[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

A struggling economy needs greater attention

Government lacks urgency and focus in crisis response

www.thedailystar.net

A struggling economy needs greater attention
The government lacks urgency and focus in crisis response

VISUAL: STAR

The bleak economic outlook for Bangladesh, as recently highlighted by the Centre for Policy Dialogue (CPD), is concerning. In a paper titled "Navigating Expectations in Turbulent Times," the think tank revealed that the interim government's economic measures have yet to bring substantive improvements in people's lives and to support businesses. Despite reform initiatives across various sectors, including the economy, any noticeable recovery or dynamism remains absent.

As many have pointed out, Bangladesh has a real opportunity to implement substantive changes in its taxation system during this transition period. Over the years, the country's development activities have become increasingly dependent on debt due to its low tax-GDP ratio. To address this, Bangladesh must increase direct taxes and curb tax evasion. However, instead of prioritising these measures, the interim government has disappointingly adhered to an outdated approach by raising VAT—a regressive policy that disproportionately affects low-income groups. This move also contradicts the pro-people spirit of the historic July uprising.

Investment, or lack thereof, is another major concern highlighted by the CPD. While the presence of an elected government can positively influence investment, the interim administration has failed to significantly improve other critical factors that drive investment. As a result, a conducive environment has yet to be established, which is alarming. To attract investment, the government must urgently implement measures, such as setting up a one-stop service for businesses and developing adequate infrastructure. Engaging with relevant stakeholders to address bottlenecks in business operations is also essential.

Inflation is another pressing issue that the government has struggled to tackle. Despite repeated calls for stronger monitoring to prevent hoarding and market distortions, little progress has been made in that regard. Given the hardships faced by ordinary people due to sustained inflationary pressures, addressing this issue should have been a top priority.

The CPD has rightly emphasised that political and economic reforms must progress hand in hand, requiring a degree of political consensus. Achieving this will undoubtedly be challenging. Additionally, it must be acknowledged that the ousted Awami League government inflicted significant damage on the economy, which may take years to repair. However, the fact remains that the interim government has underperformed in addressing economic challenges and badly lacked the urgency and focus necessary to tackle these issues. It is high time it recognised the desperate need for an economic turnaround and took decisive action to deliver it.​

 

[Saif]

Shifting poverty map a wake-up call for policymakers

Greater efforts needed to level up poorer regions like Barishal and Rangpur

www.thedailystar.net

Shifting poverty map a wake-up call for policymakers
Greater efforts needed to level up poorer regions like Barishal and Rangpur

VISUAL: STAR

That economic and climate vulnerabilities are inextricably linked has once again been underscored by the latest Bangladesh Bureau of Statistics (BBS) survey, which ranked Barishal as the poorest division in the country. For long, that spot had been reserved for Rangpur, which was—and still is, to a large extent—synonymous with crippling poverty mostly due to seasonal famines or Monga. However, according to a report based on the Poverty Map 2022, things have turned around for Rangpur where the poverty rate dropped from 47.23 percent in 2016 to 25 percent in 2022. In contrast, Barishal's poverty rate slightly increased from 26.49 percent to 26.6 percent.

The shifting poverty map reflects the changing reality of our policy and geographical landscapes. Rangpur's relative improvement, according to an expert at the BBS event, has been partly driven by the efforts of the government and NGOs in addressing seasonal food insecurity. On the contrary, Barishal's relative deterioration underscores the growing impact of climate change on coastal regions. The division, once known as a food basket, is now struggling with climate vulnerability and its resultant effects, including rising salinity and declining agricultural yields. As a result, many are losing their traditional livelihoods and slipping further into poverty.

Such disparities could only have emerged due to inequitable distribution of budgets, development projects, and economic opportunities. This highlights the need for a more balanced approach to resource allocation, infrastructure development, and economic diversification. Poorer regions also need targeted investments in education, healthcare, and industry to achieve parity with more developed areas.

Another factor contributing to the shift is how wealth and opportunities are being distributed. For example, districts like Noakhali, which now has the lowest poverty rate at 6.1 percent, provide a stark contrast to districts like Madaripur, where poverty stands at 54.4 percent—nearly three times the national average of 18.7 percent. Such disparities could only have emerged due to inequitable distribution of budgets, development projects, and economic opportunities. This highlights the need for a more balanced approach to resource allocation, infrastructure development, and economic diversification. Poorer regions also need targeted investments in education, healthcare, and industry to achieve parity with more developed areas.

That said, we cannot ignore the role likely played by Bangladesh's flawed data governance in shaping or redrawing poverty maps. One can rightly question how Rangpur's poverty rate could have declined so dramatically in just seven years between 2016 and 2022. As it is now abundantly clear, the state data ecosystem was severely compromised during Sheikh Hasina's rule, which often presented flawed and overly optimistic economic indicators, including poverty rates, GDP growth figures, etc. Since data guides policy efforts, flawed statistics likely distorted decision-making, denying crucial interventions to regions that needed them most.

The newly unveiled poverty map seems more grounded in reality and, as such, should serve as a wake-up call for all involved. As one of the poorest and most climate-vulnerable countries, Bangladesh's policymakers must ensure that climate resilience is embedded in poverty alleviation strategies. Similarly, there must be greater efforts to bridge wealth and opportunity gaps among regions to insulate poorer divisions and districts from harsher economic shocks and climate-induced hardships.​

 

[Saif]

Safety net schemes fall short in the fight against poverty

Social safety net programmes, such as Open Market Sales (OMS) and Vulnerable Group Feeding (VGF), provided less help to the actual poor, despite the government boasting about the impact of those schemes on reducing moderate and extreme poverty, according to a taskforce report.

www.thedailystar.net

Safety net schemes fall short in the fight against poverty
Finds government taskforce

Social safety net programmes, such as Open Market Sales (OMS) and Vulnerable Group Feeding (VGF), provided less help to the actual poor, despite the government boasting about the impact of those schemes on reducing moderate and extreme poverty, according to a taskforce report.

The impact of those programmes was low because of an unclear focus, low benefits, and persistent targeting errors, the report, submitted to the interim government last week, said.

Using the 2022 Household Income and Expenditure Survey (HIES), the report estimated that social protection programmes contributed to reducing extreme poverty by only 0.6 percentage points and moderate poverty by 0.8 percentage points between 2010 and 2022.

"Most schemes fail to align with the core objective of addressing poverty, and the absence of robust income support measures leaves a critical gap in tackling both moderate and extreme poverty," it said.

Between 2010 and 2022, the poverty rate declined from 31.5 percent in 2010 to 18.7 percent in 2022, an average annual decline of 1.07 percentage points, according to the Bangladesh Bureau of Statistics (BBS).

Over the same period, extreme poverty followed a similar trajectory, dropping from 17.6 percent to 5.6 percent, an average annual decline of 1 percentage point.

The number of people in poverty declined from 4.54 crore in 2010 to 3.09 crore in 2022, while the corresponding fall in extreme poverty is estimated to have been from 2.53 crore to only 93 lakh, BBS data showed.

These outcomes could improve significantly if inclusion errors were corrected and resources reallocated to poor households, said the taskforce, which was formed on September 10 last year.

It was established to develop strategies to boost the economy and mobilise resources for equitable and sustainable development.

Those adjustments to poverty alleviation schemes, the report said, could increase the reduction in extreme poverty to 1.3 percentage points and moderate poverty to 2.5 percentage points.

Data from the 2022 HIES show that 53.9 percent of poor and vulnerable families are excluded from social protection programmes, mainly because of exclusion errors, while 62 percent of non-poor and non-vulnerable households receive some form of benefit because of inclusion errors.

CORRECTION EFFORTS ALSO FALL FLAT

To address the shortcomings of safety net programmes, the National Social Security Strategy (NSSS) was adopted in 2015, signalling a shift towards a structured framework grounded in the lifecycle approach.

The lifecycle approach means designing poverty alleviation policies and programmes that address the different vulnerabilities and needs people face at various stages of their lives, from childhood to old age.

The NSSS, which has seemingly well-defined reform objectives and time-bound action plans, is set to expire in June next year.

However, progress towards realising the NSSS vision has fallen significantly short of expectations, the taskforce report said.

Persistent issues, including structural inefficiencies, inadequate resource allocation, weak institutional capacities, and limited inclusivity, have hindered progress and undermined the system's effectiveness, the taskforce mentioned.

These shortcomings prevent vulnerable groups from escaping the cycle of poverty, thereby diminishing the overall impact of social protection programmes.

With the NSSS set to expire in June 2026 and many key reforms still unimplemented, its transformative potential remains unrealised.

For instance, programme fragmentation is still frequent, while progress in consolidating and harmonising poverty alleviation programmes is limited. Similarly, targeting errors in beneficiary selection continue to be pervasive.

Resource constraints exclude a substantial number of potential beneficiaries in all programmes, the small benefits provided without adjustments for inflation render the impact negligible, and a comprehensive and integrated database on social protection beneficiaries remains elusive, according to the report.

It said there has been virtually no progress in introducing interventions based on social insurance principles (such as unemployment insurance), while the capacities of different ministries and departments remain grossly inadequate, with persistent dependence on development partners.

"More strikingly, despite its emphasis, the system has evolved without a clear focus on addressing poverty effectively, and—given its current state of limited resources and meagre benefits—its role in dealing with inequality is highly questionable," the report mentioned.

SOCIAL PROTECTION GROSSLY OVERSTATED

The inclusion of numerous unrelated and irrelevant schemes in social protection allocations not only inflates the budget but also obscures the limited political commitment to addressing poverty and vulnerability, redirecting attention to the broader resource constraints faced by the country, the report said.

It said that social protection is grossly overstated because of the inclusion of schemes such as pensions for government employees, subsidies, interest payments on national savings certificates, and infrastructure development programmes.

Of the six largest schemes by budget allocation, only one—the old-age allowance—can be considered a genuine social protection measure.

Quoting government sources, it said social protection spending in fiscal year (FY) 2024–25 accounts for 2.5 percent of the gross domestic product (GDP) and 17 percent of the national budget.

However, when the programmes linked with pensions and subsidies are excluded, the allocation drops to only 1.2 percent of GDP and 7 percent of the budget.

The World Social Protection Report 2024–26, published by the International Labour Organization (ILO), estimated that Bangladesh spends just 0.9 percent of its GDP on social protection. This figure is markedly below the South Asian regional average of 3.8 percent.

On the other hand, social protection benefits in Bangladesh are low and are rarely adjusted for inflation, resulting in a steady erosion of their real value over time.

Estimates suggest that monthly benefits from key programmes, such as the old-age allowance (OAA) and widow allowance (WA), amount to just 14 percent of the national poverty line income per person, while the allowance for persons with disabilities is slightly higher at 22 percent.

This issue is further compounded by the lack of annual inflation adjustments for most regular benefit payments, which exacerbates the decline in their purchasing power, leaving them increasingly inadequate to address poverty and vulnerability effectively.

COVID EXPOSED FLAWS IN POVERTY FIGHT

Regarding the vulnerabilities in the safety net programmes, the report said their impact was starkly evident during the Covid-19 pandemic in 2020, when the resulting economic shocks pushed many individuals and families into poverty, giving rise to a group widely termed the "new poor".

It is estimated that the richest 5 percent of households in 2022 held 30 percent of the national income, while the poorest 5 percent were left with less than 0.4 percent.

Regularly adjusting transfer values for social protection programmes to account for inflation is crucial to ensuring their effectiveness in alleviating poverty. Many programmes in Bangladesh have failed to provide adequate benefits as allowances are not consistently reviewed in line with economic development and inflation.

Consequently, the real value of benefits has significantly declined over time, eroding their purchasing power. The NSSS has recommended inflation adjustments for all cash transfers under lifecycle-based core schemes to address this issue.

However, even with inflation adjustments, the real value of benefits for most programmes will remain insufficient, as initial benefit levels were too low to begin with.

To address this, it is critical that revised benefit levels are aligned with the minimum expenditure basket, enabling transfers to meaningfully alleviate poverty, said the taskforce.

A systematic review of transfer values should be conducted for all cash-based programmes, taking into account inflation, the expenditure basket, and the country's socio-economic progress.

Based on these reviews, adjustments should be implemented at regular intervals of two to three years to maintain the relevance and impact of social protection interventions, the report noted.​

 

[Saif]

Remittances grow 3% in January

Migrants sent home $2.18 billion in the first month of 2025

www.thedailystar.net

Remittances grow 3% in January
Migrants sent home $2.18 billion in the first month of 2025

Remittances grew 3 percent year-on-year to $2.18 billion in January 2025 and this happened at a time when Bangladesh Bank imposed a ceiling on banks for remittance collection.

Bangladesh Receives $26.9B in Remittance in 2024

As a result, total remittances in the July-January period of the 2024-25 fiscal year rose 24 percent year-on-year to $15.96 billion, according to data released by the Bangladesh Bank today.

In January last year, remittance inflows had increased 7 percent year-on-year.​

 

[Saif]

A six-month progress report on the govt's economic record

Economic struggles and some successes mark the first 6 months of the interim government.

www.thedailystar.net

A six-month progress report on the govt's economic record

VISUAL: SIFAT AFRIN SHAMS

The interim government (IG) headed by Dr Yunus is already facing some headwinds as it prepares to celebrate the first six months of its term on February 8. It has been fighting tooth and nail to contain inflation, solve the banking crisis, and reduce the budget gap. While the successes of the IG in these three areas are slow to come, social and print media have also highlighted some of the IG's economic and administrative setbacks. However, one also has to weigh the hurdles that the IG had to face and overcome. The transition of power was hardly smooth. Compared to other countries where autocratic regimes were recently deposed and the economies bounced back, particularly the Intifada in Syria or "Aragalaya" ("people's struggle") in Sri Lanka, Bangladesh is not doing too poorly.

The looming parliamentary election in Bangladesh is casting a long shadow over the country's political economy and on every move of the IG. Electioneering has already made an impact on the programmes launched by the interim government. Political parties are jockeying for power and publicly announcing that they can do better than the IG. Members of the various committees convened by the IG are also now openly pushing for their own points of view.

If it provides any solace to the IG, even a very popularly elected new administration often faces critics who are not gun-shy. Take the case of the US. On January 23, only three days after Trump's inauguration as the president, The New York Times ran an op-ed, "Trump Is Already Making America Weaker and More Vulnerable." The well-regarded columnist Nicholas Kristof, wrote that Trump's executive orders on the first day to allow TikTok to operate, withdraw from the Paris Agreement and the World Health Organisation, and tighten border security have put the lives of Americans at risk. It is well-known that the media "experts" are often prone to hyperbole, and you can never win them all.

Fortunately, nobody, not even diehard Awami League supporters, can proclaim publicly that the IG has made Bangladesh weaker. The IG has managed to contain dengue fever, is trying hard to manage inflation, and is making our borders secure. So, where is all the criticism targeting the IG coming from? I will only focus here today on a few of its economic vulnerabilities.

As mentioned, curbing inflation and raising revenue are two of the IG's toughest challenges. If the only goal was to curb inflation, the IG could use all the levers of monetary and fiscal policies, including higher interest rates, raising taxes, and curtailing government expenditures. It has done all of these. However, these steps are not popular and might conflict with the other goals—raising revenue, boosting investment, repairing the physical infrastructure, and providing social services.

The interim government recently raised VAT on several essential items. Being an indirect form of taxation, raising VAT will adversely affect the average consumer, and might trigger further inflation. Whether the increase was made in response to pressures from the International Monetary Fund (IMF) or as a short-term measure to close the shortage in its revenue collection, the IG needs to focus on tightening income and corporate tax loopholes.

The Daily Star published an editorial on January 20, "What was the point of a white paper on economy?" and advised the IG to take immediate actions based on the panel's recommendations. The editorial aptly reflects the views of many scholars and some concerned citizens. However, after a careful review of the white paper, I found that most of the recommendations are not specific enough and require vetting before the IG can take policy actions based on them. Some measures taken by the IG after it assumed power have already shown some results, including banking reforms, foreign exchange control, and providing support to the victims of the July uprising.

It is possible that the IG only has one more year before it becomes a "lame-duck" administration once elections are announced. After that, the complex political dynamics and the mood of the stakeholders will change. The legitimacy of the IG is already being questioned, and its actions may face more pushback. One has to wonder how much can be achieved in terms of reforms and economic growth in such a fraught environment.

The budget for FY2025-26 will be challenging. The previous government's imprint on the current budget is evident. It left a legacy of corruption and give-outs thanks to the megaprojects, and the lion's share of next year's budget will go to debt servicing. Balancing the development budget and providing a friendly investment climate will also require a lot of creativity from the finance adviser.

Higher interest rates, energy crises, and law enforcement issues have also raised uncertainty in supply chains. Business leaders of the country have called upon the IG to engage in more frequent dialogues and work closely with entrepreneurs and industrialists to foster a business-friendly environment. Finance Adviser Salehuddin Ahmed acknowledged this in a recent gathering organised by the American Chamber of Commerce in Bangladesh (AmCham). "We have to create a business-friendly foreign exchange market, credit flow, regulatory regime, and revenue customs tax," he said.

The white paper has made a set of recommendations to stabilise the economy. The country needs institutional reforms in the banking, energy, and the financial sector, as we all agree. The white paper recommends raising the tax rate on higher-income individuals and the corporate sector. Domestic resource mobilisation has been lagging and raising direct taxes is a recommended pathway. According to various sources, the National Board of Revenue is currently working on this. It has also taken steps to digitalise the tax filing system. Recently the chief adviser announced, "We are gradually preparing to collect all types of taxes online," and provided plans to make tax compliance more accessible for everyone.

Bangladesh Bank governor recently said the IG has set a target to reduce inflation to seven percent by the end of June and eventually below five percent in the next fiscal year. Unfortunately, the public may not see the benefits right away. Every month the BB has to assess data in real time. To quote Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, US, "It's hard to know for sure how things are going to evolve on a week-to-week or month-to-month basis." The US Fed has the world's best tools to gauge inflation, and tons of staff pouring over data and using some of the coolest models. So, the impact of the policies to curtail inflation in Bangladesh may take a little longer to manifest itself, and the impact may be felt probably after Ramadan.

There has been some progress initiated by the banking sector reform task force. To shore up the failing banks, asset quality review is in progress, and BB has hired auditors including some of the Big Four accounting firms.

The biggest challenge the IG will have to handle in the coming weeks is the election schedule. On January 24 at a World Economic Forum meeting, the chief adviser said that the government is waiting to hold elections, but the people have to decide whether they want a short-agenda or a longer-agenda in terms of reform. "If people want quick reforms, then we have set a target to hold elections by the end of this year. And if they say, no—we need long-term reforms; then we will need another six months," he said.

Dr Abdullah Shibli is an economist and works for Change Healthcare, Inc, an information technology company. He also serves as senior research fellow at the US-based International Sustainable Development Institute (ISDI).​

 

[Saif]

Bangladesh receives $15.96b in 7 months, a growth of 23.6pc

Bangladesh received US $2.18 billion inward remittance in January by legal channel, a growth of 3.4 percent year-on-year. A review of the Central Bank’s data showed that expatriates sent $15.96 billion remittances so far in 7 months from July to January of the current fiscal year 2024-25. In

thefinancialexpress.com.bd

Bangladesh receives $15.96b in 7 months, a growth of 23.6pc
Expatriates sent $2.18b in remittances in January
UNB
Published :
Feb 02, 2025 21:54
Updated :
Feb 02, 2025 21:54

Bangladesh received US $2.18 billion inward remittance in January by legal channel, a growth of 3.4 percent year-on-year.

A review of the Central Bank’s data showed that expatriates sent $15.96 billion remittances so far in 7 months from July to January of the current fiscal year 2024-25. In the same period of the previous fiscal year 2023-24, the expatriates sent $12.91 billion inward remittance. This means the flow of inward remittance grew by 23.6 percent in the FY2024-25.

The expatriates sent $70.49 million as remittance on average on each day of January 2025. In the last seven months, the country received $2.28 billion as remittances in each month from July to January.

Bangladesh received $1.91 billion as a remittance in July, $2.22 billion in August, $2.4 billion in September, $2.39 billion in October, $2.19 billion in November, and $2.64 billion in December, according to the central bank data.

Hosne Ara Shikha, Executive Director and Spokesperson of the central bank told UNB that the expatriates get instant incentives for sending remittances in the legal channel. So, the flow of inward remittance saw a growth in the legal format.

Besides, after the political changeover, the governor has taken strict measures to stop money laundering, which increased the trust among the remitters to send their hard-earned earnings to the country, she opined.

Sonali Bank received $179.26 million in remittances in January, the highest among the state-owned banks, while Islami Bank Bangladesh PLC received $282.26 million in the same month.

However, not a single penny of remittances came into 8 banks during the period. These are the public sector Bangladesh Development Bank (BDBL), and the specialised Rajshahi Krishi Unnayan Bank. Private banks include Community Bank, ICB Islami Bank, and Padma Bank. Foreign banks include Habib Bank, the National Bank of Pakistan and the State Bank of India.​

 

[Saif]

Trade policy: a strategic input in Bangladesh development

Among the constituent macroeconomic policies, trade policy in Bangladesh typically draws the least attention, until it does. Since 2022, though the focus has been largely on trade and current account deficits and the financial account of the balance of payments (BOP), researchers on trade policy ha

thefinancialexpress.com.bd

Trade policy: a strategic input in Bangladesh development
Zaidi Sattar and Samah Majid
Published :
Feb 04, 2025 00:11
Updated :
Feb 04, 2025 00:11

Among the constituent macroeconomic policies, trade policy in Bangladesh typically draws the least attention, until it does. Since 2022, though the focus has been largely on trade and current account deficits and the financial account of the balance of payments (BOP), researchers on trade policy have drawn attention to the mismanagement of exchange rate and the high protective tariffs as among the sources of macroeconomic instability. The link between trade policy and Bangladesh development in the short-, medium-, and long-term is unambiguous.

Trade has been a handmaiden of Bangladesh development. After two decades of prevarication, in the 1990s policymakers in Bangladesh switched gear and changed trade policy stance, drawing from the new development paradigm - growth driven by exports.

The new trade orientation soon became the driver of rapid growth and job creation. Over the past few decades, Bangladesh has emerged as a success story of development, propelled by a thriving manufacturing sector, rapid urbanisation, and notable progress in human development indicators. Now, as we all know, this progress came at the expense of deep governance failures, institutionalised corruption, and rising inequalities, that will undermine future progress unless the root causes of this malaise are addressed swiftly and radically. Having entered the Lower Middle-Income Country (LMIC) group in 2015, Bangladesh faces an evolving global trade dynamics amid geopolitical fragmentation, deglobalisation, and rising protectionism. These present both challenges and opportunities in this evolving global phenomenon.

With the impending graduation from Least Developed Country (LDC) status, trade policy has become more crucial than ever. Historically a pillar of economic growth and poverty reduction, trade policy must now be reimagined to navigate the loss of preferential market access and sustain Bangladesh's growth trajectory. This necessitates a strategic and adaptive approach to maintain competitiveness and strengthen the nation's position in global trade.

HISTORICAL CONTEXT AND EVOLUTION: Since its independence in 1971, Bangladesh's trade policy has undergone transformative shifts. Historically, trade strategies have generally followed two paradigms: inward-looking import substitution (IS) and outward-looking export orientation.

Post-independence, Bangladesh's priority agenda centred on addressing widespread poverty and fuelling economic recovery, primarily through domestic-oriented policies backed by donor assistance. With zero foreign exchange reserves and the urgent need to import essential goods, high tariffs and import controls were implemented to conserve foreign exchange and prioritise the domestic market. However, while these measures provided short-term relief, they ultimately constrained economic growth and hindered long-term competitiveness.

The 1990s marked a significant turning point in Bangladesh's trade policy. Bangladesh adopted radical structural adjustments with technical support from the World Bank and International Monetary Fund (IMF), ushering in sharp tariff reductions, extensive import liberalisation, and a shift from fixed to flexible exchange rates, along with limited current account convertibility and elimination of the license raj. These reforms, coupled with market orientation and investment deregulation, not only restored macroeconomic stability but also laid the foundation for an export-led growth strategy.

This policy shift spurred rapid industrial expansion, job creation, and poverty reduction, earning Bangladesh recognition as one of the "globalisers" among developing nations propelling significant gains in income growth and poverty alleviation.

A key success story of this outward-oriented approach was the rise of the ready-made garments (RMG) sector. Benefiting from duty-free input schemes and access to global markets, the RMG industry became the backbone of Bangladesh's economy, growing from just 3.9 per cent of total exports in 1983-84 to 75 per cent by 1999-2000 (BGMEA 2019). This sector not only generated substantial foreign exchange but also created millions of jobs, particularly for women, driving significant inclusive growth. By successfully integrating into global value chains (GVCs), Bangladesh emerged as a key player in the international textile and apparel market, eventually becoming second largest exporter of apparel after China.

It was the trade liberalisation and market-oriented reforms of the 1990s that laid the foundation for sustained economic dynamism, positioning Bangladesh as a vibrant and competitive economy on the global stage.

CURRENT STATE OF TRADE POLICY: International trade has been a key driver of Bangladesh's remarkable economic transformation over the past three decades. Alongside industrial growth, trade has played a pivotal role in shaping the country's development trajectory. The contribution of industry to GDP has surged from under 10 per cent in 1972 to 37 per cent today, with Bangladesh yet to enter the de-industrialisation phase. International trade volumes have skyrocketed, reaching $130 billion in 2022, up from just $6 billion in 1990.

The trade liberalisation reforms of the 1990s, though not fully comprehensive, generated enough momentum to stimulate export-oriented manufacturing growth, job creation, and poverty reduction for the next two decades, and the momentum has merely weakened in the post-Covid era The economic impact of these reforms is reflected in rising decadal GDP growth rates: 4.8 per cent during FY 1991-2000, 5.9 per cent in FY 2001-2010, and 7.2 per cent in FY 2011-2019. This growth has translated into significant poverty reduction. The moderate poverty rate, which stood at 60 per cent in 1990, nearly halved to 31.5 per cent by 2010, and further declined to 18.7 per cent in 2022 (according to Household Income and Expenditure Survey, 2022) - a highly effective sign of inclusive growth.

Despite these achievements, Bangladesh's current trade policy presents a unique dualistic structure. While the 100 per cent export-oriented RMG sector benefits from a liberal trade regime (near free trade channel), non-RMG exports face restrictive and protectionist barriers. This trade policy dualism highlights a complex trade environment shaped by domestic policy choices that create a protected domestic market which typically yields higher profitability than exports, thus discouraging non-RMG exports and, consequently, stifling export diversification. This trade policy obfuscation is demonstrated in the following chart (Fig.1).

The government keeps the tariffs on inputs lower than the tariffs on outputs/finished goods, so that the domestics producers get access to lower priced imports of raw materials. The higher output tariffs ensure that the competition from foreign consumer goods are lower and hence, the domestic producers retain an advantage in the domestic market. The values of average input tariffs have remained fairly stable post-2009 ranging from 12 - 15 per cent, while output tariffs are modestly on the rise. Effective tariff protection - outcome of changes in output and input tariffs - has been on the rise as input tariffs fell but output tariffs rose. Notably, the divergence between input and output tariffs fosters Anti-export bias, favouring domestic sales over exports. This phenomenon raises profitability of import substitute production and undermines incentives for non-RMG exports whose producers find the domestic market significantly more attractive!
Export diversification is imperative for sustaining growth. Bangladesh must broaden its export basket to include intermediate goods and deepen its integration into regional value chains (RVCs), particularly in East Asia. Apart from the tariff barrier, restrictive trade practices also divert much-needed FDI in non-RMG manufactures away from our shores. Addressing these challenges will be essential for sustaining inclusive growth and fostering greater diversification within Bangladesh's export portfolio.

FUTURE DIRECTIONS FOR TRADE POLICY: Bangladesh's trade policy is at a pivotal juncture, moulded by evolving global geopolitical and economic challenges that necessitate strategic shifts to sustain growth and competitiveness.

Geopolitical fragmentation, rising protectionism, homeland economics and strategic autonomy, and US-China decoupling are disrupting global trade dynamics, threatening the efficiency dividends of globalisation and GVC integration. However, these shifts also create new opportunities, particularly for Bangladesh's RMG sector, as production orders increasingly shift from China. McKinsey Global reports that at least $100 billion out of the $625 billion apparel market in 2030, will move away from China, in light of shifting geopolitical order, on top of the already rising wage costs in China.
Restoring macroeconomic stability is critical for navigating these challenges. Priority measures include curbing inflation, stabilising the exchange rate, and rebuilding foreign exchange reserves. Strategic tariff adjustments can help ease inflationary pressures while facilitating trade. Enhancing market access through free trade agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs) are equally essential for bolstering Bangladesh's post-LDC graduation competitiveness.

As Bangladesh prepares for LDC graduation by 2026, it faces the challenge of preference erosion. The phasing out of international support measures (ISMs) will diminish preferential market access, impacting export competitiveness. To navigate this transition successfully, Bangladesh must undertake a strategic overhaul of its trade policy. Attracting foreign direct investment (FDI) will be crucial, requiring improvements in the investment climate through streamlined regulations, one-stop window service, enhanced infrastructure, and competitive incentives. Proactive and forward-looking trade strategies will enable Bangladesh to navigate these challenges and sustain its economic momentum on the global stage.

STRATEGIC RECOMMENDATIONS FOR FUTURE TRADE POLICY: To navigate the challenges, Bangladesh needs to consider a new round of strategic trade policy reforms. This includes enhancing rationalisation of tariff protection, trade facilitation measures, diversifying export products and markets, reducing trade costs via digitization of international trade, and strengthening regional trade agreements to mitigate risks associated with global trade uncertainties, and position the country for sustainable growth.

Tariff rationalisation and Exchange rate flexibility

• First, the anti-export bias of trade policy must be eliminated by rationalising tariff protection through import duties, regulatory duties, and supplementary duties. Exports, particularly non-RMG exports, must be incentivised by scaling down protective tariffs and achieving neutrality between profitability of exports and domestic sales of import substitutes. This will pave the way for export diversification and compliance with WTO regulations. Moreover, prompt and effective implementation of the National Tariff Policy 2023 must be ensured. The policy already addresses some of the issues of anti-export bias, rationalisation of tariffs and consumer welfare. Therefore, it is crucial those suggestions are readily executed.

• Secondly, the exchange rate, being a pivotal pricing instrument for exports, must be governed with a flexible management approach to ensure export competitiveness through a market-determined exchange rate. There should be no scope for any appreciation of the real effective exchange rate, a key indicator of export competitiveness.
Export Diversification strategy. The current tariff regime is a major obstacle to export diversification. While the 100 per cent export-oriented RMG sector operates in a duty-free environment, diversifying the export basket requires giving non-RMG export the same duty-free environment and neutrality of incentives between exports and domestic sales.

Bangladesh can diversify its product range by venturing into higher-value garment categories such as apparel of man-made fibre and luxury clothing, leather and non-leather footwear. Assembly and manufacturing of electronic goods, and expand its ICT sector to boost software and IT services. Furthermore, the agricultural sector presents untapped opportunities - modernising agricultural practices, increasing productivity, and diversifying crops can increase exports of fruits, vegetables, and value-added products such as organic and processed foods (agro-processing). The pharmaceutical industry also holds significant growth potential. By producing generic drugs and obtaining international certifications, Bangladesh can access lucrative global markets.

Promoting Trade Facilitation. Trade facilitation is required to boost Bangladesh's competitiveness. Key measures include simplifying trade procedures, reducing bureaucratic hurdles, and modernising customs. These reforms can lower transaction costs and enhance the global competitiveness of Bangladesh's exports. Additionally, investing in transport, ports, and logistics infrastructure will further improve trade efficiency. Digitalising customs processes is another crucial step in reducing trade transaction costs, streamlining operations, and making Bangladesh's trade environment more efficient.

Enhancing Regional Value Chain Integration and Market Diversification. To accelerate trade and export growth, Bangladesh should focus on integrating more deeply into regional value chains (RVCs). This involves greater trade openness, boosting trade in intermediate goods, facilitating smoother movement of raw materials, and creating synergies with neighbouring economies. The development of regional partnerships will enhance Bangladesh's position in global value chains, ensuring greater market access and industrial growth.

To navigate the evolving global trade landscape, Bangladesh should focus on market diversification. As a potential "connector" country between different geopolitical blocs, Bangladesh can seize opportunities to serve as an intermediary for trade, positioning itself strategically in emerging markets. This approach will not only mitigate risks but also create new avenues for growth.

Pursuing Trade Agreements. Engaging in trade agreements is essential for securing market access and diversifying Bangladesh's trade portfolio. The country must pursue greater trade openness and create favourable conditions for export-seeking foreign direct investment (FDI). Signing more free trade agreements (FTAs) with larger economies or regional blocs is critical. Rationalizing tariffs and eliminating the anti-export bias of incentives will help Bangladesh leverage its strategic location and competitive labor force to position itself as a hub for regional trade.

Investing in Innovation and Quality. To transition from a price-driven competitiveness model to one focused on quality and innovation, Bangladesh must invest in innovation and elevate the quality of its exports. Increasing investments in health and education, with a focus on workforce upskilling, is key to preparing the labor force for high-tech industries and fostering innovation. Support for small and medium-sized enterprises (SMEs), alongside investments in infrastructure, will further catalyse this diversification.

Adapting to Global Financial Fragmentation. As global trade faces financial fragmentation, particularly the shift away from US dollar dominance in trade payments, Bangladesh must remain agile and responsive to this shift. Exploring alternative payment systems and diversifying financial partnerships will help the country maintain its position in the global trade arena. Strategic economic diplomacy will be essential to tread this emerging landscape with utmost circumspection.

Trade Policy as a tool for Sustainable Development. As Bangladesh aims to transition to an upper-middle-income economy, integrating sustainability into its trade policies is crucial for long-term growth. This includes promoting green exports, incentivising eco-friendly production, and supporting circular economy practices. Lowering tariffs on clean energy technologies can accelerate the shift to renewable energy. Additionally, aligning with global environmental and labour standards ensures continued access to key markets, especially in regions with strict regulations like the European Union. Trade policy should also empower SMEs and rural producers, fostering inclusive growth. By prioritising sustainability, Bangladesh can build a competitive economy that safeguards both its environment and its future development.

CONCLUSION: Trade policy is not merely a tool for economic growth; it is a critical pathway for Bangladesh's development. As the country moves away from LDC status, it must adopt a forward-looking open trade strategy that tackles current challenges, while seizing emerging opportunities. Through trade policy reforms, export diversification, and strategic agreements, Bangladesh can sustain its development momentum and accelerate towards achieving its goal of becoming an upper-middle-income country by early 2030s. The future of Bangladesh's development depends on its ability to navigate global trade complexities with strategic foresight and compatible economic diplomacy.

Dr Zaidi Sattar is Founder Chairman and CEO of Policy Research Institute of Bangladesh (PRI) where Samah Majid is a Research Associate.​

 

[Saif]

Inflation to drop to 6-7pc by June, adviser hopes

Finance adviser Salehuddin Ahmed on Tuesday said that they would be able to bring down inflation within the next three months...

www.newagebd.net

Inflation to drop to 6-7pc by June, adviser hopes
Staff Correspondent 04 February, 2025, 23:35

Salehuddin Ahmed

Finance adviser Salehuddin Ahmed on Tuesday said that they would be able to bring down inflation within the next three months.

‘Hopefully, inflation will drop to 6-7 per cent in June,’ Salehuddin told reporters after a meeting of the advisory committee on government purchases at the secretariat in the capital Dhaka.

Unlike the share market indices, inflation cannot go down overnight, he said.

Referring to the underlining reasons for the rate of inflation prevailing close to double digit over the past three years, the finance adviser said that they had already taken measures to contain it.

He was critical of the talk-show participants and their reference to the fighting back inflation by Sri Lanka.

In September 2022, Sri Lanka’s inflation rate reached an all-time high of 67.4 per cent, but by June 2024, Sri Lanka’s headline inflation rate dropped to 1.7 per cent, well below the 5 per cent target.

In Bangladesh, consumers witnessed more than 9 per cent inflation after the ousted Awami League regime hiked the fuel oil prices by about 50 per cent in August 2022 to secure $4.7 billion loan programme from the International Monetary Fund to tackle a foreign exchange shortage.

Since then there has been no respite from the high inflation.

The finance adviser said that the Bangladesh’s financial crises were not comparable with those of Sri Lanka.

The plundering of banks during the AL regime ousted amid a mass uprising on August 5, 2024, was unprecedented, he said, adding that Sri Lanka would have been lost had the island nation faced the current situation in Bangladesh.

The finance adviser noted that he was sympathised with the section of people who were facing hardship following the recent hike in value-added tax rates and said that it was done to bring an end to VAT waivers.

Opposing VAT waivers, the finance adviser said that a comprehensive outline for revenue generation would be emerged while finalising the revised budget for the 2024-25 financial year.

Earlier, while presiding over the purchase meeting, he approved proposals to procure 1,00,000 tonnes of fertiliser and 10,000 tonnes of lentil.

Following a commerce ministry’s proposal, state-run Trading Corporation of Bangladesh will procure 10,000 tonnes of lentil from Nabil Naba Foods Limited with per kilogram costing Tk 97.22.

The Bangladesh Agricultural Development Corporation will import 40,000 tonnes of DAP fertiliser from Saudi Arabia at an estimated cost of $611 per tonne.

The Bangladesh Chemical Industries Corporation will import 30,000 tonnes of bulk granular urea from Saudi Arabia with per tonne costing $395.16.

Besides, the BCIC will purchase 30,000 tonnes of bagged granular urea fertiliser from Karnaphuli Fertilizer Company of Bangladesh with per tonne at $389.75.​