[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Increased remittance inflow encouraging

Upskilling workers, easier migration process can further increase it.

www.thedailystar.net

Increased remittance inflow encouraging
Upskilling workers, easier migration process can further increase it

We are encouraged by the recent increase in remittance inflows into the country at a time when our economy is under significant pressure due to dwindling foreign exchange reserves and various external payment obligations. According to Bangladesh Bank data, in October, remittances sent home by our migrant workers rose 21.31 percent year-on-year to $2.39 billion, following a 40 percent increase in August and 80 percent increase in September. Reportedly, from October 1 to October 26, Islami Bank Bangladesh received the highest amount of remittance at $371 million, followed by Agrani Bank at $185 million, Sonali Bank at $143 million, and BRAC Bank at $122 million. We now hope that this upward trend in remittance inflows will continue in the coming months, which will eventually help ease pressure on our forex reserves.

This achievement, of course, would not have been possible without the hard work of our migrant workers, who toil in foreign lands, often under unfavourable conditions and with low pay. Since our economy is heavily dependent on the remittances they send, it is our responsibility to ensure their rights are protected, both at home and abroad. The high cost of migration has long been a barrier for aspiring migrant workers, which the government should address urgently. Moreover, it is concerning that the number of workers who went abroad between January and September this year was significantly lower than during the same period last year—while 989,685 workers migrated in 2023, the figure dropped to 698,558 this year. The Ministry of Expatriates' Welfare and Overseas Employment must investigate the reasons behind this decline and take proactive measures to address them.

Currently, Bangladesh faces substantial challenges in paying its external debts and importing essentials such as gas, fertiliser, and raw materials for the garment sector due to the dollar shortage. Adani Power, for instance, has recently warned Bangladesh of a potential suspension of supply if overdue payments of around $850 million are not cleared. Therefore, it is crucial that the government take all necessary steps to increase our forex reserves. To this end, the government should find new markets and focus on sending more skilled workers abroad to secure better jobs and enhance remittance flows. Additionally, it should promote the use of formal channels for remittance transfers. Previously, the gap between official and unofficial exchange rates led many migrants to favour informal channels, but this practice needs to change.

However, the government should not rely solely on remittances to alleviate the ongoing pressure on forex reserves. Simultaneously, it must also work to boost export earnings.​

 

[Saif]

WB agrees to lend $400m for bankrolling project

A latest World Bank financing worth US$400 million is expected for strengthening financial-safety net and crisis preparedness in Bangladesh, officials said about the funding that specially focuses tidying up the banking sector. The money will go for bankrolling the Financial Sector Support P

thefinancialexpress.com.bd

WB agrees to lend $400m for bankrolling project
Siddique Islam
Published :
Nov 06, 2024 00:14
Updated :
Nov 06, 2024 00:14

A latest World Bank financing worth US$400 million is expected for strengthening financial-safety net and crisis preparedness in Bangladesh, officials said about the funding that specially focuses tidying up the banking sector.

The money will go for bankrolling the Financial Sector Support Project (FSSP) -II. Total tenure of the project will be five years.

Under the proposal, Bangladesh will achieve at least six outcomes that include enacting Distressed Asset Management Act (DAMA) and stress test based on AQR (Asset Quality Review) for all the scheduled banks within the second and third years of the project.

Non-performing loans (NPL) resolution guidelines will be issued and enforcement departments will be established at the central bank during the period under the review.

Besides, two acts - Financial Stability Act and Deposit Protection Act -will be issued under the project.

However, the banking sector, particularly enhancing deposit insurance system (DIS), strengthening bank restructuring and resolution will be focused with financing worth around $300 million.

These are performance-based credits (PBCs) under a new concept introduced by the World Bank under the project, according to a central banker.

He also says an alternative to these PBCs may be inclusion of an on-lending component like previous project (FSSP) of the World Bank.

"There are also requiring enacting some new laws which will be combined efforts of the central bank and the government," the Bangladesh Bank official explains.


The DAMA will be enacted in line with the World Bank recommendations and international practices.

Another $100 million will be invested in IT, databases and systems for modernizing financial-market infrastructure of the central bank of Bangladesh along with capacity building of the BB officials for dealing with financial issues in this critical era.

"We're now working to formulate TPP (Technical Project Proforma) for the project," Spokesperson for the central bank Husne Ara Shikha told the FE.

Ms. Shikha, also an executive director of the BB, said formal discussion with the World Bank in this connection had already been completed.

"We hope that the formulation of TPP will be completed by June 2025," she said, adding that the loan proposal is expected to be submitted at the World Bank board meeting in September 2025 for approval.​

 

[Saif]

‘Business-friendly environment remains elusive’

A congenial business environment is yet to be restored under the interim government, said Tapan Chowdhury, managing director of Square Pharmaceuticals.

www.thedailystar.net

‘Business-friendly environment remains elusive’

Tapan Chowdhury

A congenial business environment is yet to be restored under the interim government, said Tapan Chowdhury, managing director of Square Pharmaceuticals.

Until that happens, fresh investment or business expansion plans would be on hold, Chowdhury told The Daily Star in an interview recently.

"Square Group also has plans to expand the group's business both at home and abroad, but this is not the time for investment as the congenial and business-friendly environment is absent now."

Regarding the recent labour unrest, he suggested minimising the communication gap between the factory owners and workers.

"There should be regular interactions between the workers and owners -- if there is any grievance of the workers, their views should be heard."

Only police and the army cannot manage the problem of worker unrest, he said, adding his pharmaceutical factory was also attacked during the time of weak law and order situation.

Chowdhury is also a director of the Nirapon, which was earlier the North American garment factory inspection and remediation platform Alliance.

Nirapon has been urging the local factory owners to implement a living wage and ensure freedom of association through trade unions.

However, international brands and retailers are reluctant to raise the prices such that the factory owners could pay a living wage to workers.

"When the question of price hike is raised, they [the international clothing retailers and brands] say that they cannot do it as it is a matter of competition."

Chowdhury gave an example of freedom of association and industrial relations.

"Many years ago, at our Pabna industrial plant, the workers demanded a salary hike and the then chairman of the group Samson H Chowdhury doubled the salary although the workers demanded half of the salary hike. That made the workers very happy. It was possible because of a warm relationship between the workers and owners."

Similarly, whenever and whatever the workers demanded something, the chairman honoured that.

"People think the majority of businessmen made money in the wrong way -- that perception needs to be changed. Businessmen are seen as villains here. It is true that many have done bad things but all are not bad. Few big groups of companies made money through corruption and they did these things in connivance with the government and in public. They do not represent the whole business community."

But it is also true that many factory owners do not pay their workers on time.

"But they are buying new cars and enjoying the life of luxury."

About the banking sector, Chowdhury questioned the logic behind having so many banks.

"In which country are there so many banks?"

With the money deposited by poor people, some are claiming themselves to be bank owners.

"Had the government not patronised them, they wouldn't have had the chance to become such monsters."

Chowdhury also touched upon the health sector, which is going through a tough time.

"It is difficult to negotiate with the current government as they do not know what is the priority of the government and there is a huge gap between businessmen and the government."

For instance, the government has been reforming the pharmaceutical industry, which may affect the prices of medicines.

"Many things are being touched in many areas simultaneously. You cannot do reforms in one day -- reforms should be made step by step. Why are the people going to private hospitals? The government should realise it. This government did not do anything to revive the government hospitals. The hospital which was supposed to be built with Tk 500 crore was made with Tk 1,000 crore and no doctor could be found in those hospitals. The government should address it."​

 

[Saif]

Crony capitalism stifled investment and growth in Bangladesh

Crony capitalism is deeply ingrained and has gotten in the way of a truly dynamic and inclusive economy in Bangladesh.

www.thedailystar.net

Crony capitalism stifled investment and growth in Bangladesh

Crony capitalism essentially cannot avoid giving more undue privileges to the chosen few in business at the cost of a majority of private investors. VISUAL: ANWAR SOHEL

During the last decade, under the immediate-past Awami League government, the economic landscape of Bangladesh was defined by deepening crony capitalism, a situation in which business success is not determined by competitive advantage but by political connections and favouritism. Crony capitalism discouraged the growth of private investments on both domestic and foreign fronts. At the heart of crony capitalism lies the fact that business entities that enjoy intimate company with political elites always turn out to be at an undue advantage. These advantages range from preferential access to government contracts and resources to leniency in regulation and tax exemptions.

The quintessential example is the banking sector, in which a few politically connected conglomerates grabbed a disproportionately large amount of loans by showing little or no collateral. Lack of proper regulatory oversight resulted in increased non-performing loans (NPLs), which now stand as one of the major potential risks to the financial sector's stability. Furthermore, there were instances of a high level of contractual agreements in the power and energy sector, with firms having obvious political connections, irrespective of their doubtful feasibility or efficiency, especially regarding IPPs.

Crony capitalism essentially cannot avoid giving more undue privileges to the chosen few in business at the cost of a majority of private investors. This uneven playing field thus discourages genuine entrepreneurs who don't have any political connections from competing effectively. Small and medium enterprises (SMEs), which are crucially important for employment generation and diversification of the economy, usually cannot scale up because of exclusion from lucrative markets dominated by politically connected firms.

This is not easy for foreign investors either. They are eager to invest in those sectors that offer high growth possibilities, but they keep away because the playing field is never really level. A lack of transparency in regulatory matters and the threat of arbitrary policy changes persisted during the previous regime, which prevented the emergence of a favourable business environment for foreign investors. This is one of the reasons why foreign investment didn't register pace in Bangladesh.

Inefficiencies in regulatory mechanisms and bureaucracy, along with non-transparency of systems, posed serious problems concerning doing business. For example, essential permits, licences and approvals took a long time and involved excessively high costs unless moved by political patronage.

Besides, the legal system related to the protection of intellectual property rights and enforcement of contracts remained weak—a fact that is of primary concern for both local and international investors. In a nutshell, without strong legal protection, companies risk losing their investments or intellectual property to powerful competitors who could utilise their political networks for their benefit.

Several policies and practices were tailored to benefit politically connected businesses at the expense of the broader economy. The banking sector saw a lot of new licences, many of which were given to businesses close to power, which therefore enjoyed preferential credit access, leading to increased NPLs. Defaults were all over the place due to inadequate due diligence, with hardly any consequence for the high-profile large defaulters. Tax evasion was a common feature, with selective enforcement allowing politically linked businesses to escape through waivers and amnesties. In the power sector, independent and quick rental power producers were given privileged treatment on account of political connections, while megaprojects of infrastructure construction were usually awarded in a non-transparent manner to politically favoured companies. Real estate dealings had preferential land allocations, while strong groups manipulated the stock market. Politically connected industries benefited from export incentives and trade policies, which disadvantaged smaller competitors. This dominance of crony capitalism was facilitated by a strong "anti-reform coalition" among corrupt political elites, corrupt business elites, and corrupt bureaucrats.

One of the more disquieting features of crony capitalism in Bangladesh was the degree to which the politically connected businesses were able to influence policymaking, a phenomenon often referred to as "state capture." Examples of state capture include those in industries such as telecommunications, RMG, banking, real estate, and energy, where major policy decisions were doled out to a few select players.

The policy distortions favouring cronies led to an economy that is less diversified and more dependent on a few sectors dominated by a handful of influential players. This concentration of economic power stifled competition by raising barriers for new entrants and inhibited the growth of sectors that could otherwise drive economic diversification and sustainability.

Corruption in Bangladesh has been all-pervasive and acted as a facilitator for the emergence and consolidation of crony capitalism. Paying bribes or kickbacks has been a common practice for receiving contracts, as well as for hastening bureaucratic processes or evading regulatory fines. Such an atmosphere discourages ethical business practices, besides increasing the cost of doing business for those who do not indulge in corrupt practices.

Corruption has led to wealth from the public sector being syphoned off, since money that would have been used to build infrastructure, healthcare or schooling was instead spent on self-serving interests. Resources that ought to be contributing to inclusive economic development has been misallocated.

The solution to the problem of crony capitalism needs to be multifaceted. First, there needs to be a far greater commitment to the rule of law. Anti-corruption measures have to be enforced; regulatory bodies must be given full independence to do their job without any kind of political interference. In that way, enterprises will have equal opportunities to compete with each other, where success will be determined by competence and competitiveness rather than by political relationships.

Second, government procurement and policy formulation processes must be made more transparent. E-procurement systems reduce personal contact between businesses and officials, thereby reducing avenues for corruption. Besides, policies should be aimed at encouraging fair competition, innovation, and investment across all sectors, not just chosen sections.

Third, institutions involved in monitoring the financial system need more strengthening. Banking regulations have to be tightened, and the Bangladesh Bank must have the authority as well as resources to enforce compliance without discrimination. The NPLs will require not only financial restructuring but are also underlined for future fresh lending to be based on full transparency and risk-based criteria.

It is equally important to outline a culture of accountability among political leaders and business elites, and they must be made accountable for unethical practices, while at the same time, civil society organisations must be encouraged to raise their voices for greater transparency and reform. A strong legal framework that punishes corrupt practices and protects whistleblowers would go a long way in undermining the structures of crony capitalism.

Crony capitalism is deeply ingrained and has gotten in the way of a truly dynamic and inclusive economy in Bangladesh. Unless the structural issues that create and sustain crony capitalism are resolved, a propitious investment climate cannot be achieved and sustainable economic development through broad-based domestic and foreign investment cannot be ensured.

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

 

[Saif]

Forex reserves cross $20b after 2 months

Reserves were $19.87 billion a week ago

www.thedailystar.net

Forex reserves cross $20b after 2 months
Reserves were $19.87 billion a week ago

Bangladesh's foreign exchange reserves have grown to go past $20 billion after nearly two months thanks to migrants sending increasing amounts of funds as remittance.

The country's foreign exchange reserves, as per the calculation method of International Monetary Fund, went past $20 billion today, rising from $19.87 billion a week ago, according to the central bank data.

"This is the impact of increased flow of remittances," said Husne Ara Shikha, spokesperson of Bangladesh Bank (BB).

Bangladeshis living and working abroad sent a total of $8.93 billion in remittance in the July-October period of fiscal year 2024-25, up 30 percent year-on-year, as per the BB.

The BB data showed that gross reserves rose to $25.72 billion from $25.44 billion a week ago.

The country's forex reserves as per the IMF's calculation method were at $20.55 billion in early September this year.

It fell below the $20 billion mark after the payment of $1.37 billion in import bills for July and August under Asian Clearing Union, an arrangement for the settlement of payments among nine member countries.

BB Deputy Governor Md Habibur Rahman said the central bank has been buying foreign currencies from banks.

"Purchases will continue. We see a good supply of the US dollar, and we will buy the foreign currencies, keeping the forex market stable," said Rahman, who was previously serving as chief economist of the BB.

The central bank sold $9.4 billion of foreign currencies in FY24.​