[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

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

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

www.thedailystar.net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Opportunity economy: An inclusive economic system for new Bangladesh

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

www.thedailystar.net

Opportunity economy: An inclusive economic system for new Bangladesh

File visual: ANWAR SOHEL

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

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

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

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

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

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

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

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

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

2.SDG (the Sustainable Development Goals)

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

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

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

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

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

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

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

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

 

[Saif]

Will the country achieve high growth next year?

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

en.prothomalo.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

[Saif]

Map out economic priorities

The head of DCCI has urged the government to map out its economic priorities once the committee to prepare a white paper on the economy, and other task forces on various reform agendas finish their jobs.

www.thedailystar.net

Map out economic priorities
DCCI chief Ashraf Ahmed says a roadmap will help businesses set the direction of their action plans

The head of DCCI has urged the government to map out its economic priorities once the committee to prepare a white paper on the economy, and other task forces on various reform agendas finish their jobs.

"Such a roadmap will set the direction of economic action plans [for businesses]," Ashraf Ahmed, president of Dhaka Chamber of Commerce and Industry (DCCI), said in an interview with The Daily Star last week.

"For example," he added, "We already know the government is emphasising investments in education and healthcare instead of large infrastructure projects.

"This can generally indicate slower growth in the building material industry, but higher growth in education- and healthcare-related businesses," the DCCI chief said.

He talked about the importance of creating a friendly environment for business, the missing link between employment and education, challenges facing businesses, and other aspects of the economy.

He said building confidence among entrepreneurs by restoring law and order and lowering the cost of financing is a must to bring fresh investments to the economy.

Uncertainty in economic policy direction over the short, medium and long terms is likely to make investors "very cautious and conservative", Ahmed said.

Such uncertainty will lead them to take a wait-and-see approach and delay investment decisions, he said in the interview on October 23.

On the other hand, if the government remains firm in its commitment to building a better business environment, it will help reduce uncertainty in policy directions and encourage new ventures, according to the DCCI chief.

"Confidence in the government's commitment to building a better business environment is a pre-condition for sustainable investment and economic growth."

EDUCATION AND JOBS

Ahmed said the country saw rapid growth in the economy as well as in the education sector in the last decades.

"Our numbers are our biggest strength, but it cannot be put to effective use unless we create the right environment and can invest in it."

Every year lakhs of new graduates enter the job market, but finding the right jobs for them has emerged as a major challenge, Ahmed pointed out.

A recent World Bank study says that overall unemployment is about 5 percent, which is an acceptable level. But nearly a third of those who graduated in recent years have remained unemployed, which is too high.

The DCCI chief said the current education programmes are not based on demand for skills, but focuses on a traditional system that does not change with the industry's demand.

A vast majority of graduates study liberal arts, where skills are not employable. As a result, jobseekers are not getting offers for the skills they have, he said.

Youths with tertiary (post-secondary) education are needed in larger numbers for the service sector, which is already the largest contributor to the economy. But the country has not yet been able to become a large service exporter, except in the freelancer segment of the ICT industry, according to Ahmed.

"We possibly need to focus on building a skill-based education system to compete with the others, especially in areas with opportunities such as accounting and IT," the DCCI president said.

In the short term, he suggested expanding the post-graduate diploma and training or introducing supplementary courses in tertiary education with the focus on job skills.

CHALLENGES

Ahmed sees many challenges ahead for the private sector, but pointed out three key areas that require immediate attention — law and order, energy and finance.

First, the law-and-order situation, which has improved significantly, is still a major concern. Order and discipline, especially in the industrial areas, is important to maintain production capacity and proper functioning of the industrial ecosystem, Ahmed said.

"The ability of businesses to continue operations uninterrupted is critical to achieve growth targets," he said.

Secondly, concerns over gas supply are impacting industrial production heavily, according to him. "If energy supply is not ensured, production will be hampered."

"If we have to use alternatives like diesel, the cost becomes exorbitant even when it is available. When costs increase, demand and sales fall because of high prices."

The third challenge is finance, as interest rates have increased to an "almost unsustainable level" of around 15 percent for the smaller businesses in the past few months, Ahmed said.

"This has tightened credit flow to SMEs. When interest rates rise, investment falls."

He said private sector growth depends on policy support, incentives, and infrastructure services. If these are ensured efficiently, the country will have a better business environment, according to him.

"The bottleneck is created mostly by procedures, regulations, and duplication of a paper-based system where the government machinery operates on the basis of, in some cases, century-old laws."

Ahmed criticised the central bank's conservative monetary policy, which focuses on raising interest rates to reduce demand and contain inflation.

This is effective in the short term, but in the long run, this will damage production capacity, according to him.

To control inflation, he suggested other measures such as a contractionary fiscal policy, and reduction of budget deficit and import duty.

"These may reduce government revenue, but will eventually bring relief to the common people," Ahmed said.​

 

[Saif]

Don’t let the growth slowdown persist

Govt must stabilise the economy, restore business confidence

www.thedailystar.net

Don’t let the growth slowdown persist
Govt must stabilise the economy, restore business confidence

As expected, Bangladesh recorded its lowest economic growth in five quarters during the final quarter of the 2023-24 fiscal year, as the government implemented contractionary monetary and fiscal policies to address dwindling foreign exchange reserves and high inflation. According to the latest quarterly data published by Bangladesh Bureau of Statistics (BBS), GDP grew by only 3.91 percent from April to June this year.

This slowdown should not come as a surprise, given that the interim government inherited an economy devastated by the Awami League regime's corruption and mismanagement. In a recent interview, the Bangladesh Bank governor accused tycoons linked to the former administration of siphoning off $17 billion from the banking sector—a massive outflow that may be a global record for any country. Recovering from such severe setbacks will require substantial time and effort. Another important factor to consider is the mass data manipulation—including of GDP figures—under the previous regime, making comparisons with past data potentially misleading.

Nevertheless, if we look at the previous quarter, the GDP grew by 5.42 percent, down from the 6.12 percent announced by the previous government. This suggests that economic growth did suffer a significant setback. And that was primarily due to tightening monetary and fiscal policies to control inflation and prevent a further decline in our foreign reserves. However, beyond these measures, the government must address other bottlenecks driving high prices, such as possible market manipulation by syndicates, high transportation costs, supply chain constraints, and supply shortages. Simultaneously, it must work swiftly but judiciously to recover stolen assets siphoned abroad by AL-linked individuals, confiscate their domestic assets for resale, and renegotiate costly, one-sided deals with foreign entities. Such measures could boost foreign reserves and increase fiscal flexibility.

Reportedly, imports of raw materials declined by 15.9 percent in the last fiscal year, while imports of capital machinery fell by 23.86 percent. While some of this reduction may be linked to a decrease in illicit financial outflows, much of it points to declining economic activity, further evidenced by downturns across the service, agriculture, and industrial sectors over the past year.

It should be noted that part of this decline has been influenced by political instability, reduced business confidence, and decreased consumer spending. Therefore, while implementing structural reforms across various sectors, including the economy, the interim government must prioritise restoring political stability and business confidence. To achieve this, it should increase private sector engagement in its decision-making processes—including by potentially appointing an adviser from the private sector—to explore ways to boost economic activity in the short to medium term.​