🇧🇩 Monitoring Bangladesh's Economy

[Saif]

The critical challenges facing the economy

How did the elite and the politicians manage to evade the rule of law and siphon billions out of the country?

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The critical challenges facing the economy

Visual: STAR

The head of the interim government, Prof Yunus, recently formed a committee to prepare a "white paper on the state of Bangladesh economy." The terms of reference for the committee are very broad, but the key task is to present the true state of the economy, outline key weaknesses (and, if possible, identify the sources), and, most importantly, provide a roadmap for the interim government.

One cannot overstate the white paper's role in shaping the new administration's policies and forthcoming reforms. Fortunately, the committee has already invited public input, and I am confident that the committee and the competent support staff will accomplish their mission.

It is tempting to throw my hat into the ring and write a long email to the committee and offer my professional view on the cardinal issues facing the country along with my ideas on curtailing corruption, stabilising the foreign exchange sector, reducing income inequality or alleviating poverty. But I will resist for two reasons. First, I have complete faith in the competence of the committee members, with some of whom I have exchanged opinions and thoughts in various forums. Secondly, the experts in the group—and outside—have voiced their learned opinions in professional journals and social and print media over the last few years on the goals of this nation, its progress, and the roadblocks. In other words, the research is already there. The nation is waiting with bated breath for this august body to practice due diligence, given the resources provided at its disposal, and come up with its own prognosis and suggest some best practices to help the new government achieve its economic goals before the latter hands over power to elected leaders.

Professor Yunus in his first speech to the nation last month identified three areas that deserve utmost priority: banking, corruption, and undue emphasis on GDP growth. The data from the past Household Income and Expenditure Surveys carried out by the Bangladesh Bureau of Statistics (BBS) over the last two decades clearly indicate the trend pointing to the rising levels of income and wealth inequality. Whether we take the well-known measure, the Gini coefficient, or an alternative measure, such as the Palma ratio, and compare the income share of the top 10 percent with the income share of the bottom 40 percent, the signs are clear. We are heading towards a very unequal society. The committee must address this issue and debunk the previously held trickle-down theory.

Another important aspect of the white paper is a thorough diagnosis of the economic malaise of the country. What role did the various irregularities play in inflating the cost of megaprojects, the collapse of the financial infrastructure, and the economic hardship of the average person? Did the previous regime fudge the data and paint a rosy picture of the condition of the masses? How did the elite and the politicians manage to evade the rule of law and siphon billions out of the country?

But then after all the diagnosis is done, the committee needs to prioritise the issues to inform the interim government's next steps. Obviously, the interim government does not have to promise any miracles. Our people understand that we went through some rough patches and the interim government and all the wise men and women involved in rebuilding our political system, economy, and the administrative structure face serious odds. Nonetheless, it is worth reminding ourselves of the immediate and long-term problems that will be with us regardless.

The country witnessed food price increases in the double digits for months in a row, and there are still no signs of prices cooling down. These increases leave their mark on the budget since, even if there is a deceleration of inflation, recent inflationary hikes have already hit consumers' pockets hard. According to one BBS study at the end of 2023, one in every five households in Bangladesh experienced food insecurity.

To ensure success of the above initiatives, the state must effectively identify vulnerable people and thereby determine the nature and duration of the support they will need, ensure that the genuinely poor and vulnerable people receive support, and monitor the channels to ensure efficiency, transparency, and accountability in the distribution chain.

The previous government was overthrown because of its economic mismanagement, so if the interim government promises that it will try to manage it well and avoid corruption and greed as much as possible, based on the recommendations of the white paper and allow a task force to implement policies in order of priorities, that itself will be a first.

The white paper committee must also be mindful of its audience. Who are they? There are three: policymakers, the general public, and to a lesser degree, the experts. The people need to know the actual state of the economy. Experts already have a good understanding of the former regime's misdeeds. It is the policymakers in the interim government who urgently need a roadmap.

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]

The steep economic challenges that the interim government faces

It is crucial for the interim government to focus on setting a strong foundation for future changes.

www.thedailystar.net

The steep economic challenges that the interim government faces
economic challenges for interim government

FILE VISUAL: STAR

The political upheaval in Bangladesh is having a profound impact on the country's economy. For the country to recover and stabilise, the interim government must prioritise political stability and the restoration of law and order. These steps are critical to setting the stage for economic recovery.

The ongoing political crisis can significantly slow down economic growth. Political instability breeds uncertainty, which in turn undermines investor confidence. As a result, both domestic and foreign investors can become more cautious, leading to reduced private investment. Political instability also affects the broader economic environment by disrupting business operations and creating an unpredictable financial climate.

Bangladesh has been experiencing high inflation since early 2022, with inflation rates reaching 11.66 percent in July 2024—highest in 13 years. Food inflation has been even more severe, hitting a record 14.10 percent. The ongoing supply chain disruptions and shortages are likely to keep inflation elevated, which disproportionately impacts low-income households. For many families, the rising cost of living is a significant burden, further straining their financial resources.

Unemployment, especially among educated youth, remains a pressing issue. Around 41 percent of young people aged 15-24 years are neither in education, employment, nor training (NEET), nearly double the global average. This high rate of NEET youth exacerbates social and economic challenges, contributing to a sense of disenfranchisement and economic frustration among the younger population.

The country has been facing a worsening macroeconomic situation since the beginning of 2022, manifested by the decline in foreign exchange reserves and slow growth in exports and remittance earnings. During the ongoing political turmoil, small businesses and production units are particularly vulnerable to these challenges, facing disrupted operations, decreased productivity and, in some cases, forced closures. This affects the business owners and has a ripple effect on employees and suppliers, further compounding the economic difficulties.

The interim government's role is crucial in navigating these economic challenges and laying the groundwork for a stable transition to a permanent government. Immediate economic priorities should include combating inflation and restoring macroeconomic stability.

Addressing high inflation requires a coordinated approach involving monetary, fiscal and tariff policies. Effective market management is essential to stabilise prices. The appointment of a new central bank governor has raised expectations for better use of monetary policy tools to control inflation and stabilise the economy.

The government must work to stabilise the macroeconomic environment by improving forex reserves, increasing remittance inflows through formal channels, and boosting exports despite the political crisis. These measures are crucial for restoring confidence in the economy and ensuring sustainable growth.

However, to address the country's structural economic challenges, comprehensive reforms are essential in several key areas:

Banking sector: Reforms are needed to tackle high levels of non-performing loans, poor governance, corruption, inadequate risk management, and regulatory weaknesses within the banking sector. Strengthening transparency, enhancing regulatory oversight, and ensuring sound financial practices are vital for restoring confidence in the financial system.

Taxation system: Bangladesh's tax-GDP ratio is notably low, standing at 7.8 percent in December 2023. Reforms should focus on broadening the tax base, improving compliance, and enhancing the efficiency of tax collection. Administrative and institutional reforms are necessary to strengthen the tax collection authority, curb corruption, and ensure a more equitable and effective tax system.

Trade and investment policies: To foster a more favourable environment for export diversification and foreign direct investment (FDI), reforms should address the heavy reliance on ready-made garments and the challenges in attracting FDI. As Bangladesh approaches its graduation from Least Developed Country (LDC) status in November 2026, it is crucial to liberalise trade and investment regulations, remove structural barriers, and improve the ease of doing business.

Public expenditure: With public expenditure at around 15 percent of GDP, significantly lower than its comparators, reforms should aim to improve allocation efficiency and enhance spending in key social sectors. Prioritising investments in education, healthcare, and infrastructure will help address critical needs and support long-term economic growth.

Institutional capacity: Strengthening state capacity is essential for effective governance and service delivery. Institutional reforms should focus on improving efficiency and accountability within government institutions. This includes enhancing the capabilities of public servants, streamlining bureaucratic processes, and combating corruption to ensure that government actions are effective and transparent.

Addressing Bangladesh's economic challenges requires not only political stability, but also a robust and comprehensive approach to reform. The interim government must focus on both immediate economic priorities and long-term structural reforms to foster a stable and prosperous economic environment. By taking decisive action in these areas, the government can set the stage for sustained recovery and growth.

While the interim government may face limitations in implementing all desired reforms within its term, it is crucial to focus on setting a strong foundation for future changes. Establishing effective and robust frameworks for reform can ensure that progress is sustained beyond the interim period. By mobilising support from key stakeholders—including political leaders, civil society, and the private sector—the interim government can foster a collaborative environment that drives reform forward. This strategic groundwork will help pave the way for a more comprehensive and successful implementation of reforms in the long term, even if the immediate results fall short of expectations.

Dr Selim Raihan is professor at the Department of Economics at the University of Dhaka and executive director of South Asian Network on Economic Modeling (SANEM).​

 

[Saif]

Tax reform imperatives for the interim government

Historically, revenue efforts in Bangladesh have been seriously inadequate, which has constrained public expenditure.

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Tax reform imperatives for the interim government

Illustration: Star

Bangladesh is at a crossroads on several fronts. The expectations from the current interim government are enormous, particularly regarding the implementation of bold and radical reforms in key areas, including the economy. The key economic challenges facing the interim government include controlling inflation, preventing the depletion of foreign reserves, restoring discipline and public trust in the banking system, and overhauling the revenue mobilisation system. Historically, revenue efforts in Bangladesh—measured by the revenue-to-GDP ratio—have been seriously inadequate, which has constrained public expenditure.

This weak revenue effort has limited Bangladesh's ability to finance critical expenditures on physical infrastructure, human development, and pro-poor initiatives—thus restricting economic growth and employment. Additionally, it has strained the government's ability to fund social sector programmes, including social protection initiatives. Therefore, raising more revenue is essential for the government, and especially so for the interim government, given the heightened expectations from it for meaningful and positive changes.

Note: *Per capita GDP in Panel B refers to constant 2015 US dollar. Source: Panel A is based on NBR and BBS Data and Panel B based on World Bank

Generally, in countries, there is a positive relationship between income growth (i.e., GDP, per capita GDP) and revenue mobilisation. In Panel A of the figure provided, revenue efforts are compared against per capita GDP between 2010 and 2023. And the trend in per capita GDP is rising, indicating that incomes—and thus the tax base—are increasing, which should lead to higher revenue generation, even if tax rates remain unchanged. However, contrary to this, the declining revenue-effort trend suggests an inefficient revenue system in Bangladesh. Revenue efforts, which were around 11 percent in 2011, dropped to 8.3 percent in 2023—a decline of 2.7 percentage points over 12 years, during which per capita GDP increased by approximately 200 percent. This large negative association between per capita income growth and revenue efforts is both undesirable and unsustainable.

Furthermore, Bangladesh's performance in revenue mobilisation is dismal compared to its peers. Both Nepal and Cambodia, with lower per capita GDP than Bangladesh, have significantly higher revenue efforts—more than double Bangladesh's 7.4 percent. Even Uganda, with half of Bangladesh's per capita GDP, managed to raise 12.5 percent in revenue—5.1 percentage points higher than Bangladesh. These comparisons further highlight the inefficiencies in Bangladesh's revenue system.

The two most important taxes in Bangladesh are value added tax (VAT)—an indirect tax—and personal and corporate income taxes, which are direct taxes. In FY23, these two taxes together accounted for 72 percent of total tax revenue. VAT, which makes up about 40 percent of tax revenue, has one of the lowest productivity rates in the world. This means that Bangladesh collects less VAT revenue at existing VAT rates compared to other countries with similar or lower rates.

When considering other indirect taxes such as import duties, supplementary duties, and excise taxes, the total share of indirect taxes is around 66 percent, while the share of direct taxes is only 34 percent. The inability to raise a higher proportion of tax revenue from direct taxes is another striking weakness of our system. The income tax system is based on an outdated 1984 ordinance, leading to complex tax forms and burdensome filing requirements, which discourage voluntary compliance. As a result, there were only 2.5 million taxpayers, or 1.52 percent of the total population in FY22. Low compliance and a narrow tax net have kept income tax revenue low, increasing reliance on indirect taxes, which disproportionately burden the poor.

A paradox of our tax system is the high tax-expenditure ratio despite dismal tax efforts. Tax expenditures are special provisions in the tax code—such as exclusions, deductions, deferrals, credits, and tax rates—that benefit specific activities or groups. These provisions result in forgone revenue. According to an NBR report ("The Tax Expenditure in the Direct Tax of Bangladesh: Estimation and Review," March 2024), tax expenditures in direct taxes amounted to 3.56 percent of GDP in FY21. While some of these may be justified on merit, such high tax expenditures alongside low revenue efforts are clearly unsustainable.

The assessment above suggests that Bangladesh's revenue system is both inefficient and inequitable. The dismal state of the revenue system is largely due to the lack of meaningful reforms over the past three decades since the introduction of the VAT system in 1991. Therefore, future reforms must focus on improving both the efficiency and equity of the system. Having a clear reform roadmap with specific targets is crucial. Bangladesh should aim to increase its revenue effort to 13.5 percent within the next two years and to 16.5 percent within the next five years. Although ambitious, these targets are feasible, as evidenced by the performance of other countries. Additionally, revenue from direct taxes must increase to 40 percent within two years and 60 percent within five years.

Strategic recommendations

Implementing the 2012 VAT law is likely to improve VAT revenue collection, address inefficiencies in the system, and enhance overall revenue through: i) eliminating the complexity of having multiple tax rates on the same products at different stages of production; and ii) reducing tax evasion, boosting revenues, and discouraging vertical integration, which will support the SME sector through subcontracting by large enterprises.

Increasing revenue from the direct tax system

Bangladesh needs to mobilise more revenue from direct taxes to align with countries at similar income levels by: i) simplifying the personal income tax system by eliminating wealth and income-expenditure statements, which contribute to corruption; ii) implementing electronic filing and payment systems while eliminating direct interactions between taxpayers and tax collectors; iii) lowering corporate tax rates to a maximum of 25 percent over the medium term with minimal exceptions—all sectors, including ready-made garments (RMG), should be treated equally; iv) replacing the wealth tax with a proper property tax system, based on realistic valuations of personal and commercial properties, with revenues earmarked for local governments; and v) reducing rebates, discounts, exemptions, and reduced rates of taxation, and introducing a tax-expenditure tool to clearly show the benefits and costs of tax policies.

Improving tax administration

Bangladesh must: i) automate its tax administration; ii) establish a modern, computer-based audit system to identify audit candidates based on pre-determined red flags and focusing on revenue productivity and genuine tax evaders; iii) create a separate tax policy division within the Ministry of Finance, staffed with tax policy experts to ensure tax changes are effective, efficient, and equitable; iv) incorporate alternative dispute resolution in income tax, VAT, and customs legislation to collect unpaid revenue; v) strengthen the research and administrative capacities of the National Board of Revenue through international technical assistance and partnerships with local research institutions—all tax data should be computerised, and online tax filing should be facilitated; and vi) introduce a redistributive fiscal policy tool (in line with SDG 10) to assess the impact of tax and expenditure proposals.

Bazlul Haque Khondker is chairman of South Asian Network on Economic Modeling (SANEM) and director at Policy Research Institute (PRI).​

 

[Saif]

IsDB to give $4-5b in three years

Islamic Development Bank (IsDB) will likely provide an overall support of around $4 billion to $5 billion to various sectors in Bangladesh within the next three years under its “Member Country Partnership Strategy” (MCPS).

www.thedailystar.net

IsDB to give $4-5b in three years

Islamic Development Bank (IsDB) will likely provide an overall support of around $4 billion to $5 billion to various sectors in Bangladesh within the next three years under its "Member Country Partnership Strategy" (MCPS).

Muhammad Nassis Sulaiman, head of the IsDB regional hub in Dhaka, informed journalists about this development while replying to their queries after meeting with Salehuddin Ahmed, finance and commerce adviser to the interim government.

The meeting was held at Ahmed's office at Bangladesh Secretariat in Dhaka yesterday.

"As a part of the MCPS, the plan for the next three years is to give support of $4-5 billion," Sulaiman said.

Asked whether there had been any discussion about International Islamic Trade Finance Corporation (ITFC) increasing its lending limit to Bangladesh for fuel oil purchases, he said it was included in their overall talks with the interim government.

The ITFC is a trade financing arm of IsDB Group.

The IsDB's MCPS needs to be framed in detail for the next couple of years to fix their support, including the ITFC's support to Bangladesh, said Sulaiman.

"So, we really look forward to providing support in infrastructural development and address some of the issues related to climate change in the country," he added.

He also talked about the IsDB Group's interventions.

"Of course, the interim government is also looking forward to seeking support for overall engagement, particularly we will discuss it with the ITFC about how the support can be further developed and moved forward," he said.

Sulaiman mentioned that the IsDB would continue working for the socioeconomic development of Bangladesh.

"Considering the IsDB's strategies and the interim government's priorities, we will hopefully be able to give the required support in terms of resources and collaboration," he said.

Salehuddin Ahmed said since the IsDB was a multilateral development partner of Bangladesh, they were providing various kinds of assistance to the country, such as in the health sector and for building cyclone shelters.

He informed that the interim government has requested them to support in rebuilding the damaged rural roads affected by recent devastating floods in the country.

He also said they have already conducted a survey in Sylhet, one of the worst affected areas, to this end.

"Overall, the IsDB will support us in rebuilding damaged rural roads. They are already supporting us in the health sector, constructing bridges, physical infrastructures and so on," Ahmed added.

Regarding support in purchasing fuel oil, the finance adviser said the IsDB would explore possibilities for boosting existing cooperation through consultations with other development partners.

"We've requested them to provide us funds and they would assess the possibilities. Until it is finalised, nothing can be said as the IsDB board meeting will be held in December," he added.

Ahmed also said the Jeddah-based lending agency would provide long-term support to Bangladesh in line with the country's demands.

"Overall, the IsDB will support us," he said.

Regarding the MCPS, he informed that the government would assess potential projects for which funds would be sought and the IsDB would then consider whether to move forward with those.

The MCPS for 2024-2026, titled "Supporting Sustainable Economic Growth and Resilience", was launched on April 29.

The Bangladesh MCPS provides broad strategic directions and focuses on sectors for the IsDB's engagement in the country.

The MCPS focuses on building sustainable infrastructure for energy, transport, information and communications technology, water and sanitation.

It seeks to enhance future competitiveness of Bangladesh through support for education, health, agriculture and nutritional security.

It also aims to provide complementary cross-cutting support on climate change mitigation and adaptation, women and youth empowerment, capacity development, and enhancing financial market depth and access to finance through Islamic finance.​

 

[Bilal9]

Islamic Development Bank to provide Bangladesh with $5bn support over next 3yrs​

Funding for infrastructure, climate change adaptation, and socio-economic development

https://www.dhakatribune.com/358748


Representational image of dollar. Photo: Collected

UNB
Publish : 17 Sep 2024, 06:45 PM
Update : 17 Sep 2024, 06:45 PM

The Islamic Development Bank (IsDB) has announced plans to provide Bangladesh with financial support totaling $4-5 billion over the next three years under its Member Country Partnership Strategy (MCPS) for 2024-2026.

This funding will be directed towards key sectors including infrastructure, climate change adaptation, and socio-economic development.

Muhammad Nassis Sulaiman, head of the IsDB Regional Hub, disclosed this information on Tuesday after a meeting with Finance Adviser Dr Salehuddin Ahmed at the Bangladesh Secretariat.

“As part of the Member Country Partnership Strategy (MCPS), we plan to provide around $4 to $5 billion in support over the next three years,” Sulaiman said.

Sulaiman highlighted that the bank’s strategy would address critical issues such as infrastructural development and climate change.

“We look forward to providing support in infrastructural development to tackle the climate challenges facing Bangladesh,” he said.

When asked about the possibility of increasing the lending limit for purchasing fuel oil through the International Islamic Trade Finance Corporation (ITFC), a trade financing arm of the IsDB Group, Sulaiman confirmed that this was part of ongoing discussions with the government.

Finance Adviser Dr Salehuddin Ahmed emphasized the importance of IsDB’s role as a multilateral development partner, particularly in the health sector and disaster recovery efforts.

The government has requested support for rebuilding rural roads damaged by the recent devastating floods, Dr Salehuddin noted, adding that the IsDB had already conducted a survey in the Sylhet region.

Regarding the financing for fuel oil, the finance adviser mentioned that while discussions were ongoing, any final decision would depend on the outcomes of the IsDB Board meeting scheduled for December. “We’ve requested funds, and they will assess the possibilities. Until then, nothing is finalized,” he said.

Sulaiman reiterated IsDB’s long-term commitment to supporting Bangladesh’s socio-economic development, stressing the importance of aligning their efforts with the country’s strategic priorities. “Considering the IsDB’s strategies and the government’s priorities, hopefully we will be able to support in terms of resources and collaboration with other development partners as well.”

Bangladesh Member Country Partnership Strategy (MCPS) (2024-2026), titled “Supporting Sustainable Economic Growth and Resilience” was launched on April 29, 2024.

The MCPS provides broad strategic directions and sectoral focuses for IsDB’s engagement in Bangladesh.

The MCPS focuses on building sustainable infrastructure for driving industry through support for energy, transport, information and communications technology (ICT), water and sanitation, and enhancing future competitiveness of Bangladesh through support for education, health, agriculture and nutritional security with complementary cross-cutting support on climate change mitigation and adaptation, women and youth empowerment, capacity development, and enhancing financial market depth and access to finance through Islamic finance.

Source: https://www.dhakatribune.com/358748

 

[Saif]

WB to provide $2.3b this fiscal year

The World Bank (WB) will provide Bangladesh with $2.3 billion in the current fiscal year (2024-25) to facilitate reforms in the country’s financial sector and its economic recovery from recent floods.

www.thedailystar.net

WB to provide $2.3b this fiscal year

The World Bank has appointed Martin Raiser, an economist and development expert, as its new vice president for the South Asia Region. Photo: Courtesy

The World Bank (WB) will provide Bangladesh with $2.3 billion in the current fiscal year (2024-25) to facilitate reforms in the country's financial sector and its economic recovery from recent floods.

Martin Raiser, vice-president of the World Bank for South Asia, discussed the details of the loan programme at a meeting with Professor Muhammad Yunus, chief adviser to the interim government, at his office in Tejgaon, Dhaka yesterday.

Raiser said the World Bank is ready to be a part of the key economic reforms planned by the interim government, according to a press release from the chief adviser's office.

"Count on us. We're ready to help," Raiser said in response to Yunus's call for broader support for the interim government in its move to fix the economy

"Count on us. We're ready to help," Raiser said in response to Yunus's call for broader support for the interim government in its move to fix the economy by cleaning up corruption and undertaking reforms in key sectors, including judiciary.

The visiting World Bank vice-president also said they will support reforms in the country's banking, taxation and customs sectors, while also facilitating efforts for digitisation at various local industries.

Welcoming the World Bank's support, Yunus said the interim government has got a broader mandate from the people to get rid of corruption and give Bangladesh a new start.

"This is the season of reforms. We want to start now," he said, adding that the student-led mass uprising in July-August prepared the ground for big reforms in the existing system.

He also said the government would implement conventions of the International Labour Organization (ILO) in labour reforms to boost foreign investors' confidence and help local manufacturers expand their international foothold.

"We want to get it done," he said while adding that Bangladesh should be a global player in sectors other than garments.

Raiser appreciated the move to woo foreign direct investment (FDI), saying the annual FDI in Bangladesh is worth about half of the country's gross domestic product (GDP) in terms of percentage, making it one of the lowest in South Asia.

After the meeting, Planning Adviser Wahiduddin Mahmud said large amounts of foreign loans in the pipeline remain underutilised. The government has assessed the $1 billion worth of projects being funded by the World Bank, and those projects are now almost at a standstill.

He said the government could instead utilise these funds for budget support in December.

According to a statement from the World Bank, Bangladesh has the opportunity to implement critical reforms that were long overdue.

"Through existing and new investments, we are focusing on improving economic governance and creating more and better jobs for the 2 million Bangladeshi youths entering the job market each year," Raiser said.

Raiser also met with the finance adviser, energy adviser, and Bangladesh Bank governor to discuss critical reforms aimed at helping the country build economic resilience, safeguard financial sector stability, and improve governance, transparency and accountability.

Raiser also expressed his condolences for the tragic loss of lives in July and August.

He informed that the World Bank is in discussion with the health ministry to provide urgent support for the treatment of critically injured students and affected individuals.

Furthermore, the multilateral lender will support the rehabilitation and restoration of livelihoods among people in flood-affected districts.

Raiser also conveyed appreciation for Bangladesh's generous decision to continue providing shelter to about one million displaced Rohingya people fleeing violence in Myanmar.

The World Bank recently approved a $700 million programme for the displaced Rohingyas and their host communities.

After meeting with Finance Advisor Salehuddin Ahmed at his office at the Bangladesh Secretariat in Dhaka yesterday, Raiser told reporters that they would also provide budgetary support for Bangladesh during the current fiscal year.

Finance and Commerce Adviser Ahmed said the World Bank will provide support in implementing reforms in banking and other sectors.

The adviser also said they discussed various other issues with Raiser and his team, including the need for budget support in areas such as the energy sector, fertiliser imports, food security and post-flood aid.

The World Bank was very positive about all the proposals they presented, and provided concrete responses.

"They [the World Bank] assured us that they, along with other stakeholders, would coordinate to this end and there would be no hesitation in providing necessary funding or assistance," Ahmed added.​

 

[Saif]

Good news about forex reserve

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitment

thefinancialexpress.com.bd

Good news about forex reserve
Published :
Sep 19, 2024 21:35
Updated :
Sep 19, 2024 21:35

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitments from development partners --- would make things easier for payment of letter of credit (LC) liabilities soon. The governor made the remarks at a virtual meeting with members of the Association of Bankers Bangladesh (ABB) and representatives from more than 120 corresponding banks across the globe.

The online meeting took place at a time when many corresponding banks had either halted credit support or reduced credit limits for Bangladeshi commercial banks, believed to be due to a lack of trust in view of the depleting forex reserves. He explained that government liabilities had accumulated on account of letters of credit (LCs) for importing essential commodities like fertilisers, power, and petroleum products against prolonged foreign exchange crunch. He informed the corresponding banks that the government's total LC-related liability stood at $2.0 billion, of which $800 million had already been cleared, and the remaining amount would be settled within the next 5-6 months. Assuring the corresponding banks was of paramount importance as these foreign financial entities assist the local commercial banks in LC confirmation, offshore banking unit (OBU) loans and usance payable at sight (UPAS) LC financing.

The country's foreign-exchange reserves had been declining rapidly since the beginning of 2022 as the fallout of international crises, including the war in Ukraine. High import costs, driven by increased commodity prices on the international market, also contributed to this decline. Against this backdrop, the key challenge for the interim govern has been to ensure a stable forex reserve as well as adopt prudent policies for meeting expenditures in foreign currency. What transpires from the remarks of the central bank governor is a clear shift from the stagnating state of the reserves in the recent months. There had been a surge in remittance inflows in August compared to July this year, to $2.215 billion. In the first 14 days of this September, remittance inflows amounted to $1.167 billion. Central bank data show that the reserves increased by more than 15 per cent in the fiscal year 2023-24 on a year-on-year basis. Currently, the reserve stands at $24.30 billion, which in IMF calculation (called BPM-6), is approximately $20 billion --- a considerable improvement from less than $14 billion two months ago.

Presentation of the actual health of forex reserves and the future course of action for paying dues to the overseas corresponding banks is expected to remove the trust deficit in conducting foreign trade. Over and above, this is sure to bolster confidence of the local bankers as well as the common citizens. In this context, let it be underscored that effective steps are required to stop money laundering for strengthening the forex regime. The interim government since assuming office has time and again made its intention clear to do so. Import austerity in case of non-essential and luxury products can also help sensible spending of hard-earned foreign exchange.​