slightly incentivise export and remittance which will produce a positive result, he added.

However, it will take time to have a positive impact on the huge deficit in the financial account of the balance of payment because exporters and foreign investors will want to see how efficiently the new system is implemented, he noted.

If the new system stabilises the exchange rate, money will start flowing into the country in the next six to nine months, he further said.

"This means it will take some time for the new policy to produce results."

Finance division and central bank officials said the budget support will increase because of the bold actions.

Officials said these reforms, backed by the development partners, will help Bangladesh reach its full potential under the IMF programme.

On Wednesday, the IMF agreed to provide Bangladesh with $1.15 billion in the third tranche under the $4.7 billion loan programme.

Of the amount, about $932 million will be under the Extended Credit Facility (ECF)/Extended Fund Facility (EFF) and about $220 million under the Resilience and Sustainability Facility (RSF).

Earlier, Bangladesh got $462 billion in the second tranche under the ECF/EFF.

BB officials said the total loan amount will remain the same -- $4.7 billion.

The IMF, however, has agreed to pay an instalment in advance with the third tranche to support the package reform programme.​

 

[Saif]

Budget through layperson’s lens

THE finance ministry is busy preparing the national budget for the 2024–25 financial year. In tandem, pre-budget discussions are held with stakeholders, with the...

www.newagebd.net

Budget through layperson's lens
by Abdul Bayes 12 May, 2024, 00:00

| New Age/Mehedi Haque

THE finance ministry is busy preparing the national budget for the 2024–25 financial year. In tandem, pre-budget discussions are held with stakeholders, with the finance minister presiding over. In fact, such discussions have been a regular exercise for a long time to capture different perceptions about the economy. The preparation of the national budget in any country has always been challenging amidst what economists call 'limited resources and unlimited wants'. But the preparation for the forthcoming budget is going to be more challenging than the preparation of the earlier ones, especially the ones prepared before the Covid outbreak, as the realities on the ground have reversed by 180 degrees.

A sense of optimistism in resource allocation once prevailed as global trade and investment conditions remained favourable. However, internal and external economic conditions have dramatically deteriorated since the Covid outbreak. The wounds have been worsened by the Russia-Ukraine war and the threat of disruption in the supply chain, especially of oil and essential food items, and the Iran-Israeli conflicts could cause a catastrophic condition.

On the domestic front, soothing signs of macroeconomic stability are seemingly things of the past. Various constraints have creeped up to thwart macroeconomic stability. These are, among others, an inflation rate running on an average at 10 per cent for two consecutive years, the foreign exchange reserve running down fast, constraining imports and, thus, growth, an increasing exchange rate, one of the lowest tax-to-GDP ratio for a prolonged period, massive capital flight, rampant corruption and massive loan default. The associated misconceived monetary and fiscal policies just went on to aggravate the situation. All of these adverse factors put the economy under a great pressure, particularly in terms of the mismatch between the demand for and the supply of resources. The drivers of these deviations are well documented and there is no need for elaborate discussions now.

Against this backdrop, it would, however, be wise to go for a contractionary budget, slashing the size of the budget by, say, 5–6 per cent. This would be in sharp contrast with pre-Covid budgets rising by 10–15 per cent in a row for a decade. Of course, a cut in budget size would adversely affect the economic growth rate for a year, but the tradeoff is very much needed to rein in inflation and reduce pressure on the foreign exchange reserve. It is needless to say that a firm political commitment is needed to economise on the use of scarce resources.

To mention a few, the so-called 'political projects' should not be patronised at all, wasteful projects should be set aside and financially viable large-scale projects should be prioritised. Of course, these measures are suggested until the economy cools down. In other words, instead of focusing on achieving a higher gross domestic product growth rate, the priority should be to restore macroeconomic stability. Again, economist Ahsan Mansur argues, 'In the current situation, it would not be right to borrow too much from the domestic banking system and the needs of the private sector must be considered. The interest rate on Treasury bills has already gone up to 11 per cent due to the government's heavy borrowing. It may increase further. But this interest rate should not be 18 or 19 per cent by any means.'

By and large, we are of the view that the next budget should focus on controlling consumer goods price spiral, expanding social safety net programmes and provide more allocation for education and health sectors. We also expect that the subsidy syndrome that has prevailed for ages should come under serious scrutiny and be reflected in the budget speech. Why should the 40-year-old apparel sector need subsidy while nascent industries are crying for for meagre assistance from the exchequer? Why should 12 per cent of export earnings be allowed to be retained abroad even now? It is our view that, first, only the agricultural sector and small and medium industries should be sheltered by subsidy and, second, tax rebates should be reduced after rationalisation.

Given political commitments, domestic resource mobilisation could be beefed up by relying more on direct taxes, expanding the tax net and introducing automation in tax collection. Indirect taxes and distorting trade taxes should be avoided as far as possible. Mohammad Farashuddin, an eminent economist, estimates that out of 8.7 million highly solvent people, only 900,000 people pay taxes. The economist also showed tax collection from 25 million people with per capita income of $5,000, if ensured and spanned over a period, it could provide for a significant increase in tax-GDP ratio.

Likewise, the arrest of capital flight a year of $700 crores, if addressed with earnest and commitment, could improve the fragile foreign exchange reserve situation. We can possibly mention many other sources of resource generation such as privatising the loss-making public-sector enterprises, the persuasion of a truly shared austerity measures with lesser allocation for unproductive sectors and economising on revenue expenses of ministries.

The banking sector doldrums and the associated solutions should claim a lot of attention from the finance minister as the sector is in shambles. Is merger of bad banks with good ones a solution? Without a revolution in the governance of the banking sector, with political interference, without putting criminals to justice? Would it not sound like old wine in a new bottle?

Keeping drastic institutional reforms at bay, a routine work of allocating resources covering revenue and development budget might fail to pull the economy out of the crisis. A zero-tolerance to loan default, tax evasion, corruption and capital flight warrant firm political commitment and wisdom where words will not count, but deeds will. A government is known by the commitment it keeps.

Abdul Bayes, a former professor of economics and vice-chancellor, Jahangirnagar University, is now an adjunct faculty at East West University.​

 

[Saif]

Are foreign investors shying away from Bangladesh?

When the then finance minister presented the national budget for the current fiscal year in parliament in June last year, he had taken into consideration at least six points while making proposals regarding duties and taxes at import stages. One of the points was improving the country's position in

thefinancialexpress.com.bd

Are foreign investors shying away from Bangladesh?
ASJADUL KIBRIA
Published :
May 11, 2024 22:23
Updated :
May 11, 2024 22:23

When the then finance minister presented the national budget for the current fiscal year in parliament in June last year, he had taken into consideration at least six points while making proposals regarding duties and taxes at import stages. One of the points was improving the country's position in terms of foreign investment. He also mentioned that 100 economic zones (EZs) were being established to ensure environment-friendly industrialisation and to 'enhance domestic and foreign investment along with youth employment.' In his speech, the minister also underscored the importance of foreign investment.

The issue of foreign direct investment (FDI) needs some explanation. Mentioning it in the annual budget speech is consistent with the country's medium-term development plan. A key strategic focus of the 8th Five-Year Plan (8FYP) is to accelerate FDI flows into Bangladesh through 'a massive drive to improve the investment climate and strengthen the capabilities of BIDA to do policy-based research, advocacy and deliver speedy and efficient services to foreign investors.' According to the plan document, some one-fourth of the projected 9.1-percent increase in private investment will come from FDI by the end of fiscal year 2024-25 (FY25), the terminal year of the planning period. It also set a goal to increase the FDI-GDP ratio to 3 per cent in FY25 from 0.54 per cent in FY20.

Nevertheless, available statistics showed that the country has yet to attract adequate foreign direct investment (FDI). In the last calendar year, the net inflow of FDI declined by 13.80 per cent, according to the latest statistics of Bangladesh Bank. It also showed that the net inflow of FDI decreased to $3.0 billion in 2023 from $3.48 billion in 2022.

Net FDI declined by 7 per cent to $3.20 billion in FY23 from $3.44 billion in FY22. As FY24 is yet to end, it will take some more months to get the data on the total volume of FDI in the current fiscal year. Net FDI in the first half (H1) of the current fiscal year, however, dropped by 14 per cent to $1.56 billion from $1.80 billion in the same period of FY23. So, it is unlikely that the annual inflow of FDI in the current fiscal year, which ends on June next, will cross the last fiscal's amount. Instead, there is a high chance of it falling below the FY23 as overall economic trend is sluggish in the current fiscal year.

Despite the government's efforts to attract foreign investors by relaxing rules and regulations, the annual FDI inflow data for the last calendar year suggests that the country is not yet seen as an attractive investment destination. This underscores the need to address several barriers that hinder the improvement of the investment climate. These include regulatory uncertainty, trade logistics and infrastructure inefficiencies, labour productivity and skill development, and a challenging business taxation environment.

Last year, the Foreign Investors' Chamber of Commerce & Industry (FICCI), representing more than 200 foreign companies operating in the country, prepared and published a comprehensive paper focusing on the challenges and opportunities of FDI in the country. The paper outlined a series of barriers and also presented a set of recommendations to overcome these. Thus, the challenges and barriers to attracting more FDI are well known.

It is also well known that developing countries like Bangladesh require more institutional frameworks to encourage investors to remain in the country. Inconsistent institutional and legal frameworks may lead to a lack of confidence in the domestic economy, leading foreign investors to divest, withdraw, or reduce their investments.

The central bank's annual statistics also showed that the gross inflow of FDI was $3.97 billion last year due to a decline of around 18 per cent from $4.83 billion in 2022. The amount of disinvestment was $1.34 billion in 2022, down to $0.96 billion last year. Disinvestment includes capital repatriation, reverse investments, loans given to parent firms and repayments of intra-company loans to parent firms. The amount of net FDI is derived after deducting the amount of divestment from gross FDI,

For FDI, disinvestment is not an unusual thing. Nevertheless, the ratio of disinvestment in terms of gross FDI has increased for the last couple of years. In 2017 and 2018, the ratio was 20 per cent, which jumped to 28 per cent in 2019. It moderated in the next two years to 24 per cent and 25 per cent and again increased to 28 per cent in 2022. The disinvestment to gross FDI ratio in the last year stood at 24.30 per cent. As disinvestment is almost one-fourth of the gross FDI for the last half-decade, it needs some examination.

Again, economic zones (EZs) have attracted a tiny amount of FDI in the last two years. In 2022, the EZs received a net FDI worth $2.47 million, which increased to $8.2 million in the previous year. So far, only six government-owned EZs are in operation, although in total, 68 EZs got approval. In addition, 29 EZs have also got permission for setting up by private investors. Yet, only five EZs are in operation. Currently, around 50 factories are operating in 11 government and private EZs. So far, the proposed amount of FDI stood around $1.40 billion in these EZs. Thus, the high expectation that EZs will draw a big chunk of FDI within a decade will take more time to be realised. The crisis and instability in the country's foreign exchange market during the last two years may also discourage potential foreign investors. And there is no quick fix to attract a higher amount of foreign investment within a year or two.​

 

[Saif]

Reserves fall below $19 billion, first time in 11 months

$1.63 billion of ACU payment was settled today

www.thedailystar.net

Reserves fall below $19 billion, first time in 11 months
$1.63 billion of ACU payment was settled today

Bangladesh's foreign exchange reserves fell below the $19 billion-mark for the first time in 11 months.

It hit $18.26 billion today after the central bank settled $1.63 billion worth of import bills of two months through the Asian Clearing Union (ACU), an arrangement for settling transactions, Bangladesh Bank Spokesperson Md Mezbaul Haque told The Daily Star.

The country's gross foreign exchange reserves were at $19.82 billion on May 8, as per the calculation method of the International Monetary Fund (IMF).

Bangladesh Bank began calculating forex reserves according to the method of the IMF in July 2023.

On July 13 last year, foreign exchange reserves were $23.56 billion.

However, Bangladesh Bank says, according to its calculation, the forex reserves now stands at $23.71 billion after the ACU payment, down from $25.27 billion on May 8.​

 

[Saif]

A catch-all tax dragnet likely in new budget

Zero-rated import taxing is no more as a catch-all tax dragnet is being set in the upcoming budget to spare none, nor even the special- privilege-enjoying lawmakers, sources say. A provision of nominal taxes is envisaged to replace the complete waiver, as part of a latest plan to enhance Ban

thefinancialexpress.com.bd

A catch-all tax dragnet likely in new budget
Finance minister-NBR meet agrees on IMF cues
DOULOT AKTER MALA
Published :
May 13, 2024 00:03
Updated :
May 13, 2024 00:03

Zero-rated import taxing is no more as a catch-all tax dragnet is being set in the upcoming budget to spare none, nor even the special- privilege-enjoying lawmakers, sources say.

A provision of nominal taxes is envisaged to replace the complete waiver, as part of a latest plan to enhance Bangladesh's low tax-GDP ratio.

In the first place, the National Board of Revenue (NBR) may withdraw the duty-free benefit on import of cars by the lawmakers in the next fiscal year.

The government revenue authority, on the other hand, is considering slashing corporate-tax rate by 2.5 per cent by tagging some conditions for availing the benefit in the FY 2024-25.

Sources in the NBR said the proposals were placed in a meeting Sunday with Finance Minister Abul Hassan Mahmood Ali and State Minister for Finance Waseqa Ayesha Khan, at the pinnacle of budget-making process.

Officials said the proposals received "positive nod" from the finance minister and might be finalised in a meeting with Prime Minister Sheikh Hasina, scheduled for tomorrow (May 14).

As per the Customs Act, a number of capital machinery, agriculture inputs and some raw materials for manufacturing sector are entitled for zero-duty import.

In the meeting with the NBR, held at its office, the minister instructed framing fiscal measures with sights on "current economic perspectives and in a business-friendly manner" so as to strike a balance between government vision and recommendations of the International Monetary Fund (IMF).

"Make a cautious move on phasing out tax exemptions considering survival of the local industries," the finance minister was quoted as saying in his direction.

The minister also suggested keeping the tax benefit for Information and Communications Technology (ICT) in a modified form for next year.

The tax benefit for ICT sector is destined to expire on June 30, 2024.

Income Tax, VAT and Customs wings of the NBR placed their budget proposals in separate meetings with Mr Mahmood.

The customs wing proposed to phase out tax benefit from import of finished goods and cut a bunch of tariff protections to encourage domestic industries to export their goods.

Tax officials said take it as an "uphill task to frame fiscal measures balancing two aspects -- increasing tax-GDP ratio and focus on business-friendly taxation.

As per the IMF prescribed target, the NBR will have to raise its tax-GDP ratio, currently 7.9 per cent, by 0.5 percentage point in the next FY.

NBR officials said they have to phase out the tax breaks from the industries that became self-reliant with the fiscal incentives and developed capacity to pay taxes.

On imposing a nominal tax replacing zero rate, the officials said industries "will have to develop tax- payment culture by starting to pay a nominal amount of taxes".

Currently, Customs have six base rates as Customs Duty (CD) such as 0, 1, 5, 10, 15, 25 per cent. As per graduation criteria for Bangladesh to be a middle-income country by 2026, the customs will have to cut down the highest slab by 5.0 percentage points to 20 per cent.

It will also have to cut back on the minimum value of import goods as per Trade Facilitation Agreement (TFA) of the World Trade Organisation.

Currently, a Member of Parliament is entitled to duty-free benefit on import of one car in his/her tenure. The provision was introduced during the Ershad rule, on May 24, 1987.

Almost all MPS availed the duty-free benefit earlier to import luxury cars, which raised controversies on alleged handing over the car to a third party earlier.​

 

[Saif]

Make budget tight, control inflation

Prime Minister Sheikh Hasina yesterday directed the finance ministry to formulate a contractionary budget for the upcoming fiscal year to control inflation.

www.thedailystar.net

Make budget tight, control inflation
PM asks finance ministry

Prime Minister Sheikh Hasina yesterday directed the finance ministry to formulate a contractionary budget for the upcoming fiscal year to control inflation.

During a meeting with officials from the finance ministry, Bangladesh Bank, and the National Board of Revenue (NBR) at the Gono Bhaban, PM Hasina mentioned that developed countries like the United States and Japan increased their policy interest rates to curb inflation and suggested similar measures in Bangladesh.

She asked for prioritising pledges made in the government's election manifesto while preparing the next budget and directed the continuation of the existing austerity measures for different ministries and divisions.

The PM also directed the NBR to broaden its tax net rather than putting pressure on taxpayers and to take various measures to increase revenue collection.

She discouraged the import of luxury items and expressed dissatisfaction over the import of items like plastic flowers.

Hasina asked the finance ministry to consider increasing the number of beneficiaries of social safety net programmes.

According to meeting sources, finance ministry officials assured the premier that pressure on the country's foreign currency reserves would ease and inflation would fall starting in December.

The meeting saw a presentation on the next budget prepared by the finance ministry.

According to the presentation, the government plans to design a Tk 7,96,900 crore outlay in the new budget with a focus on tight spending as economic headwinds are expected to persist.

The draft budget is 4.6 percent bigger than the original budget for the current fiscal year.

The next Annual Development Programme (ADP) allocation will be Tk 2,65,000 crore, an increase of 0.76 percent.

Finance Minister AH Mahmood Ali, State Minister for Finance Waseqa Ayesha Khan, Finance Secretary Khairuzzaman Mozumder, Bangladesh Bank Governor Abdur Rouf Talukder, and NBR Chairman Abu Hena Md Rahmatul Muneem attended the meeting.​