[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Govt must address inflation, banking sector irregularities

A CONSISTENT upward trend in the volume of currency held outside the banks over the past few months brings forth a number...

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Govt must address inflation, banking sector irregularities
Published: 00:00, Mar 19,2024

A CONSISTENT upward trend in the volume of currency held outside the banks over the past few months brings forth a number of issues that warrant attention. The amount of cash held outside the country’s banks increased in January to reach Tk 2,57,295 crore from Tk 2,54,860 crore in December, Tk 2,48,441 crore in November and Tk 2,45,943 crore in October. The figure was Tk 2,05,895 crore in October 2021. The increase in the volume of cash held outside the banks is blamed on consistent high inflation, people’s declining purchasing power, an erosion of trust in banks and a rise in informal economic activity. The overall inflation rate reached 9.67 per cent in February, while the rate, according to even the conservative estimate of the Bangladesh Bureau of Statistics, remained over 9 per cent for the past 12 consecutive months. Food inflation, meanwhile, has remained higher than non-food inflation. The high inflationary pressure have devalued the taka and negatively impacted people’s purchasing power. Depositors have, as a result, continued to withdraw their deposits to meet the rising costs of living. Widespread irregularities in the banking sector have, moreover, caused an erosion of trust in banks, causing declining deposits in the banks. What is worrying is that the government and the central bank have failed to address both the issues.

When most countries that experienced inflationary pressures since early 2022 in the wake of the Russia-Ukraine war have largely succeeded to contain inflation with effective monetary and fiscal policies, Bangladesh appears to have lamentably failed to address the issue. The mismatch between the expansionary fiscal policy of the government and the contractionary monetary policy of the central bank has rendered all initiatives aiming at containing inflation ineffective. And, with a rise in cash outside the banks the central bank is hardly at a position to control money supply, which is crucial to managing inflation and ensuring economic stability. The authorities have also failed to address the irregularities in the banking sector that has caused a trust deficit, resulting in a decline in deposit. Two-thirds of the banks are, according to the Bangladesh Bank, in a bad shape. In the recent Banks’ Health Index and HEAT Map, the central bank has categorised banks into three zones: green, yellow, and red. The index finds the health of only eight local banks in a good shape and finds 12 banks in a critical condition, among which nine are put in the red zone. Twenty-nine banks are in the yellow zone, suggesting weak and fragile condition and requiring special supervisory attention. The banking sector has for long been plagued by a sharp rise in defaulted loans, scams, irregularities, mismanagement and a lack of good governance. Such a sorry state of the banking sector has not only caused a decline in deposit but also encouraged significant economic activity outside the banks.

The consistent increase in cash held outside the banks has implications for monetary policy, liquidity management and overall economic stability. The authorities must, therefore, devise potential policy interventions to address the underlying issues and to achieve economic stability.​

 

[Saif]

Bangladesh’s exports to keep boosting economic growth: BMI

Bangladesh’s exports will continue to contribute to its economic growth in the short term although high inflation, a weaker taka, and restrictions on imports will weigh down consumption and private investment, according to a new report

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Bangladesh’s exports to keep boosting economic growth: BMI​

Bangladesh's exports will continue to contribute to its economic growth in the short term although high inflation, a weaker taka, and restrictions on imports will weigh down consumption and private investment, according to a new report.

The report, prepared by BMI, a provider of insights, data and analytics owned by Fitch Solutions, said a weak macroeconomic environment and lower purchasing power had caused consumers to shift spending away from mid-priced clothing towards low-priced items, benefitting low-wage producers such as Bangladesh. The report was released last week.​

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"We expect that Bangladesh's exports will be bolstered by the growth of low-priced clothing sales across key destinations."

According to BMI, Bangladesh's net exports, which have historically been in the negative, improved to $3.9 billion in the negative, significantly higher than the average net exports of negative $8.1 billion since FY2017-18.

"Net exports are a bright spot as Bangladesh's trade deficit has decreased over recent months and stands at a low, even compared to pre-pandemic levels."

Net exports bottomed out at negative $15.1 billion in the second half of 2021-22, it said.

"The devaluation of the Bangladeshi taka will sustain the country's export competitiveness and keep net export growth elevated."

BMI said Bangladesh's economy is projected to grow 5.4 percent year on year in 2023-24, which is lower than the Bangladesh Bureau of Statistics (BBS) estimate of 5.78 percent.

BMI's prediction is also lower than the forecasts made by the World Bank and the International Monetary Fund.

In January, the World Bank projected that Bangladesh's gross domestic product would slow to 5.6 percent in FY24. The IMF forecast a GDP growth of 6 percent.

This ranges below the robust pre-Covid growth rates, which averaged 6.6 percent in the decade to the pandemic, BMI added.

According to the data service provider, higher inflation and interest rates, capital goods import restrictions, a weaker taka and the ongoing shortage of foreign currency will weigh heavily on private sector investment.

"Although we do not currently forecast the taka to undergo significant further depreciation in the short term, the strong devaluation of the currency in 2022 will continue to weigh on household purchasing power."

Inflation is forecast to average 9.4 percent in FY24, up from 8.9 percent the previous year and considerably above the historical five-year average of 6.3 percent from 2018-19 to 2022-23.

"We forecast private consumption to continue under-performing as high inflation undermines household purchasing power."

It also forecast that private consumption would expand by 6 percent year on year in FY24. But the growth is lower than the stronger growth rates of 8 percent and 7.5 percent recorded in 2020-21 and 2021-22, respectively.

However, it said, robust remittance inflows will provide some upside pressure to consumption.

Remittances inflows, which amount to roughly 5 percent of Bangladesh's GDP, have grown at an average of 22.8 percent per month since October 2023, it said.

"We expect inflows to remain strong, supported by a positive economic outlook for the Gulf Cooperation Council economies," said BMI, forecasting the bloc's economic growth would accelerate from 0.7 percent in 2023 to 2.6 percent in 2024.

An increase in energy prices due to a regionalisation of the Israel-Hamas war poses a key downside risk to the outlook, it said.

BMI added that although energy prices have declined since their rise in response to Russia's invasion of Ukraine, they are expected to remain comparatively high.​

 

[Saif]

Taming Inflation: Let the orthodox monetary policy work

Uncontrolled inflationary pressure is one of the most problematic phenomena in the country.

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Taming Inflation: Let the orthodox monetary policy work​

Bangladesh has been experiencing rising inflationary pressure for at least 18 months. In fact, monthly inflation reached as high as 9.94 percent in May 2023 and still remains stubbornly high at 9.67 percent in February 2024. Uncontrolled inflationary pressure is one of the most problematic phenomena in the country. Lessons from economic history vividly demonstrate that high inflation can hinder macroeconomic stability, erode competitiveness of local entrepreneurs, demotivate investment decisions, and accentuate income inequality by substantially reducing the purchasing power of fixed-income and financially weak households.

Thus, it is not surprising that mature monetary regimes across advanced economies commit to an inflation targeting framework where the primary agenda is to keep inflation at about two percent annually. This also explains why, recently, central banks across advanced economies have responded aggressively to tighten money supply and raise interest rates, which translated into lowering inflationary pressure in their respective economies. Interestingly, this also creates a useful context for evaluating the effectiveness of our monetary policy, which has largely been ineffective in controlling inflation.

More simply, given that global inflation has been coming down over the last 18 months, why has inflation in Bangladesh maintained an upward trend since mid-2022? In other words, why is inflation in countries like India and Sri Lanka less than six percent while it remains above 9.6 percent in Bangladesh? What explains this divergence?

To decode this heterogeneity in monetary performance, this analysis will offer insights on three core issues: (i) the set of factors that has driven the global inflationary pressure and how it has been addressed by central banks across the world. In particular, we try to distil the broad lessons that emerge from the international experience; (ii) the set of factors that has driven the inflationary pressure in Bangladesh, and why Bangladesh Bank has failed to tame the inflationary pressure; and (iii) the exact policy decisions that might help bring the current inflationary pressure under control.
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Drivers of global inflation and lessons for monetary policy​

There is now a consensus among experts that excessive fiscal and monetary stimulus in response to Covid, along with the supply chain disruptions stemming from the aftershocks of the pandemic and Russia-Ukraine war, fuelled this spike in inflation across countries. The initial expectation that the inflationary spike is a transient phenomenon did not come true, and advanced economies started preparing for the worst-case scenario—stagflation—where it was expected that inflation and unemployment rate would rise and remain high simultaneously. This prompted central banks in advanced countries to raise their respective interest rates and commit to contractionary monetary policies, given from the standpoint of macroeconomic management; inflation is seen as a more dangerous problem than unemployment.

For instance, inflation in the United States reached as high as 9.1 percent in June 2022—the highest in 40 years. Responding to this growing crisis, the Fed increased its policy rate eleven times to a range of 5.25 to 5.5 percent—the highest policy rate in 23 years. Consequently, inflation since then decreased substantially, coming down to 3.1 percent in January 2024. Even in India, over the same time span, inflation came down from 7.7 percent to 5.1 percent—responding to the Reserve Bank of India's (RBI) decision to increase the policy rate to 6.5 percent. A similar phenomenon was also observed for the European Union where a contractionary monetary policy brought down inflation from 11.50 percent in October 2022 to 3.1 percent in January 2024.

It is also interesting to underscore that in the US, EU and India, inflation management through contractionary monetary policies did not result in any serious spike in unemployment or nosedive in economic growth. The noted regions have achieved an economic "soft landing," a phenomenon that has pleasantly surprised policymakers who expected costly growth implications of a sustained contractionary monetary policy stance.

Of course, not every nation-state crafted a similar response for inflation management. Türkiye boldly and quite foolishly did what no one expected: its central bank, under pressure from President Tayyip Erdogan, decided to lower interest rates despite an inflation rate of 20 percent, arguing that such measures would help increase investments and smoothen supply-side constraints. But this unorthodox monetary policy experiment did not work and inflation increased to 80 percent in 2022. Subsequently, Türkiye has corrected its earlier devastating monetary policy blunder by increasing its interest rate to 40 percent, which has triggered a downward trend in its inflation rate (standing currently at 65 percent).

On the whole, the global downward trend in inflation validated the effectiveness of an orthodox monetary policy, which views inflation as a largely monetary phenomenon and supports inflation management through contractionary monetary policy stance.
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Drivers of inflation in Bangladesh and BB response​

As the inflationary pressure in Bangladesh remains sturdy, it is essential to pinpoint its possible drivers. According to the latest monetary policy statement published by the Bangladesh Bank, our inflationary pressure is fuelled by three key factors: (i) supply chain disruptions stemming from post-Covid demand spike and Ukraine-Russian war; (ii) exchange rate depreciation due to higher import bills in FY2022 (which could have been due to money laundering through over-invoicing of imports); and (iii) a sharp energy prices adjustments after the Ukraine-Russia war.

This we believe is an accurate but an incomplete assessment as it ignores a number of key additional issues that have seriously compromised the authorities' efforts to contain inflation. These are: (i) keeping the interest rate structure administratively fixed in the range of six to nine percent for a long time, ignoring the global developments and the post-Covid surge in domestic inflation; (ii) keeping the exchange rate virtually fixed against the US dollar for almost 12 years, contributing to a massive balance-of-payment imbalance and a sharp depreciation of the taka; (iii) injection of substantial monetary stimulus to navigate the economic effects of Covid, which was necessary at that time but was not sterilised subsequently; (iv) printing of high-powered money by the Bangladesh Bank for lending to the government to compensate for revenue shortfall in FY2023; and (v) injection of emergency funds through promissory notes into troubled Islamic banks in December 2022 and December 2023, partially offsetting the efficacy of the central bank's contractionary monetary policy stance. Collectively, these issues need serious recognition in policy formulation.

It is also essential to underscore that the Bangladesh Bank's initial narrative that the inflation was transitory due to external supply shocks and would unwind with supply situation improving was wrong. Thus, its earlier reluctance to remove the six to nine percent interest rate band undermined its fight against inflation. The unchanged interest rate policy also widened the interest rate differential in favour of the US dollar, thereby undermining the authorities' efforts to limit the depreciation of taka by making the taka less attractive against the dollar. The unfavourable return on taka assets coupled with the exchange rate depreciation turned the financial account of the balance of payments significantly negative for the first time in many decades, accentuating pressure on foreign exchange reserves and the exchange rate as short-term capital inflows dried up. Since up to 40 percent of inflation could be attributed to the 30-35 percent depreciation of the taka, an aggressive interest rate policy could have a dampening impact on the inflationary pressure.

Going forward, it is encouraging to note that Bangladesh Bank has moved away from its earlier narrative and has announced the adoption of a tighter monetary stance in its latest Monetary Policy Statement. The authorities have already abandoned the six to nine percent interest policy band, have announced that there would be no recourse to central bank borrowing for budget financing, and the resulting bank financing of the budget deficit has contributed to a significant increase in the interest rates on treasury bills and bonds.

The green shoots of macroeconomic stabilisation is already visible in the form of: (i) external current account being in surplus due to import compression; (ii) stabilisation of the official foreign exchange reserves at around $18-20 billion level; (iii) an apparent stabilisation of the exchange rate around Tk 120-124 per dollar for the last three months; and (iv) an upgradation of the outlook for the banking sector by Moody's due to increased profitability, some recovery in bank deposits and improved liquidity situation, all resulting from the abandoning of the fixed interest rate band.

Given the gains already visible, the Bangladesh Bank needs to go further to consolidate the gains. The post-election hike in the policy rate by 25 basis points was too little too late. The policy rate should be increased in steps of 50 basis points per month for the next four months before considering a pause in the policy rate increase. The basic principle should be to "continue increasing the interest rate until the inflation rate comes down close to the target range." We are still very far from that.

The agenda for restoring macroeconomic stability including price stability—in addition to interest rate hikes—will require (i) unification of the exchange rate in the interbank market; (ii) a sizable cut in non-essential fiscal spending (which we believe is underway); and (iii) refraining from central bank financing of the budget deficit despite the expected pickup in budgetary spending in the final quarter of FY2024. Notwithstanding the initial hesitations and delays, the authorities' current policies are in the right direction and working. What is needed is to strengthen the orthodox policy measures further along the lines described above, and allow for six to nine months of time for the policies to deliver the desired results.​

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Dr Ahsan H Mansur and Dr Ashikur Rahman are executive director and senior economist, respectively, at the Policy Research Institute (PRI).​

 

[Saif]

External debt crosses $100b for first time

Bangladesh’s external debt has crossed the $100 billion mark for the first time, indicating a challenging future amid foreign exchange shortage.

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External debt crosses $100b for first time​

Bangladesh's external debt has crossed the $100 billion mark for the first time, indicating a challenging future amid foreign exchange shortage.

At the end of 2023, the overall external debt stood at $100.6 billion, up from $96.5 billion a year earlier, as per the latest data from the Bangladesh Bank.

Of the external debt, $79.69 billion was taken by the public sector and the rest by the private sector. About 85 percent of the loans are long-term and the rest are short-term.

The debt buildup, which is still within the threshold recommended by the International Monetary Fund (IMF), is becoming a headache for the country given the unfavorable developments on various economic fronts.

"This is concerning that the external debt is increasing," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

To tackle the situation, the supplier credit that is being taken from China and Russia must be stopped now, he said.

Supplier credit is an agreement in a commercial contract under which an exporter will supply goods or services to a foreign buyer on credit terms.

If external debt continues to rise, with it the repayment challenges will mount as the country's earning capacity is slowing, both in terms of revenue and foreign exchange, said Mansur, a former economist of the IMF.

Both external debt and debt servicing are growing, said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.

In the first five months of the fiscal year, the government's spending on interest payments for foreign debt surged 136.7 percent year-on-year to $562 million.

"The latest batch of external debt is costly, so we have to be alert that there is no problem in debt servicing," Rahman said.

The returns against the foreign loans are coming in local currency and because of the devaluation of the local currency against the dollar, the cost of foreign debt will increase, he said.

The foreign loans that are piled up in the pipeline for projects will have to be used soon to avoid increasing the servicing costs, he added.

Meanwhile, the private sector's foreign loans have dropped about 14 percent to $20.95 billion.

Previously, the interest rate for foreign loans was 1 percent to 2 percent but it has now jumped to 8 percent to 9 percent, said a top official of the central bank.

"This is the main reason for the declining trend of private sector foreign loans," he added.​

 

[Saif]

Gross forex reserves dip below $20b again

The gross foreign exchange reserves in Bangladesh, according to the International Monetary Fund guidelines, dropped to $19.98 billion...

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Gross forex reserves dip below $20b again
Staff Correspondent | Published: 23:09, Mar 21,2024

A file photo shows a man counting dollar notes in the capital Dhaka. The gross foreign exchange reserves in Bangladesh, according to the International Monetary Fund guidelines, dropped to $19.98 billion on Wednesday. — New Age photo

The gross foreign exchange reserves in Bangladesh, according to the International Monetary Fund guidelines, dropped to $19.98 billion on Wednesday.

According to Bangladesh Bank data, the foreign exchange reserves reached the current level on the day from $20.78 billion at the end of January 2024 and $21.86 billion at the end of December 2023.


However, based on the Bangladesh Bank’s conventional valuation, the foreign exchange reserves were reported as $25.24 billion on that day.

The reserves did not fall significantly as the central bank received more than $1 billion from banks under recently launched swap arrangements, bankers said.

As the banks are facing serious liquidity crisis, they are searching for options for local currency under the arrangements, they said.

So, the dollar rate declined by Tk 4-6 each on the open market to Tk 117 each.

The foreign exchange reserves had previously dropped to $19.13 billion on December 6, 2023, but recovered to $21.74 billion on January 4 after receiving $689 million in loans from the International Monetary Fund and $400 million from the Asian Development Bank.

The Bangladesh Bank follows the IMF’s BPM6 for calculating gross and net international reserves.

The decline in the country’s foreign exchange reserves continued due mainly to a significant dollar shortage on the market, which has compelled the central bank to continue selling dollars to the banks from its reserves, BB officials said.

Due to payments made to the Asian Clearing Union, the reserves also declined.

The Asian Clearing Union is a payment settlement forum whereby the participants settle payments for intra-regional transactions through participating central banks on a net multilateral basis.

Payment obligations of transactions among Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are settled through the ACU payment system.

Apart from the payment obligations to ACU, the ongoing sales of foreign currency to the country’s banks by the central bank contributed to the reduction in the country’s foreign exchange reserves.

The central bank has been selling dollars to commercial banks, with more than $30 billion sold over the past 32 months.

This included $9 billion allocated to banks in July-February of the financial year 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22.​

 

[Saif]

Window for easy loans narrowing

Bangladesh’s access to cheap loans is closing in with its rising per capita income, making foreign borrowing costlier.

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Window for easy loans narrowing​

Market-based interest rates raise govt’s development expenses

Bangladesh's access to cheap loans is closing in with its rising per capita income, making foreign borrowing costlier.

The country now has to go for borrowing at the costlier market-based rates to keep up development spending, according to a report of the Economic Relations Division.

The interest rate risk is high when the debt portfolio is dominated by market-based rates as the size of interest payment is based on the vagaries of the global economy.
For instance, Bangladesh's cost of foreign loans has been on the rise in recent times as the interest rates have shot up globally.

In 2023, the government borrowed about $2.6 billion at the market-based rate, which accounted for 30.7 percent of the total committed loans. In 2022, it was $3.42 billion, which was 43.9 percent of the total.

Take the case of the World Bank, one of the major lenders of Bangladesh. Until 2018, its loans carried no interest; all the government had to bear was a 0.75 percent service charge, which was sometimes waived.

When the country's status was upgraded to a lower middle-income country in October 2018 from a low-income nation, the WB fixed a 2 percent interest rate and the repayment period was adjusted downwards to 25 years from 30 years previously. The grace period was halved from 10 years.

The reason for the tougher loan terms is Bangladesh is now a "GAP" country, meaning the country is currently at a stage where it can borrow at a market-based interest rate if it wants.

It is the same in the case of the Asian Development Bank, another major development partner, which allocated loans at a fixed and low-interest rate previously. Before 2000, the interest rate was only 1 percent, which jumped to 2 percent in 2013.

From January 2022 to July 2023, the government signed loan deals worth $4.4 billion with the ADB, with 54.5 percent of the amount taken at market-based interest rates.

Bangladesh started borrowing from the Asian Infrastructure Investment Bank since its inception in 2016 and the Beijing-based lender ramped up lending during the pandemic to help the economy recover from the shock by the way of extending budgetary support.

As of June 2023, the government secured $3.4 billion from the bank and the interest rate on the loans is market-based.

A portion of the market-based loans from the ADB and AIIB are budget support taken during the pandemic.

Russia lent about $11.9 billion for the country's biggest infrastructure project: the Rooppur nuclear power plant. The interest rate is Libor plus 1.75 percent.

The London Interbank Offered Rate (Libor) was a benchmark interest rate before it was phased out in June last year and replaced by the Secured Overnight Financing Rate (SOFR).

The SOFR stands at more than 5 percent currently whereas it was less than 1 percent before the latest surge in the cost of funds.

Moscow has already disbursed about $6.5 billion.

Some additional charges take the borrowing rate to 8 to 9 percent, finance ministry officials said.

Japan, the largest development partner of Bangladesh among the bilateral donors, gave out loans at less than 1 percent before it changed its official development assistance policy to increase the interest rate for low-middle-income countries in October 2023.

As a result, the new deals with Japan were signed at a 1.6 percent interest rate.

The upward revision of the interest rate also came as development partners have taken into account the country's growing repayment capacity manifested from the growing per capita income.

In the last fiscal year, the per capita income rose to $2,765 from $1,130 in fiscal 2011-12.

As of January, the total outstanding external loans of the government were $66.8 billion, with about 61 percent of the sum disbursed in the last three fiscal years.

Usually, the loan repayment starts after a loan matures, but the interest payments begin immediately after the release of the funds. Since the loan portfolio has ballooned, the debt servicing has widened simultaneously.

Foreign loan repayments rose 32.4 percent in fiscal 2022-23 while interest payments surged 88.8 percent.

The trend has continued into the current fiscal year: loan payments climbed 44.5 percent and interest servicing rocketed 108.2 percent in the first seven months.

Annual loan repayment was less than $2 billion before fiscal 2021-22. In fiscal 2022-23, it rose to $2.67 billion.

As per the finance ministry projection, $3.57 billion will be required this fiscal year to service debts and $4.5 billion in the next fiscal year.

If the interest rate and loan utilisation keep increasing, repayment will cross $5 billion by that time, said a finance ministry official.

The escalating interest spending will put pressure on the budget.

"We pay Tk 1 as an interest payment for every Tk 4 expenditure from our budget. Therefore, if we can't increase the revenue mobilisation, our budget will be under pressure," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

In recent times, the government has taken various steps to raise taxes.

Still, at less than 9 percent, Bangladesh has one of the lowest tax-to-GDP ratios in the world.

To keep the risks stemming from rising debt servicing under check, the government now has two options: one is to collect more revenue or to take on more loans.

"The government should take the decision now. Besides, it should reduce its expenditure. We need to make our state-owned enterprises profitable, cut illogical subsidies and allocate more foreign loans to development projects on a priority basis," Hussain said.

Complicating matters for the government is the unprecedented appreciation of the dollar. The greenback has gained by as much as 30 percent against the taka in the past two years.​

 

[Saif]

Steps needed to enjoy LDC-like benefits after graduation: experts

In order to enjoy benefits of a least developed country, Bangladesh needs to think from three perspectives – as an LDC, graduating from...

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Steps needed to enjoy LDC-like benefits after graduation: experts
Staff Correspondent | Published: 22:23, Mar 24,2024

Centre for Policy Dialogue distinguished fellow Mustafizur Rahman and Institute of Chartered Accountants of Bangladesh president Mohammed Forkan, among others, are present at a roundtable discussion organised by ICAB at CA Bhaban, Karwan Bazar in the capital Dhaka on Sunday.— New Age photo

In order to enjoy benefits of a least developed country, Bangladesh needs to think from three perspectives – as an LDC, graduating from LDC and as a developing country, to negotiate the benefits to the country’s side, said Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue.

During a roundtable discussion on Sunday, he said that benefits enjoyed by LDCs, such as duty-free access and preferential treatment on the international markets, will go away once Bangladesh graduates from the list in November 2026,

The roundtable discussion titled ‘Outcome of 13th Ministerial Conference, Abu Dhabi, UAE’ was organised by the Institute of Chartered Accountants of Bangladesh at CA Bhaban, Karwan Bazar in the capital Dhaka.

‘Product diversification in the export sector is required for the survival of the sector after graduating from the LDCs. We need to sign more free trade agreements and comprehensive trade agreements and development of transport sector should be used to establish economic corridors,’ he added.

He further said that action must be taken to transform comparative advantage into competitive advantage.

ICAB president Mohammed Forkan Uddin said, ‘We need to think about the situation after LDC graduation, in terms of preferential market access, preferential treatment for services and service suppliers and special treatment regarding obligations and flexibilities under WTO rules.’

Federation of Bangladesh Chambers of Commerce and Industries adviser Manzur Ahmed said that foreign trade should be integrated through regional agreements, bilateral agreements and some alternative commercial agreements. In future, Bangladesh needs to pay particular attention to the implementation of multilateral trade, he added.

Former ICAB president and taxation and corporate laws committee chairman Md Humayun Kabir moderated the discussion with other government officials, researchers and experts present.​

 

[Saif]

Govt aims for a cashless economy by 2031

Mohammad Arif Hossain, CEO of payment service provider Dmoney, said if the government gives merchants a 1 percent incentive and customers a 2 percent cashback, it could yield big results.

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Govt aims for a cashless economy by 2031​

BB official tells BASIS workshop

Photo: Amran Hossain

The government has set a target to transform the country into going completely cashless, that is when payments will be made solely online, by 2031, said a top official of Bangladesh Bank.

"The honourable prime minister has set a target of achieving 30 percent of transactions in the cashless format by 2025 and 100 percent by 2031," said Md Mezbaul Haque, executive director of the central bank.

The cabinet has assured the banking regulator of its support through interventions wherever necessary, he told a workshop titled "Way Forward to Increase Cashless Payment" organised by the Bangladesh Association of Software and Information Services (BASIS) on its Dhaka premises.

Haque criticised banks' app promotional initiatives, saying that most of their Dhaka branch officials do not know anything about their own apps.

"I acknowledge that many banks have very beautiful apps…they are not marketing it. The use of apps is mainly confined to fund transfers. But the smoothest service is over making payments, which is not being used," he said.

That means customers are being taught only to transfer money and so, banks have a role to play in this regard, he said, adding that bank officials would also have to learn how to make cashless payments.

Haque criticised some banks for failing to generate any transaction in spite of acquiring merchants, saying that their efforts to go cashless such as developing apps and acquiring merchants have now become a ceremonial function.

"I want to be very clear with you that I don't believe in ceremonial activity. If you think that you are making losses (by going cashless), we will make every service costlier for you too," he said.

"You (banks) get many services free of cost (from Bangladesh Bank)…Why are we giving this free of cost service? It's for the customers. So, if the customers are not served, why should we give you free of cost services," he asked.

If customers do not get digital payment services, Bangladesh Bank will discontinue some of the free of cost services, he said.

He urged banks and fintech institutions to assist the government in in achieving its goal of expanding cashless transactions in Bangladesh, assuring that the central bank would provide necessary policy support.

There needs to be more coordination between Bangladesh Bank and the National Board of Revenue (NBR), said Fahim Mashroor, chairman of the BASIS standing committee on fintech and digital payment.

"Some of the recent rules and actions of the NBR are discouraging people from making digital payment and causing them to opt for cash transactions only," he said.

He also suggested greater collaboration between banks and fintech companies to jointly promote digital payment.

Representatives from banks, mobile financial service and payment service providers, payment system operators as well as representatives of small, medium and large retail businesses and networks participated in the workshop.

To popularise BB's uniform digital payment method Bangla QR, every bank should introduce a mobile app for customers while existing apps should be simplified and made more user-friendly to encourage greater usage, they said.

Small shop owners should ensure that digital payments received from customers can be seamlessly transferred to suppliers or wholesalers without cash involvement while digital funds should be easily withdrawable just as cash, they added.

Bangladesh Bank needs to ensure real-time payments and interoperability among different payment systems, they said.

Waseem Alim, CEO of online grocery and food provider Chaldal, said although he was witnessing more digital transactions on the Chaldal platform, 75 percent of payments were still being made in the form of cash.

"Also, as a merchant I am incentivised to use cash because my cost is 0.6 percent, which includes maintaining a cashier at 19 locations in an AC room, cost of transporting cash etc," he said.

But the cost of mobile financial service is 1.5 per cent and card is 2.5 percent. So digital transaction cost needs to be less than 0.6 percent, he added.

Mohammad Arif Hossain, CEO of payment service provider Dmoney, said if the government gives merchants a 1 percent incentive and customers a 2 percent cashback, it could yield big results.

"This move would boost government revenue through higher VAT and tax collections. It would also make transactions easier to track, promoting honesty and transparency," he added.

Moderating the event, Syed Mohammad Kamal, country manager for Bangladesh at Mastercard, said incentives were crucial at both the consumer and small merchant ends for encouraging digital payments.​

 

[Saif]

Devalue taka for exchange rate stability

Experts tell Bangladesh Institute of Development Studies seminar

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Devalue taka for exchange rate stability​

Experts tell BIDS seminar

Researchers and economists yesterday suggested that the local currency be devalued further by 10 percent to 15 percent against the US dollar to match unofficial exchange rates and restore market stability.

The exchange rate was kept almost fixed artificially till 2022 and it did not follow the market trend. But as the foreign exchange reserves dwindled owing to higher US dollar outflows compared to inflows, the taka has lost its value by about 30 percent in the past two years.
Still, the exchange rate stability is yet to be there.

"The exchange rate situation worsened due to faulty macroeconomic management while the interest rate, inflation and international reserve management contributed to the current crisis," said Monzur Hossain, a research director of the Bangladesh Institute of Development Studies (BIDS), while presenting a keynote paper.

He spoke at a seminar on "Unpacking the Economic Manifesto of the Awami League: Trends and Challenges for Tomorrow's Bangladesh" organised by the BIDS on its premises in the capital.

Speaking at the event, researchers and economists said allowing the Bangladesh Foreign Exchange Dealers Association (Bafeda) and the Association of Bankers Bangladesh (ABB) to fix the exchange rate is unacceptable.
Foreign exchange management must be under Bangladesh Bank's jurisdiction, added the experts.

The analysts also recommended a dynamic exchange rate management with indicative adjustments following the real effective exchange rate (REER) and accommodative monetary policy with interest rate deregulations.

The REER is a measure of the value of a currency against a weighted average of several foreign currencies divided by an index of costs.

"Efficient management of authorised dealers' banks is needed for exchange rate stability," said Hossain.

"Policies to sell foreign currencies through money exchanges need to be revisited while they can be replaced by bank booths."

He said strict enforcement of laws must be ensured against loan defaulters, money launderers and financial irregularities to boost the confidence of customers.

Hossain welcomed the mergers and acquisitions move initiated by the central bank. He, however, warned decisions must be taken carefully and loan rescheduling and write-offs need to be discouraged.

He thinks a banking commission comprising experts, economists and policymakers could be useful in fulfilling reforms in the sector.

"New banks should not be allowed at least for the next five years."

Regarding the current problems of the financial sector, Hossain highlighted the high non-performing loans, inadequacy in capital requirements and the sorry state of a good number of private banks.

He also blamed weak regulatory control over some banks, weak corporate governance in the banking sector, politically active board members and owners and a lack of enforcement of laws.

On the post-pandemic crisis, Hossain cited multiple exchange rates, restrictions on imports, sharp depletion of reserves and rising inflation amidst a depreciating taka as the major reasons.

While presenting a keynote paper, Binayak Sen, director general of the BIDS, focused on nine priority issues for tomorrow's Bangladesh, including educational quality and equality and drawing in more foreign direct investment.

He said more efforts are needed in a shift from import tariffs and trade taxes to direct taxes.

"We need a 15 percent to 17 percent tax-to-GDP ratio to be consistent with the middle-income status and we have to increase the latter at half a percentage point every year."

Planning Minister Maj Gen (retd) Abdus Salam was the chief guest at the seminar's first session titled "Macroeconomic Stability, Fiscal Efforts and Agriculture" while Mashiur Rahman, economic affairs adviser to the prime minister, spoke as the special guest.​

 

[Saif]

Foreign loan commitment jumps 300% in Jul-Feb

Although foreign aid commitments made to Bangladesh by global lenders surged more than 300 percent year-on-year in the first eight months of the current fiscal year of 2023-24, disbursement has remained almost flat.

www.thedailystar.net

Foreign loan commitment jumps 300% in Jul-Feb​

Disbursement rises 2%

Although foreign aid commitments made to Bangladesh by global lenders surged more than 300 percent year-on-year in the first eight months of the current fiscal year of 2023-24, disbursement has remained almost flat.

In the July-February period, loan commitments from development partners increased to $7.2 billion, up 304 percent, according to the Economic Relations Division (ERD) of the finance ministry.​

​

Around $6.74 billion came in the form of loans while the remaining $461.14 million were grants.
But at a time when Bangladesh is badly in need of foreign currencies, the loan disbursement stood at $4.99 billion, only up by 2 percent from that in the same period a year ago.

Lower disbursement of foreign assistance is a perennial problem for Bangladesh, driven by the country's failure to implement projects on time and meet conditions attached to loans by lenders.

The lower release of funds has prompted the government to order ministries to accelerate the use of loans to give a much-needed fillip to the foreign exchange reserves, which have halved in a span of two years.

Besides, the country's foreign debt servicing rose by 43 percent in the first eight months of the current fiscal year, which was mostly driven by rising interest rates.

In the July-February period, the government paid $2.03 billion for interest and principal payments to international lenders, up from $1.42 billion in the same period of the previous year.

The finance ministry projects that foreign debt repayments, including interest, will reach $4.5 billion in 2025-26.

In the current fiscal year, repayments are likely to jump by 33.52 percent to $3.57 billion, crossing the target of $2.79 billion set in the national budget.

Asian Development Bank (ADB) released most of the money in the eight-month period, totalling $1.30 billion, followed by America and Japan of a total of $1.04 billion.

Furthermore, World Bank disbursed $877.87 million, Russia $807.50 million, and China $361.71 million.
In terms of commitment, the ADB also secured the top position with $2.62 billion, followed by America and Japan with $2.02 billion.​

 

[Saif]

Forex reserves keep eroding despite currency swap

Under the currency swap agreements introduced last month, the banking regulator took $1.17 billion from commercial banks and injected around Tk 20,000 crore in the form of local currencies into the banking system, according to several central bankers.

www.thedailystar.net

Forex reserves keep eroding despite currency swap​

Bangladesh's foreign currency reserves are yet to reach a comfortable position despite introducing currency swap deals with commercial banks, growing remittance inflows ahead of Eid, falling imports and a spike in exports.

The reserves stood at $19.45 billion on Wednesday, down by a staggering $533.82 million in the span of a week due to the selling spree of the American greenback by the central bank to commercial banks.​

​

Under the currency swap agreements introduced last month, the banking regulator took $1.17 billion from commercial banks and injected around Tk 20,000 crore in the form of local currencies into the banking system, according to several central bankers.

The inflow of remittance has been increasing since January and it is expected to receive a major boost this month and next month owing to Eid-ul-Fitr as remitters transfer a higher volume of funds to help their families and relatives at home celebrate the occasion with festivity.

Between March 1 and March 22, Bangladesh received $1.41 billion in remittances and this might cross $2 billion at the end of the month.

Imports fell 7.62 percent year-on-year to $5.45 billion in January, the latest for which the central bank data is available. Exports rose 12.04 percent to $5.19 billion in February.

Despite the positive developments, the forex reserves are still not out of the woods and it fell further owing to an elevated demand for the US dollars and the recent Asian Clearing Union (ACU) payments by the central bank.

The Union is a payment arrangement whereby the participating countries -- Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka -- settle payments for intra-regional transactions among themselves.

The reserves were $21.15 billion in the first week of March before slipping to $19 billion after the clearance of $1.35 billion in ACU payments, said a number of central bank officials.

The officials say the BB is now trying to keep the reserves within the limit set by the International Monetary Fund (IMF) with its $4.7 billion loan programme. However, it will be difficult to do so since the central bank has to supply US dollars from its reserves to help them settle import bills.

Currently, the net forex reserve stands at less than $18 billion. The country will have to ensure a minimum reserve of $19.27 billion by March and $20.11 billion by June to meet the conditions of the Washington-based lender.

The net international reserves are calculated as reserve assets minus predetermined net short-term foreign currency drains.

The banking watchdog needs to support state-run enterprises to clear import obligations.

State-run banks are particularly securing US dollars from the BB for settling import payments of the Bangladesh Petroleum Corporation, the Bangladesh Agricultural Development Corporation, and the Bangladesh Chemical Industries Corporation, among other government agencies.

In July-December of the current financial year, the BB sold $5.68 billion to banks, BB data showed. The BB has pumped more than $28 billion into the banking sector from its reserves in just two years, a development that caused the reserves to halve.

The chief executive of a private commercial bank told The Daily Star that the currency swap arrangement is not helping the central bank to improve its net reserve situation because it is a liability.

He, however, acknowledges that the deals are boosting the gross reserves.

Banks are buying US dollars at Tk 119 to Tk 122 from remitters but they have to sell them at Tk 110 per dollar to the central bank. As a result, banks are incurring losses.

Emranul Huq, managing director of Dhaka Bank, however, said the currency swap is a win-win situation for both the central bank and commercial banks.

"Some banks have idle US dollars and they now can keep them with the central bank because the interbank exchange rate is not fully active now."

"The arrangement is also allowing banks confronting liquidity shortage to avail local currencies from the central bank in exchange for the international currencies."​

 

[Saif]

Govt plans securing $10b foreign loan

Breaking News, International News & Multimedia

thedailynewnation.com

Govt plans securing $10b foreign loan
31 Mar 2024, 12:00 am0
Staff Reporter :

In the fiscal year 2023-24, the government has planned to secure loans amounting to nearly $10 billion from international financial institutions and its development partners, including the World Bank, Asian Development Bank (ADB), and Japan.

This move comes as the government aims to address economic challenges and bolster reserves amidst a global financial landscape fraught with uncertainties.

According to sources within the Economic Relations Division, the government has set a target of securing agreements for loans equivalent to $993 million for the current fiscal year from various donors.

Considering the prevailing market exchange rate, which stands at approximately Tk. 1.09 trillion, this represents a substantial financial injection into the economy.

Notably, loan agreements totaling $720 million have already been signed in the past eight months (July-February), accounting for 72% of the planned borrowing for the entire fiscal year.

Economists emphasize the urgent need for foreign assistance amid the current economic scenario.

They argue that increasing the supply of dollars is essential to alleviate the ongoing dollar shortage and maintain foreign currency reserves.

Ahsan H. Mansur, Executive Director of the Policy Research Institute (PRI), suggests that securing loans through projects rather than budgetary support would be more beneficial for the country.

Mansur stresses the importance of careful consideration and analysis before entering into loan agreements, as these loans entail interest payments that must be factored into the budget. With government spending on interest rising, there is mounting pressure on the budget.

To expedite the implementation of foreign loan projects and accelerate the disbursement of foreign aid, a committee was formed under the leadership of the Principal Secretary to the Prime Minister, Tofazzal Hossain Mia, on January 24th of this year.

The largest portion of planned loan agreements falls under the pipeline of the ADB, with agreements totaling $2.99 billion. Of this amount, agreements worth $262 million have been signed with the ADB from July to February.

Japan follows closely, with planned loan agreements totaling $2.41 billion for various projects with the government. During the first eight months of the fiscal year, agreements amounting to $202 million have been signed with Japan.

Additionally, the World Bank's pipeline includes agreements amounting to $1.42 billion.

Agreements for new loans have been finalized with the World Bank in the past eight months, totaling an estimated $142 million.

At present, there are no new projects in the pipeline awaiting loan agreements.

However, discussions and negotiations with international partners continue as the government seeks to secure necessary financing to support economic growth and development initiatives.​

 

[Saif]

Worry about economic woes over now Finance minister tells economic reporters

Concern about the country's economic condition is now all over, claimed the finance minister on Sunday and presented before journalists a brief account of the latest macroeconomic developments. Mr Abul Hassan Mahmood Ali told the economic reporters that due to higher remittance inflow and an incre

thefinancialexpress.com.bd

Worry about economic woes over now Finance minister tells economic reporters
Finance minister tells economic reporters​

Apr 01, 2024 00:11

Updated :​

Apr 01, 2024 00:11

Concern about the country's economic condition is now all over, claimed the finance minister on Sunday and presented before journalists a brief account of the latest macroeconomic developments.

Mr Abul Hassan Mahmood Ali told the economic reporters that due to higher remittance inflow and an increase in export earnings, the dollar crisis eased significantly, leading to improvement in the country's overall the economic condition.

The finance minister was speaking at a pre-budget discussion with a delegation of the Economic Reporters Forum at his secretariat office in the capital, Dhaka.

The ERF team placed a number of recommendations with the minister for consideration as the budget for the next fiscal year is on the anvil with inputs drawn from various quarters concerned.

Mr Ali noted that some people were telling that the country was heading for an economic situation that Sri Lanka experienced-political upheavals triggered by an abrupt financial meltdown in the South Asian island nation.

However, he said, that apprehension proved to be "wrong".

The new economic pointsman of the Awami League government pointed out some developments in the positive direction on the financial front. He said a delegation of the Asian Infrastructure Investment Bank (AIIB) met him recently and assured him of extending financial support as much as needed.
On getting such assurance he feels that there is "nothing to feel concerned about".

"There is no crisis in the country," he said.

The minister thinks whatever needed people are getting those. But he agreed that there is some sort of dissatisfaction brewing over the commodity prices. "The country is running in line with the open-market-economy concept," he said.

Finance Division secretary Dr Khairuzzaman Mozumder said in the last one to two months the country's economy performed "very well". "Our export is rising continuously, remittance is also increasing. The exchange rate has become somewhat stable."

And the good news is the development partners are also telling that Bangladesh's economic condition is becoming stable, he said.

In its proposal, the ERF, the apex body of Dhaka-based economic reporters, advocated for reduction in duty on import of some basic commodities to help lessen the impacts of high inflationary pressure on the consumers.

Also, the forum suggested raising agri-subsidy, lowering import duty on cattle, poultry, and fish feeds, incentives for cottage, micro, small, and medium enterprises, providing subsidy to the exporters in different names like technology-upgrading fund or skills- development fund after Bangladesh's graduation from the least-developed-country club, and ensuring gas and power supply in the industrial units at any cost.

The ERF-delegation members also urged the minister for creation of trustworthy environment in the banking system, ensuring transparency and accountability in the energy sector, stopping gold smuggling, allowing offshore investment by Bangladeshi large businesses, not taking any new mega-infrastructures in next three years, and steps for employment generation, among others.​

 

[Saif]

Remittance drops even before Eid

Remittance dipped in March ahead of Eid-ul-Fitr, in a departure from the historical trend that saw inflows take a spike centring on the biggest festival in the country.

www.thedailystar.net

Remittance drops even before Eid

Remittance dipped in March ahead of Eid-ul-Fitr, in a departure from the historical trend that saw inflows take a spike centring on the biggest festival in the country.

In March, migrant workers sent home $1.99 billion, down 1.23 percent year-on-year, according to data from the Bangladesh Bank.

March's receipts were the lowest in 2024, raising concerns about whether the wheels have come off on the rebound seen in remittance inflows from October last year.

Last month's inflows take the total so far this fiscal year to $17.07 billion, up 6.5 percent year-on-year -- a modest growth given the manpower exports in recent times.

In 2023, a record 13.05 lakh workers went abroad for jobs, up 15 percent year-on-year, according to data from the Bureau of Manpower, Employment and Training.

BB Spokesman Md Mezbaul Haque, however, refused to say whether remittance has decreased last month. "There may be a slight increase or decrease," he said.

The reason for the unusual drop in remittance ahead of Eid is that the unofficial rate of the dollar is much higher than the one offered to remitters through the official channel.

Banks can offer the highest Tk 114.5 per dollar, including the Tk 2.5 government incentive, but some are offering up to Tk 120 per dollar, according to bankers. The official exchange rate is Tk 110.

In the last month, the highest amount of remittance came through Islami Bank: $492 million. This was followed by BRAC Bank ($125 million), Trust Bank ($114 million) and Social Islami Bank ($109 million), BB data showed.

On the other hand, some banks were not able to bring a single penny of remittance in March.

Banks are not offering that high rates now as the foreign exchange market is relatively liquid due to the growing trend of export earnings, said Mirza Elias Uddin Ahmed, managing director of Jamuna Bank.

"This may be the reason behind the dip. While remittance inflow of March was not at the expected level, the trend is not bad," he said.

Exports brought home $38.5 billion in the first eight months of the fiscal year, up 3.7 percent year-on-year, according to data from the Export Promotion Bureau.

Ahmed and Syed Mahbubur Rahman, the MD of Mutual Trust Bank, expressed hope that inflows will start picking up from this week centring on Eid.

Eid-ul-Fitr is expected to take place on April 11.

"We need much bigger inflows of dollars to stop the fall of foreign exchange reserves," said a senior official of the central bank on condition of anonymity.

On Wednesday, reserves stood at $19.45 billion, down by a staggering $533.82 million in a week, due to the BB's selling dollars to commercial banks.​

 

[Saif]

Digital currency: Is it the future of money?

CBDCs are a form of digital currency regulated by a country's central bank. They are similar to cryptocurrencies, but their value is fixed by the central bank.

www.thedailystar.net

Digital currency: Is it the future of money?
Experts suggest Bangladesh Bank should explore the prospects of digital currency in building a cashless societ

Participants pose for photos at a roundtable titled "Future of Money: Central Bank's Digital Currency", jointly organised by the PRI and The Daily Star at The Daily Star Centre in Dhaka yesterday. Photo: Rashed Shumon

The government should proactively explore how the adoption of a digital currency can add value to the economy while maintaining coherence with Bangladesh's social and political climate, experts said yesterday.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the widespread adoption of central bank digital currencies (CBDCs) represents a significant evolution in the monetary system.

CBDCs are a form of digital currency regulated by a country's central bank. They are similar to cryptocurrencies, but their value is fixed by the central bank.

"We have to show more excitement for a CBDC. It doesn't mean that we will do it now. We should identify its limitations and advantages so that we can do it better even if we are late in implementation compared to other countries," he said.

"We have taken a stand on cryptocurrencies by banning them… but for the CBDC we have to take decisions more proactively," he added.

"I am not sympathetic towards cryptocurrencies as they are not backed by central banks and vulnerability and volatility are associated with them," he said.

He said Bangladesh was in a state of inertia regarding the CBDC, adding that the country must strive to digitalise transactions no matter what, even if it does not adopt a digital currency.

He was speaking at a roundtable titled "Future of Money: Central Bank's Digital Currency", jointly organised by the PRI and The Daily Star at the Azimur Rahman Conference Hall at The Daily Star Centre yesterday.

"Our digital infrastructure has to develop more, and our digital outreach and inclusiveness must broaden so that the next generation can carry out digital transactions," he added.

He said the introduction of the CBDCs was being witnessed across the globe.

"We must look at what other central banks are doing. We must explore why India is moving fast for a CBDC while China is reluctant and the USA is not proactive," he said.

"There are some tacit reasons and if we could understand and analyse these reasons, we can devise our strategy," he said.

Mohammad Abdur Razzaque, research director at the PRI, presented the keynote at the roundtable.

He said the potential benefits of the CBDCs include improved transaction efficiency, reduced costs of printing money, enhanced security against counterfeiting, and the promotion of a cashless economy to combat financial crimes.

Former finance minister Mustafa Kamal had made a remark about conducting a feasibility study on the adoption of a CBDC. However, there are no notable updates regarding this issue, said Razzaque.

He said people mistakenly believe that the CBDCs are the same as existing cryptocurrencies. However, unlike cryptocurrencies, the CBDCs are backed by the country's financial system and are considered legal tender, he said.

Contrary to cryptocurrencies, the acceptance of CBDCs for transactions is mandatory, akin to traditional fiat money, which is a type of currency that is not backed by a precious metal, such as gold or silver.

Implementing the CBDCs will require a transaction record system, accessible service interface, reliable ledger, and secure storage solutions.

In a global survey conducted in 2020, 86 percent of central banks were actively exploring the CBDCs, a significant increase from the 65 percent reported in 2017.

In another study, the Bank for International Settlements said 15 retail and 9 wholesale CBDCs could be in operation by 2030.

Jamaica, Zimbabwe, Nigeria, and the Bahamas have officially launched CBDCs while numerous others are either researching, developing, or piloting similar programmes.

However, there are concerns about Bangladesh's digital preparedness which need to be addressed for successful implementation, Razzaque said.

"Bangladesh has marginally improved in global digital rankings, specific areas like network readiness, cybersecurity, and online services. However, digital literacy is still low, with over half of households unaware of the use of the internet and a significant portion lacking basic digital skills."

There are significant challenges in terms of cybersecurity, evidenced by past incidents like the Bangladesh Bank reserve heist.

Compromised databases and instances of hacks raise privacy concerns and security regarding the CBDCs while widespread internet usage amplifies worries about personal and financial data security.

The possible features for the CBDC design can be categorised into three main groups: instrument, system, and institutional features. It is crucial to adhere to the desired features to achieve the expected outcomes, Razzaque suggested.

He warned that any challenges impeding citizens' accessibility to the CBDC could exacerbate the digital divide.

He recommended setting realistic goals, with the existing cash-dependent economy in mind, for enhanced benefits. "It's crucial to recognise the additional benefits of a CBDC beyond simply promoting a cashless economy," Razzaque said.

Policymakers should also consider other critical functions of a CBDC, such as improving financial efficiency and transparency, facilitating and implementing a more effective monetary policy, providing social protection allowance more efficiently, and fostering the development of a digital financial ecosystem.

Formulating and updating digital infrastructure and institutional regulatory frameworks and improving mass digital literacy, fintech knowledge, addressing the digital divide, and data security are also important.

Jamaluddin Ahmed, board member of bKash, said Bangladesh first needs to shift from the current analogous bureaucratic system to a digital one to implement the CBDC.

"We are already lagging behind as Bangladesh is not among the 108 countries who are in the pilot stage for CBDC implementation," he said.

"We need to make gradual progress. It cannot happen overnight."

Ashikur Rahman, a senior economist of the PRI, suggested doing a meta-analysis on the lessons learned from global pilot studies.

"We can take lessons from China and India and start a pilot programme with a new design in Bangladesh," he said.

"We are still doing homework," he added.

Although the country's mobile financial services are faring well, a significant portion of transactions are still done in cash, said Mohammad Aminul Haque, additional managing director of Nagad.

"Although it will be difficult to eliminate cash, the country should optimise digital transactions to their fullest potential," he added, pointing out the lack of a skilled workforce.

Arif Rahman, manager of MicroSave Consulting, said the focus must be on increasing technology adoption among citizens by providing more user-friendly technology.

Tanjim Ferdous, in-charge of NGOs and Foreign Missions at The Daily Star, moderated the event.​