[🇧🇩] Monitoring Bangladesh's Economy

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The role of remittance in buoying economy

As problems continue to plague exports from Bangladesh, particularly on account of the ongoing protests, vandalism and closure of readymade apparel factories, the one good thing that helps keep the economy buoyant is remittance sent by expatriate workers. In fact, remittance is a huge driver for gr

thefinancialexpress.com.bd

The role of remittance in buoying economy
Syed Mansur Hashim
Published :
Oct 04, 2024 21:57
Updated :
Oct 04, 2024 21:57

As problems continue to plague exports from Bangladesh, particularly on account of the ongoing protests, vandalism and closure of readymade apparel factories, the one good thing that helps keep the economy buoyant is remittance sent by expatriate workers. In fact, remittance is a huge driver for growth for many other Asian countries including the Philippines and India to name but a few, as every nation requires hard currency to pay for imports. In case of Bangladesh, the ballooning foreign loan repayment is being met to a large extent from the remittances sent to the home country by Bangladeshi workers living and working abroad.

There has been a profound rebound in remittance coming in through official and unofficial channels to Bangladesh. There is a renewed hope amongst people that despite many short-term problems being faced due to the change in government, people at home need the extra cash and the economy can meet the need with dollars earned abroad. As one looks at the data, remittance earnings over the last quarter (July - September, 2024), the figure has jumped from US$1.91 billion in July to $2.40 billion in September, 2024. Sceptics are quick to point out that this is temporary and may fall anytime due to changed economic circumstances in destination countries where bulk of our workers are concentrated.

This is partly true. But the other side of the argument is seldom highlighted. People are sending more money through official channels regardless of the difficulties encountered in doing so. More and more expatriates understand the need to send it through formal financial channels because this will directly help the country to defray the costs of development. The remittance surge over the last quarter has only the second time it has happened over a 39-month long period.

Sustaining the momentum, however, will require a lot of work. According to information made available by the central bank (BB) and reported by the Financial Express, "This September receipt got enhanced by over 80 per cent year on year from $1.33 billion recorded in September 2023. Compared with the remittance earnings in August 2024 worth $2.22 billion, the September figure is around $200-million higher." Some constructive measures taken thus far are paying off. The depreciation of the national currency (BDT) against the greenback and expansion of the crawling peg mid-band, according to experts, have encouraged remitters to send home more money back home.

Despite the uptick in remittances, the net payments being made in foreign exchange (forex) for both imports and repayments on foreign loans together with interest are still in the negative. Much needs to be done to make it more difficult for business entities to launder money abroad. It is not only a question of employing 'hundi', but also addressing trade mis-invoicing. Despite protestations to the contrary by exporters, there is enough evidence available that puts the amount of foreign exchange laundered abroad at around $8.0 billion annually. That is a massive amount of forex the equivalent of which is not entering the local economy every year. These problems continue to pester because no political government in the past has worked to plug the loopholes, as it worked in their self-interest to move huge sums of money abroad. Getting back to inward remittance, banking insiders agree that tighter control over policy have helped. Today, the BB has lifted the restriction in controlling the exchange rate. So, remitters sending money through banking channels get their money's worth since the exchange rate is now more attractive. This has dealt a blow to the grey market, but are the measures enough? Certainly not!

Until now, all the focus has remained on banks and formal financial institutions. One has to remember that the bulk of Bangladeshi workers are blue-collar, not white-collar, i.e. they are not very comfortable with banking procedures and paperwork. As Bangladesh has spent considerable resources to upgrade its digital footprint, financial institutions and the central bank have also become online. It is necessary now to open up the various digital applications available to people globally so that they may remit money directly from their mobile phones. What has to be worked on are regulatory issues about precisely how people can send money using cellphone technology to cut through the hassle of formal banking.

Of course, such a step may face resistance from formal financial institutions as they will fear loss of business. On the contrary, this will help their business if Bangladeshi banks and BB work together to make mobile applications that will work with cell phones, and the money sent are disbursed through banks and / or non-banking financial institutions. Now that the technology exists, it is the mindset to make it happen. This is the only way to bring the so-called "un-bankable" on board and double the inward remittance basket. The Bangladesh Bank needs to start working on this policy framework without delay.​

 

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Wage growth still below inflation

Unskilled workers wage grew 8.01% in September this year when inflation was 9.92%

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Wage growth still below inflation
Unskilled workers wage grew 8.01% in September this year when inflation was 9.92%

Photo: Sk Enamul Haq

Many low-income and unskilled workers in the agriculture, industrial and service sectors of Bangladesh are being forced to reduce consumption as higher inflationary pressure is eating away their real income.

According to the Bangladesh Bureau of Statistics (BBS), inflation has outpaced wage growth in the country for more than two and a half years now.

The wages of low-income and unskilled workers across 63 employment categories grew by an average of 8.01 percent in September while the inflation rate was 9.92 percent, shows the Wage Rate Index of the BBS.

The situation was even worse in August as the inflation rate stood at 10.49 percent, thereby exceeding wage growth by 2.53 percentage points in a trend that has been continuing for the past 32 months.

The data also indicates that earning levels across all three of the economic sectors registered month-on-month growth of less than 1 percentage point in September.

Wage growth in the industrial sector was 7.61 percent that month, up by 0.07 percentage points from August, while that of the agriculture sector increased by 0.03 percentage points to 8.28 percent.

Likewise, wage growth in the service sector advanced by 0.05 percentage points to 8.29 percent.​

 

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ADB-funded projects face fresh hurdles

Many ongoing development projects, funded by the Asian Development Bank, is facing additional implementation challenges due to the current political climate and changes in the government, a document says.

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ADB-funded projects face fresh hurdles
Change in govt, political turmoil key reasons; review meeting starts today

Many ongoing development projects, funded by the Asian Development Bank, is facing additional implementation challenges due to the current political climate and changes in the government, a document says.

The ADB has also initiated a "rapid market assessment" to "better understand the impact of the prevailing socio-economic conditions", it said.

Against this backdrop, a three-day Tripartite Portfolio Review Meeting (TPRM) for the ADB-funded projects starts in Dhaka today.

The critical implementation issues, including additional challenges that projects have faced during the recent unrest and changes of the government, are on the agenda of the meeting.

The meeting was supposed to be held in July 2024 but got delayed due to the uprising, which led to the changes in the government.

Representatives of implementing agencies of all the projects will join the meeting virtually.

The third and final day of the meeting will be co-chaired by the secretary of the Economic Relations Division and the country director of the ADB's Bangladesh Resident Mission.

Currently, 53 investment projects in six sectors are being implemented with ADB's fund of $12.262 billion.

Of the projects, five are in the agriculture, food, nature, and rural development sector; 10 in the human and social development sector; nine in the energy sector; 12 in the transport sector; 11 in the water and urban development sector; and six in the finance, public sector management, and governance sector.

Implementation of all major projects, particularly the infrastructure ones, was halted or almost stopped amid the quota reforms protests, which eventually turned into a student-led mass uprising that toppled the Hasina-led government on August 5.

"Almost all work remained halted for two months [July and August]. Work resumed in September, but it is yet to get momentum," a director of a major ADB-funded project told The Daily Star yesterday.

"Situation of other projects were almost same, and I think ADB wanted to mention this problem as additional challenges," the director said seeking anonymity.

WHAT ADB SAYS

According to a background paper made ahead of the tripartite portfolio review meeting, awarding of contract achieved is $392.5 million (59.6 percent) against the annual target of $663.8 million this year.

The disbursement is $890.2 million (61.6 percent) against the annual target of $1,445 million, it says.

Insufficient financial and human resources to prepare projects, complex and lengthy approval process of projects and bid documents, challenges in land acquisition, limited experience and capacity of the project implementing agencies are major factors that led to poor project readiness and frequent extension of loan implementation periods, ADB said.

It said Bangladesh portfolio in general is composed of infrastructure projects, which are about 67 percent of the portfolio, and involve large and challenging procurement packages.

In 2023, all sectors exceeded their contract award targets except agriculture, food, nature, and rural development (73.6 percent) and energy (59.8 percent) sectors.

As of September 20 this year, the annual progress is 60.62 percent with 72 percent of the time elapsed, and the contract award and disbursement performances are "on track" as per year-to-date performance.

"However, we have observed additional implementation challenges in many ongoing projects due to the current political turbulence and changes in the government," ADB document reads.

The ADB, however, is committed to working even more closely with the interim government to ensure continuous improvement of Bangladesh portfolio management, it said.

The multilateral lender, with support from the project implementation units, initiated a rapid market assessment to better understand the impact of the prevailing socio-economic conditions.

The purpose of the assessment was to obtain information on the progress and quality of existing contracts, as well as the interest of potential companies to participate in future bidding opportunities in Bangladesh.​

 

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We must rethink our foreign reserve strategy

If Bangladesh is to safeguard its economic stability and ensure sustained growth, the time for reform is now.

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We must rethink our foreign reserve strategy
Foreign reserve strategy

VISUAL: BIPLOB CHAKRABORTY

In the intricate dance of international economics, Bangladesh finds itself at a pivotal crossroads. As we grapple with the challenges posed by dwindling foreign reserves and escalating project costs, the nation's ability to manage foreign reserves effectively and negotiate loans prudently has never been more critical. Yet, the glaring inefficiencies in our current approach to government-to-government (G2G) funded projects are cause for alarm. If Bangladesh is to safeguard its economic stability and ensure sustained growth, the time for reform is now.

The negotiation crisis

At the heart of the problem is a failure in negotiation strategy. Too often, we find ourselves locked into agreements that seem to serve everyone except Bangladesh. Project delays, cost escalations, and contracts signed under unfavourable terms have become the norm. These outcomes stem from a lack of expertise and patriotism among the negotiators representing our national interests.

Effective negotiation requires more than just a senior government official with academic credentials. What Bangladesh truly needs are skilled negotiators—successful businesspeople with substantial international experience who possess both the knowledge and confidence to engage with countries like the US, China, and India. Such individuals must be fluent in the language of international trade, able to protect not only their company's interests but, more importantly, those of Bangladesh.

Reassessing the management of foreign reserves

The interim government's foremost challenge is the preservation of our foreign currency reserves. Maintaining even the current levels will be difficult unless we renegotiate existing contracts with countries like Russia, Japan, China, and India. Such renegotiations must be conducted strategically, without animosity, but with firm resolve.

Bangladesh is not a minor player on the global stage. With a population of 170-plus million, we represent a significant market, and our geopolitical importance should not be underestimated. We are not in the business of begging for loans. Instead, we seek win-win agreements, ensuring that both Bangladesh and its lenders benefit equally.

Our immediate focus should be on renegotiating the terms of projects like the Rooppur Nuclear Power Plant and the Padma Bridge. These mega-projects, funded through G2G agreements, were often politically motivated, with large portions of the funds diverted to local agents and commissions. As a result, the terms were not negotiated in the country's best interest. This is evident in the case of the Rooppur project, where repayments are set to begin before the plant becomes operational—an inexplicable failure in negotiation.

Learning from the Adani Power deal

One glaring example of poor negotiation is the contract signed with Adani Power, rushed through in just 30 days under highly unfavorable terms. The rate at which Bangladesh buys power from Adani is nearly double that of other sources in India. Local entrepreneurs, who set up power plants with their own investment, offer electricity at better rates. This contract, like others, needs to be re-examined and renegotiated.

A skilled negotiation team can sit down with foreign governments and companies, making it clear that while they are our friends, the terms must change. A grace period of 5-7 years, as is standard practice, should be included in repayment terms. Extending the grace period by a few years without reducing the total repayment period can be achieved through proper dialogue.

Deferred payments: A potential lifeline

One promising solution to our foreign reserve crisis is the introduction of deferred payment systems for imports. For example, Bangladesh imports $23 billion worth of goods from China. To ease the immediate pressure on our reserves, if we could negotiate a deferred payment system with the Chinese government for $5-10 billion worth of industrial raw materials, to be repaid over 3-5 years, it would provide significant relief. Such deals are not only feasible but also beneficial for both parties. Deferred payments would allow Bangladesh to continue industrial growth without the immediate outflow of foreign currency, thus stabilising our reserves while simultaneously fostering job creation and increasing productivity.

Addressing project delays and cost escalations

One of the most significant obstacles to Bangladesh's economic growth is the repeated delays in completing foreign-funded projects. Extending a project's timeline from three years to five or seven years inflates loan commitment charges, worsening our already unfavourable terms.

A primary culprit in these delays is the practice of hiring consultants on a man-month basis, which incentivises them to prolong projects to increase their fees. This system must be overhauled. Consultants should be hired with a vision for the country's development, and project management teams should prioritise national interests over personal gain.

For 20 years, we have seen the same cycle of delays and cost escalations. A new approach is long overdue.

Reforming the G2G scheme

Finally, we must confront the inherent weaknesses in the G2G funding model. Lack of international competition, high-interest rates, and politically motivated contracts are just a few of the systemic problems. Worse, Bangladeshi companies are often excluded from joint ventures, preventing the transfer of technology that could benefit our economy.

Foreign reserves do not benefit either, as funds from these projects are repatriated directly. This must change. Bangladesh must negotiate terms that allow for joint ventures and local involvement, ensuring that our economy reaps the rewards of these mega-projects.

A call for reform

The path forward is clear—Bangladesh must take control of its future by engaging in more effective negotiations and selecting the right individuals to represent its interests. We need to introduce deferred payment systems and renegotiate existing projects to alleviate the immediate pressure on our foreign reserves. Above all, we must stop signing unfavourable contracts that burden future generations.

By taking these steps, Bangladesh can achieve economic stability, foster growth, and avoid the traps of cost escalations and project delays that have plagued us for far too long.

It's time for change, before it's too late.

Ghulam Mohammed Alomgir is a BUET graduate and chairman of a group of companies. He is the founder president of BUET Graduate Club Ltd.​

 

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Bangladesh economy to grow 7.1% in FY26: HSBC

Bangladesh’s economy is expected to clock a 7.1 percent growth in fiscal year 2025-26, driven by exports and remittances, according to an HSBC Global Research report.

www.thedailystar.net

Bangladesh economy to grow 7.1% in FY26: HSBC

Bangladesh's economy is expected to clock a 7.1 percent growth in fiscal year 2025-26, driven by exports and remittances, according to an HSBC Global Research report.

Both exports and remittances are showing positive signs despite the ongoing challenges in the global economy, the HSBC said in a statement following a webinar on economic outlook organised by the British multinational bank's Dhaka office recently.

At the event, Frederic Neumann, chief Asia economist and co-head of HSBC Global Research Asia, said even though Bangladesh's GDP growth rate for fiscal year 2024-25 was revised to 4.5 percent, it would jump to 7.1 percent in the following year.

The garment sector, which accounts for 83 percent of the country's exports, is expected to grow through an increase in demand from international markets, he said.

"At the same time, imports, which had been strained by rising global energy prices, are now stabilising reflecting a recovery in domestic demand and easing cost pressures," he said.

The official said remittances were anticipated to grow, driven by improved employment conditions in key overseas markets.

"This rise in remittances will not only support household consumption but play a significant role in sustaining the broader economic recovery," he said.

However, challenges remain, particularly with inflation, said Neumann, adding, "This will continue to affect both household spending and business costs."

Structural reforms in the banking sector and efforts to control inflation will be essential for unlocking Bangladesh's full economic potential and ensuring long-term, sustainable growth, according to the HSBC.

"Bangladesh is already well on its way to recovery. Macroeconomic adjustments undertaken in recent months, and robust economic fundamentals, should pave the way for growth to rebound over the coming year," said Neumann.

"A rapid implementation of reforms would help to speed up the process further," he added.

Md Mahbub ur Rahman, chief executive officer of HSBC Bangladesh, and Gerard Haughey, country head of wholesale banking for HSBC Bangladesh, also attended the webinar along with almost 300 clients and stakeholders.​

 

[Saif]

Accolade for business icons

A garment business tycoon, an owner of a local conglomerate, a celebrated local steel giant, a well-known bank and a woman entrepreneur were felicitated at the 22nd Bangladesh Business Awards (BBA) for their outstanding efforts and landmark achievements in their respective business fields.

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Accolade for business icons
Three individuals, two organisations get 22nd DHL-Star Bangladesh Business Awards

From left, SK Bashir Uddin, managing director of AkijBashir Group; Alihussain Akberali, chairman of BSRM; Kihak Sung, chairman of Youngone Corporation; Salehuddin Ahmed, finance and commerce adviser; Kyaw Sein Thay Dolly, managing director of Cloths “R” Us Ltd; Mohammad Ali, managing director and CEO of Pubali Bank PLC; and Miarul Haque, managing director of DHL Express Bangladesh, pose for a photo at the 22nd DHL-The Daily Star Bangladesh Business Awards ceremony at Radisson Blu Dhaka Water Garden last night. Photo: Star

A garment business tycoon, an owner of a local conglomerate, a celebrated local steel giant, a well-known bank and a woman entrepreneur were felicitated at the 22nd Bangladesh Business Awards (BBA) for their outstanding efforts and landmark achievements in their respective business fields.

The theme of this year's event is "Bangladesh on the rebound".

Finance and Commerce Adviser Salehuddin Ahmed handed the awards to the winners of the 22nd edition of the flagship annual event of DHL Express and The Daily Star held at the Radisson Blu Dhaka Water Garden.

Kihak Sung, chairperson of the Youngone Corporation, a Korean garment giant operating in Bangladesh for over three decades, was honoured with the lifetime achievement award for his contributions to exports, job creation and industrialisation in Bangladesh.

Sk Bashir Uddin, managing director of AkijBashir Group, was the Business Person of the Year, while Bangladesh's largest steelmaker BSRM was recognised as the Best Enterprise of the Year.

Pubali Bank, one of the oldest private banks in Bangladesh, got the Best Financial Institution of the Year.


"Be very transparent. Always be in the sunshine. Nothing should be done under the table. That's the best test of business."— Salehuddin Ahmed Finance Adviser.

Kyaw Sein Thay Dolly, managing director Cloths "R" Us, a garment buying house, got the Outstanding Women in Business of the Year award for her entrepreneurial zeal.

"Be very transparent. Always be in the sunshine. Nothing should be done under the table. That's the best test of business," said Salehuddin Ahmed, the finance adviser, at the event.

"As a country and business community, we have been facing a perfect storm over the past few months. Now, we stand at a pivotal juncture where we must reset our direction for the future. I am confident that we all aspire to lead this country toward prosperity," said Miarul Haque, managing director of DHL Express Bangladesh.

"As a country and business community, we have been facing a perfect storm over the past few months. Now, we stand at a pivotal juncture where we must reset our direction for the future. I am confident that we all aspire to lead this country toward prosperity."— Miarul Haque Managing Director DHL Express Bangladesh.

At the event, Kihak Sung, chairperson of Youngone Corporation, delivered a keynote speech.

Businessmen and industrialists have taken the country forward but they have not received their due recognition, said Mahfuz Anam, editor and publisher of The Daily Star.

People who do business with integrity and ethics, maintain corporate governance, put the country's interest at the heart of their operations and have not made money-making their only motto should be recognised because they would take the country forward in the coming days, he said.​

 

[Saif]

Fixing Bangladesh’s long-economic woes | The Daily Star

It is too soon to expect any significant economic changes, particularly as the previous government, led by Sheikh Hasina, left behind a fragile economy marked by high inflation, declining foreign exchange reserves, sluggish private investment, a growing debt burden, poor revenue collection...

thegreatwave.thedailystar.net

Fixing Bangladesh's economic woes
Fahmida Khatun

The beginning of 2025 fiscal year, starting from July 1, 2024, marked an unprecedented moment in Bangladesh’s history. What started as a demand for quota reform transformed into a powerful mass movement against discrimination, catalysing significant political change. The student-led mass uprising was a vivid reflection of the widespread discontent with a political system that had deteriorated over time. The fascist regime brewed on the broken political system that silenced public dissent and monopolised economic benefits, leaving a large section of Bangladeshis on the fringes.

It has been two months since the new interim government took responsibility for steering the country forward. It is too soon to expect any significant economic changes, particularly as the previous government, led by Sheikh Hasina, left behind a fragile economy marked by high inflation, declining foreign exchange reserves, sluggish private investment, a growing debt burden, poor revenue collection, inefficiencies in development project implementation, and weak governance in the financial sector. The economy now faces major challenges, including reducing poverty and controlling rising inequality, regaining growth momentum, and generating employment.

Therefore, repairing the fractures within the economy will require persistent and arduous efforts over an extended period. However, the right strategies and sustained efforts can improve the economy. While actions are needed in all areas of the economy, here are the top seven short- and medium-term issues that require the government’s immediate attention.

Curbing inflation

The interim government’s immediate economic action should be to stabilise and reduce the inflation rate, which will provide respite to low- and middle-income families and support economic growth. The point-to-point inflation rate increased to 10.49 percent in August 2024 compared to 6.15 percent in FY22. The food inflation was even higher at 11.36 percent in August 2024 compared to 6.05 percent in FY22. The repeated increase of electricity prices also pushed the non-food inflation rate to 9.74 percent in July from 6.31 percent in FY22. As wages did not increase, inflationary pressure increased the cost of living and eroded the purchasing power of low-income households.

The interim government has recognised the issue and initiated some measures. For example, the Bangladesh Bank (BB) has further attempted a contractionary monetary policy by increasing the policy rates from 8.5 percent to 9 percent from August 25, which is expected to reduce the money supply in the market. However, the contractionary policy cannot be successful without a complementary fiscal policy. The previous BB governor utterly failed to control inflation because he was reluctant to follow a tight monetary policy for a long time and could not stop printing money to underwrite expenditures. The government followed an expansionary fiscal policy as it neither reduced the size of the annual development programme (ADP) nor reduced operational costs and wastage during difficult times. The budget deficit for the FY25 was kept at 4.6 percent despite high inflation. The interim government has to revisit the national budget for FY25, as the targets and assumptions are far from reality.

Fixing external sector

The external sector has to be strengthened to restore macroeconomic stability. One of the major sources of macroeconomic challenges is the weakened external sector in recent periods. The forex reserve has been declining steadily and stood at 19.38 billion as of 18 September 2024. Under the previous government, BB undertook some measures to enhance the balance of payments and stop the decline in foreign exchange reserves. In FY23, it restricted imports of luxury consumer items to improve the balance of payment and reduce the current account deficit. This improved the trade and current account balances in FY24. However, this has restricted the imports of capital machinery and intermediate goods essential for production. If this trend continues, lower imports will have cascading negative effects on GDP through low investment, employment, and production.

With the objective of increasing liquidity in the interbank foreign exchange market and the volume of foreign exchange, BB has decided to increase the existing band for interbank foreign exchange transactions from 1 percent to 2.5 percent. BB has been following the crawling peg system to fix the foreign exchange rate, and the mid-value of the crawling peg was set at Tk 117, with the flexibility to increase up to Tk 118. Due to the bank’s new decision on August 18, the exchange rate of a dollar can increase up to Tk 120. It is expected that this measure will also help attract remittance through the banking channel. Though the number of migrant workers increased, remittance did not, despite a 2.5 percent incentive provided to remitters through the banking channel. This is partly due to a lack of sound exchange rate management. The policymakers also need to work towards tackling the hundi market, which runs through an international network.

Enhancing tax collection

Bangladesh’s tax collection should be enhanced through an efficient and corruption-free tax administration. The country’s tax-GDP ratio is very low compared to that of its peers. Though the target for tax-GDP ratio for FY2024 was set at 9 percent, the available data for FY24, up to April 2024, shows that the ratio for the first 10 months was 5.68 percent. In FY23, the ratio was 7.30 percent. As part of its $4.7 billion loan to Bangladesh, the International Monetary Fund (IMF) has suggested that the National Board of Revenue (NBR) increase its tax revenue by 0.5 percent every year. This requires improved tax policies and tangible administrative measures.

The interim government has changed NBR’s chairperson, who has announced that stern measures will be taken against tax evaders. The provision of black money whitening at a 15 percent tax has been partially blocked. The NBR has instructed its field officers of customs and VAT wings to formulate a time-bound automation plan by October 15, 2024. Reforms should be made in the NBR to strengthen anti-corruption measures within the tax administration, reduce leakages, and ensure that taxes collected are fully accounted for. Policy reforms are required to make the tax system more progressive, where higher-income earners pay a larger share of taxes. This will not only increase revenue but also address income inequality. The authorities have to ensure transparency in tax collection and expenditure to build trust among taxpayers. There should be independent bodies to monitor tax collection and public spending. E-governance initiatives should be in place to facilitate tax payments and management. Digital platforms can reduce administrative costs, make compliance easier, and increase overall efficiency. Simplification of the tax filing process can encourage voluntary compliance. There should be clear guidelines, user-friendly online platforms, and assistance services to make tax payments less burdensome for taxpayers.

Improving ADP’s performance

The performance of the Annual Development Programme (ADP) should be improved. While revenue collection is limited, government spending is also limited. ADP implementation remains unutilised.

The expenditure on the ADP as a percentage of GDP has been declining due to lower implementation of the ADP, which was 81 percent in FY24, a decrease from 85 percent in FY23 and 93 percent in FY22. Improving the implementation is crucial for ensuring that development projects are completed efficiently, within budget, and with the intended impact. Thorough feasibility studies that assess technical, financial, environmental, and social aspects should support all projects included in the ADP. This will help avoid delays and cost overruns. Additionally, prioritisation of projects based on national importance and alignment with strategic goals is vital. This will ensure that poorly conceived or low-impact projects are not included in the ADP.

The planning adviser has directed officials of the Bangladesh Planning Commission to categorise projects based on their economic contribution so that less important and politically-motivated projects can be identified. Projects undertaken on political considerations, which are not cost-effective, should be discontinued, and resources could be allocated for more productive purposes based on merit and strategic importance in the economy.

Rescuing banking sector

The banking sector has to be rescued from the corrupt business conglomerates that have syphoned out money from the banking system using political connections. The sector is grappling with high non-performing loans (NPL), which have increased to Tk 211,391 crore at the end of June 2024 from Tk 22,480 crore in 2008. Currently, the share of NPL is 12.56 percent of the total disbursed loans in the banking system, the highest in the past 16 years. The share of default loans at the state-owned banks was as high as 32.77 percent of their disbursed loans. The actual NPL figure would be significantly higher if distressed assets, loans in special mention accounts, loans under court injunctions, and rescheduled loans were considered.

The new BB governor has taken several measures to restore discipline in the sector. One was to dissolve boards of the troubled banks, which include Islami Bank Bangladesh, Social Islami Bank, Global Islami Bank, Union Bank, National Bank, First Security Islami Bank, Bangladesh Commerce Bank, Al-Arafah Islami Bank, United Commercial Bank, Exim Bank, and IFIC Bank. A task force has been formed to undertake reforms in the banking sector.

The Bangladesh Bank should also publish the report of the Criminal Investigation Department (CID), which has been probing the case of a heist in the central bank in 2016 when Tk 679.6 crore was lost from the treasury account of Bangladesh Bank with New York’s US Federal Reserve Bank by international cyber hackers.

Bolstering investments

Domestic and foreign investment should be enhanced to drive sustainable economic growth. Private investment has remained stagnant at around 23 percent of GDP for about a decade, while foreign direct investment (FDI) is less than one percent of GDP. Boosting private investment and FDI in Bangladesh requires a comprehensive approach that addresses the challenges faced by both domestic and international investors and leverages the country’s inherent economic strengths. The Bangladesh Investment Development Authority (BIDA) failed to attract investment due to various regulatory complications and corruption.

A multifaceted strategy is essential for fostering a more conducive environment for investment. Political and economic stability is a crucial factor that influences investment decisions. In the past, though one party ruled for about 15 years, economic stability gradually cracked due to corruption, bureaucratic red tape, inefficiency, and political interference in economic policymaking. Following the fall of the previous government and the formation of the interim government, potential investors are observing the current political and economic situation. The confidence of the investors must be regained by creating an enabling environment. There is an investor-friendly policy on paper, but the lack of an investor-friendly environment discourages prospective investors. Reliable infrastructure and a stable and adequate supply of electricity and other energy resources are crucial. Consistent monetary and fiscal policies are needed to avoid inflationary pressures and maintain stable exchange rates, both of which are important for investor confidence. Investors also require skilled human resources and technological adoption by the country.

Ensuring energy security

A comprehensive approach is required to ensure energy security and economic growth. To address the sector’s challenges, it is crucial to diversify energy sources, enhance energy efficiency, strengthen the regulatory framework, and improve governance. Expanding renewable energy by increasing investments in solar, wind, and hydroelectric power can reduce reliance on fossil fuels. Strengthening the regulatory framework is crucial for improving the sector’s governance. The Bangladesh Energy Regulatory Commission (BERC) must be strengthened to ensure its independence and capacity to enforce regulations. This includes regular updates to energy tariffs that reflect true costs and promote competition. A transparent and fair tariff-setting process that mirrors the actual cost of energy production and distribution while protecting vulnerable populations through targeted subsidies is necessary.

A few measures have already been taken by the interim government. A gazette to abolish Section 34(a) of “Bangladesh Energy Regulatory Commission (Amendment) Ordinance 2024” was issued. This implies that the government will no longer be able to determine the price of electricity and gas without a public hearing. The BERC will assume responsibility for setting jet fuel prices, a role previously managed by the Bangladesh Petroleum Corporation (BPC). The government reduced octane and petrol prices by Tk 6 per litre and diesel prices by Tk 1.25 per litre, effective from September 2024. The interim government has also postponed all negotiations, selections, and purchasing processes under the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010.

Improving governance and reducing corruption are key to the energy sector’s efficiency. The power sector has incurred large financial losses, exerted fiscal pressure on the government, and contributed to the macroeconomic challenges. The previous government adopted a non-transparent procurement and bidding process to allocate power plants to favoured conglomerates. Those should be reviewed and renegotiated on fair terms. Publication of reports on the status of energy sector reforms, financial health, and environmental impacts regularly can help maintain public accountability and build public trust and support for reforms.

Finally, the overarching message for the interim government is that it must work on structural issues, such as improving the efficiency of regulatory bodies by establishing good economic governance at public institutions. The previous regime’s oligarchs captured these institutions to extract public resources. However, the youth and people of Bangladesh sacrificed their lives for an inclusive and just society. People have entrusted the interim government to change the broken political and economic system. Work has been initiated in a few areas, as mentioned above, while a lot more needs to be done within a finite time.

Dr Fahmida Khatun is the executive director at the Centre for Policy Dialogue and non-resident senior fellow of the Atlantic Council.

Views expressed in this article are the author’s own.​

 

[Saif]

Rightsizing pride projects

Development projects, particularly those involving building of big infrastructures, dubbed megaprojects by the media and commenced during the deposed Awami League (AL) government, were in most cases undertaken either to improve the image of those in power or to satisfy their and the con

thefinancialexpress.com.bd

Rightsizing pride projects
Published :
Oct 11, 2024 22:08
Updated :
Oct 11, 2024 22:08

Development projects, particularly those involving building of big infrastructures, dubbed megaprojects by the media and commenced during the deposed Awami League (AL) government, were in most cases undertaken either to improve the image of those in power or to satisfy their and the contractors' insatiable greed. As one would expect, the megaproject-building frenzy was driven more by desire for lining the pockets of those in power than to serve the public. As a result, those projects were mired in mega-corruption at the expense of the public exchequer. In this connection, the government's implementation, monitoring and evaluation division (IMED) of the planning commission(PC) is learnt to have identified some 3,325 projects initiated by the past government the fate of which is now hanging in the balance due to financial constraints. And 23 big projects worth Tk.2,380 billion are under the scrutiny of the interim government in light of their excessive costs which smack of dishonest dealings. These include, for instance, the Chattogram-Cox's Bazar Highway project, Chattogram-Dohazari railway conversion, Metro Rail Line-1 and Line-5 projects and others.

However, except the ongoing fast-track projects initiated during the deposed AL-government and which have the potential to serve vital public interest, the interim government has decided to drastically downsize other projects whose costs were irrationally inflated with ulterior motive behind those involved in project preparationin the immediate past regime. Included among those, as reported in this paper on Wednesday (October 9), are three megaprojects of the Bangladesh Railway (BR)-Dohazari-Ramu-Cox's Bazar-Ghundhum railway, the Padma-rail link and Jamuna rail-bridge construction projects. As for instance, of the first-mentioned project, the Dohazari-Ramu-Cox's Bazar-Ghundhum railway project, the 28.75 km Ramu-Ghundum part lacks any economic sense given the prevailing Rohingya crisis and absence of diplomatic rapport with the Myanmar's current military regime. Hence, by pruning the redundant part of the said ADB-financed railway project, a substantial amount of money could be saved and diverted to other public-interest schemes demanding urgent attention. Similarly, the BR is also considering substantial cost-cutting of the China-funded Padma rail-link project and the Japan-funded Jamuna railway-link project whose costs were increased and time schedule extended to suit the purpose of the powerful. Along with these megaprojects, all other projects including 29 ongoing ones are under the scanner of the railway ministry, it could be further gathered.

No doubt, such efforts at reviewing, slashing costs of conveniently inflated projects and, in some cases, outright exclusion of others are steps long overdue. That the interim government has started to deal with big and small corruption-ridden development projects undertaken during past government with all seriousness definitely testifies to its seriousness about the reforms it has promised to carry out within its limited term in office.

Though the money plundered from the megaprojects already completed such as the Padma bridge project which started in January 2009 and saw extension of timeline on several occasions and cost increase by Tk.11.17 billion raising the total project cost to over Tk.326 billion, cannot be retrieved, the government can at least try to cut costs, as much as possible, of the ongoing fast-tract megaprojects that must be completed. To be frank, being still one of the least developed countries (LDCs), Bangladesh cannot simply afford expensive pride projects to bolster the image of any individual. In this connection, the interim government's declared objective of prioritising less awe-inspiring human development-oriented health and education projects is exactly what the nation needs at the moment. In that case, the money saved from pruning unnecessary components and reducing the costs of megaprojects can well be channelled to human development projects.

In any case, to meet its broader objectives the incumbent government will have to be more dynamic and prompt to deliver the goods.​

 

[Saif]

FTA: the gateway for global market access

After five weeks of bloodshed, pain, fear and heartache, the mass uprising led by the students finally forced the autocratic government to step down as the then Prime Minister Sheikh Hasina fled the country to take shelter in India. The brave and indomitable students, who, amidst 'egregious k

thefinancialexpress.com.bd

FTA: the gateway for global market access
Manzur Ahmed
Published :
Oct 11, 2024 21:54
Updated :
Oct 11, 2024 21:54

After five weeks of bloodshed, pain, fear and heartache, the mass uprising led by the students finally forced the autocratic government to step down as the then Prime Minister Sheikh Hasina fled the country to take shelter in India. The brave and indomitable students, who, amidst 'egregious killings, torture, disappearances and mass arrests' stood firm and conquered death. So, the youths are now in charge of the country, and perhaps they have reason to be hopeful for the future for the first time.

This uprising, or revolution, as many have labelled it, is a clear message from youths to those who have long held on to and abused power, not only in Bangladesh but across the world. In this connection, it is not just necessary, but urgent to move away from a culture of corruption, nepotism, abuse of power, and discrimination and thus end patriarchy, re-establish law and order, revive governance and state institutions, and stabilise the economy.

One critical step in stabilising the economy is initiating the process of negotiating and implementing a series of bilateral and regional free trade agreements (BFTA) with various trading partners.

In line with the trends and practices of our competing exporting countries like India, Pakistan, Sri Lanka, Vietnam, Cambodia, China, Korea, Malaysia, Philippines, Indonesia and others, Bangladesh has no other option but to ensure predictable and sustainable destinations of its exports in goods and services within by entering into comprehensive free trade agreements in goods and services. There is no need to negotiate or sign any preferential trade agreements (PTA) on trade in goods only. Country-specific PTAs, in general, are not cost-effective. These are also highly complex and time-consuming and mainly account for limited economic potential.

Currently, RCEP is the only mega-regional FTA that is considered ASEAN-plus. This is because fifteen countries-Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Vietnam, South Korea, and Thailand-are involved in RCEP.

Russia-CIS (EAEU) block comprising Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan and also includes the CIS member states of Azerbaijan, Moldova, Tajikistan, and Uzbekistan, as well as other countries beyond Eurasia's borders.

Bangladesh needs to negotiate for RECP and EAEU membership. Moreover, the option for signing an FTA with the Gulf Cooperation Countries (GCC) should be explored. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates are members of the GCC,

The European Union (EU), comprising 27 European countries, is the first economic union in the world. Though it is quite ambitious to think of signing an FTA with the EU at this moment, it is not impossible.

Bangladesh needs to seriously explore the possibility of signing bilateral FTAs with the United States (US), Canada and the United Kingdom (UK).

Non-reciprocal trade deals like GSP and multilateral and regional arrangements have been excluded from the US trade agenda, and accordingly, the US only prefers to make bilateral reciprocal trade deals. Bangladesh should, therefore, without spending time on GSP revival or the WTO framework, take a pro-active initiative in establishing a Strategic Trade and Investment Partnership (STIP) with the US, following the example of Kenya and Morocco.

The terms of STIP in goods, services and investment with the US must be without prejudice to the rights and obligations under the WTO Agreements and respective international rights and obligations as agreed in Bangladesh-US TICFA.

Again, developed and developing countries like Canada, China, India, Mexico, Singapore, South Korea, Australia, New Zealand, and ASEAN are negotiating free trade agreements with the post-Brexit UK. Bangladesh should also move forward in this direction.

Regarding the much-talked-about Bangladesh-India BFTA, it would be highly risky for Bangladesh to bypass the hard-earned SAFTA and negotiate again the proposed new Comprehensive Economic Partnership Agreement (CEPA) with India. It would be better to continue with the SAFTA terms of trade with India up to 2026, with or without an extension for three more years. After that, SAFTA terms of trade in goods and services may be applied to Bangladesh as a newly graduated developing country.

The terms of services trade as prescribed in the SAFTA Services Trade Agreement should apply on an MFN basis in mutual service trade in all four modes, subject to harmonised and mutually agreed-upon domestic regulations to be negotiated within a time-bound action matrix.

Bangladesh may also call upon trading partners to expedite reciprocal participation in services trade, including public procurements. Bangladesh has already opened its Services sector and Public Procurements to foreign participation on an MFN basis. In turn, Bangladesh should ask for reciprocal treatment from its trading partners.

Manzur Ahmed, Trade and Tariff Policy Adviser, FBCCI, 1980-2024.​

 

[Saif]

Interim govt moves to access RCEP

The interim government has strongly started processing to access the Regional Comprehensive Economic Partnership (RCEP), an emerging economic bloc encompassing the Asia-Pacific region that represents one third of global GDP. The immediate-past ousted government halted the move to join the world's

thefinancialexpress.com.bd

Interim govt moves to access RCEP
Hasina govt halted move due to general election
REZAUL KARIM
Published :
Oct 12, 2024 00:27
Updated :
Oct 12, 2024 00:27

The interim government has strongly started processing to access the Regional Comprehensive Economic Partnership (RCEP), an emerging economic bloc encompassing the Asia-Pacific region that represents one third of global GDP.

The immediate-past ousted government halted the move to join the world's largest trade regime due to the last general election.

But, the commerce ministry sent a summary of the RCEP deal and dos to the then prime minister for approval.

In August 2023, an inter-ministerial meeting under the then government recommended joining the trade bloc, as an assessment suggested that joining would increase Bangladesh's exports to the global market by more than 17.37 per cent.

When contacted, commerce secretary Md Selim Uddin said, "We've already started working on RCEP. As per an action plan, we'll go forward on inking an agreement with the RCEP."

An unconfirmed source said the commerce ministry has sent a summery to the Chief Adviser for required approval for starting formal processing with the bloc. But, an unconfirmed source said a summery note has already been prepared which will send shortly.

As soon as the approval comes, formal proceedings will kick-start at the forum headquarters for the country's membership in RCEP, a senior commerce official said.

"We expect to send formal proposal to the RCEP for joining the bloc after approval from the CA."

Bangladesh has started the process of joining mega trade bloc with a hope of a boost in export to the member countries, but it was postponed from October 2023, he added.

It expects to send a formal proposal to the depository and temporary secretariat of the world's largest trade bloc at the ASEAN headquarters for the country's membership.

Bangladesh decided in principle to join the emerging vast trade bloc at the workshop held at the commerce ministry on 01 August 2023.

The ministry has already completed necessary scrutiny and review in this regard, based on commitments fulfilled by Vietnam, a member of the China-mooted bloc.

A high official also said that the commerce ministry will have to take cabinet approval to move ahead. Vetting from the law ministry may also be required.

A study conducted earlier by Bangladesh Trade and Tariff Commission (BTTC) showed Bangladesh's trade with the RCEP member countries mostly concentrated on trade in goods.

Bangladesh's export may grow more than 17 per cent and gross domestic product (GDP) 0.26 per cent if free-trade agreement is signed with the bloc members, it mentioned.

The RCEP deal came into force in January 2022 and any country/customs territory is eligible for applying for membership.

As of now, 15 Asia-Pacific nations are party to the world's biggest free-trade agreement.

The ASEAN members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, while its FTA partners are Australia, China, Japan, New Zealand and Korea.

An outstanding feature of the RCEP is that it represents the world's largest FTA, comprising about 30 per cent of global GDP and about one third of the world population.

The economic cooperation forum, spanning Asia-Pacific realm that covers 2.3 billion people, accounts for $ 25.8 trillion or about 30 per cent of global GDP.

Also, it accounts for $12.7 trillion or over a quarter of global trade in goods and services, and 31 per cent of global foreign direct investment (FDI) inflows.

In the fiscal year (FY) 2020-21, Bangladesh exported goods worth $3.9 billion to and imported goods worth $24.5 billion from these countries.

On the other hand, the services export was worth $1.8 billion and import worth $2.6 billion.

Bangladesh enjoys preferential market access to many of the RCEP member countries, either through preferential trade agreement (PTA) or through GSP facilities.

After graduating from the least-developed country (LDC) status in 2026, the duty-free access will no longer be available except for reciprocal general preference under the Asia-Pacific Trade Agreement (APTA).

In such a situation, sustaining the consistent progress achieved by Bangladesh in bilateral export trade with some of the RCEP countries as well as availing the opportunity to some potential destinations in RCEP will be a real challenge.

The study says RCEP includes some of the major export destinations as well as major import sources of Bangladesh.

"Considering the bilateral-trade scenario, RCEP remains more as an important partner from the Bangladesh perspective."

Import from RCEP contributes around 43.92 per cent of the total global imports by Bangladesh, 55.33 per cent of the total tax-revenue and 58.56 per cent of total revenue from customs duty collected under home consumption, as of FY 2020-21.

Thus, the probable accession of Bangladesh to RCEP may, however, have a negative impact on revenue generation from customs duty.

Since some major import sources of Bangladesh like China, Japan, Thailand, South Korea, Indonesia, Malaysia and Australia are involved with RCEP, there is a threat of losing a certain amount of revenue from these countries.

More than 68 per cent of total merchandise exports to RCEP are under apparel-product category. Top twenty export items to RCEP mostly consist of apparel products and these products constitute 64 per cent of total exportable.

The study found that the average most-favoured nation (MFN) tariffs for Bangladesh had been comparatively higher than that of the RCEP members.

It says the probable increase in import along with a comparatively protective regime of Bangladesh estimated a probable high revenue loss for Bangladesh compared to that of the RCEP.

"However, as estimated trade creation would likely be higher than the trade-diversion effect for Bangladesh, it may generate additional revenue from other duties and charges, if not reduced due to a possible accession in RCEP," the study mentions as regards a tradeoff.

The BTTC recommends that the government may express its positive stand regarding the accession of Bangladesh to RCEP through weighing all the pros and cons. In that case, domestic rules and regulations may need to be changed in some cases, if a situation arises.

The RCEP negotiations were formally launched during the 2012 ASEAN Summit in Cambodia. India withdrew from the agreement in November 2019 despite participation from the beginning of negotiations.​

 

[Saif]

Increase in remittance: Let this flow continue, stop hundi

In September last year, there was a remittance flow of USD 1.33 billion (USD 133 crore). Compared to the same period last year, expatriates have sent 80 per cent more money to the country this time.

en.prothomalo.com

Increase in remittance: Let this flow continue, stop hundi
Editorial Desk
Dhaka
Published: 05 Oct 2024, 22: 30

It’s a matter of hope that the positive trend of remittance flow into the country continues even after the political transformation on 5 August. The total influx of remittance or expatriate income into the country exceeded USD 2 billion (USD 200 crore) in September this year. That means last month saw the second highest remittance flow of this year.

Records derived from the Bangladesh Bank showed that a total of 2.4 billion US dollars (USD 240 crore) arrived as remittance last month. Meanwhile in August, the country received USD 2.22 billion (USD 222 crore) as remittance.

In September last year, there was a remittance flow of USD 1.33 billion (USD 133 crore). Compared to the same period last year, expatriates have sent 80 per cent more money to the country this time.

After the fall of Awami League government, private research organisation, Policy Research Institute (PRI) executive director Ahsan H Mansur took charge as the governor of Bangladesh Bank on 14 August.

There’s nothing to be delighted about even though there has been an 80 per cent growth in remittance. Now the concern here is that whether this trend of growth can be sustained or not.

Right after taking charge as the governor, he increased the existing band of inter-bank foreign exchange transactions from 1 per cent to 2.5 per cent aiming at reducing the crisis of dollar or foreign exchange.

As a result of this decision from the central bank, banks are able to increase the intermediary rate of the dollar from Tk 117 to a maximum of Tk 120 taka in the crawling peg system of determining the exchange rate. Because of this, the banks are able to pay a little higher price for dollars when it comes to exchanging remittance.

According to the records of the central bank, a total of USD 4.13 billion (USD 413.79 crore) arrived in remittance during the first two months of the 2024-25 fiscal year. Of that, USD 1.91 billion (USD 191.37 crore) arrived in July and USD 2.22 billion (USD 222.41 crore) arrived in August.

Meanwhile, the country received USD 2.25 billion (USD 225 crore) as remittance in May. And, June saw the highest remittance flow in this year, which amounted to USD 2.54 billion (USD 254 crore).

In that case, there’s nothing to be delighted about even though there has been an 80 per cent growth in remittance influx. Now the concern is that whether this trend of growth can be sustained or not.

At a roundtable titled ‘Where do we want to see the banking sector’ organised by Prothom Alo recently, Bangladesh Bank governor Ahsan H Mansur said that efforts are on to solve the issues of the financial sector without printing money or selling dollars from the reserve.

If the dollar market continues running in the way, there won’t be any instability in this market. The current price of dollar against remittance in the banks is higher than the price available in the open market. And, this is helping stabilise the dollar market, he added.

People will feel reassured with the remarks of the Bangladesh Bank governor only when the channels to siphon off dollars out of the country will be sealed off and it becomes easier for expatriates to send remittance through legal channels.

If the expatriates do not find the opportunity to invest inside the country, they will obviously invest their money abroad. And, we don’t want that.
Apart from that, the drive against illegal hundi business has to be strengthened even more. Reportedly, there are several rings active in different countries to take away money from the expatriate Bengalis. They lure expatriates by promising higher exchange rates for sending money to the country through them.

But in reality, they just embezzle the hard-earned money of the expatriates and pay it back through their relatives and business partners living here. As a result, the country is deprived of some valuable foreign currency.

Various facilities and incentives need to be extended to the expatriates, who are sending remittance. This way, they will be encouraged even more to send remittance through legal channels. At the same time, expatriates should be given unrestricted opportunities of investment inside the country.

The limit of bond investment imposed on expatriates has been lifted already. Intentions of those who had taken this unilateral decision in the past were not noble at all. If the expatriates do not find the opportunity to invest inside the country, they will obviously invest their money abroad. And, we don’t want that.​

 

[Saif]

Economic output may expand 29% if more women employed: WB

Bangladesh could increase its output in the manufacturing, service and farming sectors by up to 29 percent simply by bringing more women into the workforce, according to the World Bank.

www.thedailystar.net

Economic output may expand 29% if more women employed: WB

Bangladesh could increase its output in the manufacturing, service and farming sectors by up to 29 percent simply by bringing more women into the workforce, according to the World Bank.

The increase would be the highest among South Asian countries due to Bangladesh's relatively higher initial labour productivity.

If more women were to access manufacturing jobs alone, output in Bangladesh could rise by as much as 21 percent, the Washington-based lender said in its South Asia Development update published last week.

Despite progress in the local garment industry, the report shows a sizable gender gap in employment across the broader manufacturing sector.

The report said the female labour participation rate in Bangladesh remained static at 37 percent in 2022 and 2023.

It identified supply-side constraints, restrictive laws and conservative social norms as factors deterring more women from joining the labour force.

Economists agreed with the World Bank's projection, citing the country's apparel might with female labour force at its core. However, they also listed demand-side factors that discourage more women from participating in the workforce.

"Employers are often hesitant to hire women," said Professor Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem). "Many firms still do not have women-friendly production processes or workplace arrangements."

According to the report, if more women joined farming in Bangladesh, only modest gains of 0.63 percent could be expected due to low labour productivity and a smaller gender gap in employment.

However, closing the gender gap could lead to a gain of 8.12 percent in the service sector.

The Sanem executive director said the task of caring for children and elderly persons falls disproportionately on women, acting as a supply-side factor that limits employment opportunities.

"To increase women's participation in employment, both supply-side and demand-side constraints must be addressed," he remarked.

"Safety and security issues also contribute to the lower participation," the economist added. "The availability of transportation for women is also important. The government should take care of these issues."

The World Bank said Bangladesh has the least protective laws for women, leading to severe shortcomings in safety. According to the report, Bangladesh and Pakistan also have the most conservative social expectations for women.

Frustrating participation shadows promising outlook

The report said the female labour force participation rates in most South Asian countries are in the bottom quartile among emerging and developing countries and far below male participation rates.

"South Asia's female labour force participation rate of 32 percent is well below the 54 percent average in emerging market and developing economies," said Franziska Ohnsorge, World Bank chief economist for South Asia.

However, this contrasts with the share of female employment in a range of export-oriented sectors across South Asia, such as ready-made garments in Bangladesh, call centres in India, and textiles in Sri Lanka.

The multilateral lender said increased female participation in the workforce could boost India's output by 23 percent, Pakistan's by 21 percent, Nepal's by 22 percent and Sri Lanka's by 28 percent.

If more women were to access manufacturing jobs, output in India would rise by 9 percent, it said.

Low female employment means a substantial loss of aggregate and per capita incomes. Raising women's labour force participation rate to parity with men would increase regional GDP by 13–51 percent, with larger impacts if capital and labour markets are more flexible, it said.

"South Asia's outlook is undoubtedly promising, but the region could do more to realise its full economic potential," said Martin Raiser, World Bank vice president for South Asia.

World Bank Chief Economist for South Asia Franziska Ohnsorge said, "Increasing women's employment requires action from all stakeholders; a multi-pronged effort where governments, the private sector, communities and households all have a role to play."

Echoing these sentiments, Raiser said key policy reforms to integrate more women into the workforce and remove barriers to global investment and trade could accelerate growth.​

 

[Saif]

Inward remittance through MFS hits 5-year high in August

Bangladesh’s migrant workers sent home Tk 1,101.8 crore in remittances through mobile financial service (MFS) providers in August, marking the highest monthly receipts through digital channels in the past five years.

www.thedailystar.net

Inward remittance through MFS hits 5-year high in August

Bangladesh's migrant workers sent home Tk 1,101.8 crore in remittances through mobile financial service (MFS) providers in August, marking the highest monthly receipts through digital channels in the past five years.

This figure represents a remarkable 113 percent year-on-year increase from the Tk 515.4 crore that was sent home through MFS providers in August 2023, offering a glimmer of hope for bolstering the country's dwindling foreign exchange reserves.

Bangladesh currently has around $20 billion in its foreign exchange reserves, far lower than the record $40.7 billion it boasted in August 2021.

Industry people said remittance transactions through MFS were higher in August as there were banking disruptions and limited cash supplies to ATMs following the political changeover in that month.

Besides, they credited the increasing use of technology, a 2.5 percent government incentive on remittance through formal channels, as well as various cash benefits offered by the MFS providers for the remittance surge.

Currently, at least 13 MFS platforms, including bKash, Nagad and Rocket, operate in Bangladesh.

MFS providers facilitated 54.21 percent more remittances in August compared to the month prior, according to data from the Bangladesh Bank.

In July, expatriate workers had sent home Tk 7,144 crore through MFS channels.

An analysis of central bank data reveals that August's remittance inflow through MFS channels was the highest since December 2018.

The increase follows the recent political changeover on August 5, when former prime minister Sheikh Hasina resigned and fled the country amid a mass uprising.

With MFS channels contributing significantly, total remittances surged nearly 39 percent to $2.2 billion year-on-year in August.

According to the latest data from the Bangladesh Bank, overall remittance receipts continued to rise in September, jumping 80.28 percent year-on-year to $2.40 billion.

Moreover, September's receipts were 8.12 percent higher than the previous month's.

Apart from ease of access and cash benefits, various policies from the central bank and continuous efforts of MFS providers encouraged migrant workers to use the formal channel, industry insiders said.

At the end of last year, the Bangladesh Bank doubled the maximum single-transaction limit for sending remittances to individual MFS accounts from Tk 1.25 lakh to Tk 2.5 lakh.

Ali Ahmed, chief commercial officer of bKash, said the central bank had recognised the critical role of remittance inflows in bolstering the country's economy.

Through concerted efforts and technological and distributional support of MFS providers, they have successfully channelled remittances through digital channels, he said.

Over the years, bKash has built a robust partnership ecosystem for remittances whereby seamless cross-border fund transfers can be initiated from more than 130 countries through Money Transfer Operators (MTOs) and leading commercial banks, Ahmed said.

He added that remittances received through bKash could be accessed anytime, anywhere.

Families of the expatriates can utilise remittance to take various services through their bKash accounts, including paying for goods and services, utility bills, and educational and government fees. They can also send money, donations and many other services from the comfort of their homes, he said.

In addition to offering convenient, instant, and secure remittance transfers, bKash has lowered cash-out fees, he added.

Beneficiaries can now withdraw remittances at a minimal cost of Tk 7 per thousand from approximately 2,500 ATMs of 19 leading commercial banks, Ahmed said.

"Furthermore, bKash has collaborated with various organisations and launched regular campaigns with attractive offers to encourage the use of legal remittance channels among expatriates and raise awareness. These efforts have contributed significantly to the growth of remittance inflows in Bangladesh."

Muhammad Zahidul Islam, head of media and communications at Nagad, said they had witnessed significant remittance earnings in August.

"With the natural growth, we from Nagad have also given tremendous effort to bring more remittances, such as by onboarding world-class foreign partners. Currently, people from more than 200 countries can send remittances through Nagad to Bangladesh," he said.

He said Nagad has already started a Tk 100 cashback campaign on top of the 2.5 percent government incentive to further boost inward remittance, adding that it had garnered a huge response from non-resident Bangladeshis.

"We have observed that these efforts have regained respect for us and the number of transactions has grown rapidly over time."

Through such measures, top MFS providers like Nagad are playing a vital role in strengthening and elevating the country's foreign exchange reserves, he added.​

 

[Saif]

Bangladesh seeks $3.0b ITFC loan for 2025

Bangladesh has taken a fresh move to rebuild ties with the Islamic Development Bank (IsDB) as it sought a substantial US$3.0 billion credit from the middle-eastern donor to finance the imports of fuel, LNG and fertiliser in 2025, officials said on Saturday. The government has recently sought the l

thefinancialexpress.com.bd

Bangladesh seeks $3.0b ITFC loan for 2025
FHM Humayan Kabir
Published :
Oct 13, 2024 00:00
Updated :
Oct 13, 2024 10:09

Bangladesh has taken a fresh move to rebuild ties with the Islamic Development Bank (IsDB) as it sought a substantial US$3.0 billion credit from the middle-eastern donor to finance the imports of fuel, LNG and fertiliser in 2025, officials said on Saturday.

The government has recently sought the loan from the IsDB's commercial window ITFC for the next year, they said.

The Economic Relations Division (ERD) requested the ITFC (International Islamic Trade Finance) team, which visited Bangladesh last week, for extending the financial support in addition to its continuing lending in the next calendar year, ERD officials said.

"We have sought nearly an additional $1.0 billion for the next fiscal than the ITFC's $2.1 billion committed annual portfolio to Bangladesh in the year 2024. The lender has assured us of considering the additional financing," said a senior ERD official.

He said: "The last meeting with the ITFC team was the initial one for securing the fund commitment. If they agree, we will go for negotiations soon to confirm the next year's credit requirement."

Over the last few years, the support from the IsDB declined as the previous Sheikh Hasina's government maintained weak relations with the donors from the Islamic nations including the middle-eastern development, another ERD official said.

Securing the proposed loan will be a good gesture of rebuilding the fragile trust between the IsDB and Bangladesh, he added. Under an agreement in February this year, the Jeddah-based IsDB's ITFC provided $2.1 billion worth of funds for purchasing fuel oil and LNG from the overseas market during this calendar year 2024.

Now the government is looking to get funds from the IsDB for purchasing fertiliser as Bangladesh needs a significant amount of the agricultural inputs for increasing its crop production.

In the last year (2023), the ITFC provided $1.40 billion worth of loan for importing the fuel.

Under the credit agreement, the ITFC will finance state-owned Bangladesh Petroleum Corporation (BPC) to import petroleum fuels and state-owned Petrobangla to import liquefied natural gas (LNG).

According to the government's plan, some $1.6 billion out of the $2.1 billion credit will be utilised to import petroleum fuel oils, while the remaining $500 million for LNG.

Bangladesh is one of the top borrowers of the Gulf lender, ITFC, in the energy sector. According to the ITFC, it bankrolled Bangladesh with the highest amount of $1.16 billion in 2022.

Bangladesh mostly depends on the imports of fuel oil, LNG and fertilizer, spending the highest amount for fuel oil imports.

The country annually spends around $5.0 billion for importing refined and crude oil from the gulf and other oil supplying countries.

The ITFC has so far approved trade finance proposals totaling nearly $16.50 billion for Bangladesh since its inception in 2008.

The private sector, including banks, takes trade finance from the middle-eastern lender.

The repayment period for the $2.1 billion loan has been set for one year, with an interest rate to be calculated using the Secured Overnight Financing Rate (SOFR) plus 2.0 per cent spread. This 2.0 per cent includes a 1.80 per cent interest rate and a 0.20 per cent administrative charge.

This administrative charge must be paid before releasing the loan. On October 10, the SOFR was at 5.34 per cent, which fluctuates daily.

Government officials said the country's energy import bills, including petroleum and LNG, stood at around $10 billion in the FY2023, with a similar amount expected for the last fiscal year ending in June 2024.

Local experts forecast that if Bangladesh continues relying on imports in this way, the energy bill could double by the year 2030.

In the last FY2023, Bangladesh's oil company - Bangladesh Petroleum Corporation (BPC) - imported 1.307 million metric tonnes (MT) of crude oil spending US$836.744 million, government statistics showed.

It also imports 4.388 million MT of Jet A-1, SKO, Mogas and HSD; while 0.6608 million MT of furnace oil at a total Tk 461.704 billion cost from different overseas suppliers for catering to the demands for the local market, the BPC data showed.​

 

[Saif]

Current slow pace of economy in Bangladesh may lead to recession: Experts

Currently, regardless of the measures taken through fiscal policy, no significant results are expected to be achieved within the next six months, experts observed on Monday. Dr. Monzur Hossain, Research Director of the Bangladesh Institute of Development Studies (BIDS), made this remark during a s

thefinancialexpress.com.bd

Current slow pace of economy in Bangladesh may lead to recession: Experts
FE ONLINE REPORT
Published :
Oct 14, 2024 22:26
Updated :
Oct 14, 2024 22:26

Currently, regardless of the measures taken through fiscal policy, no significant results are expected to be achieved within the next six months, experts observed on Monday.

Dr. Monzur Hossain, Research Director of the Bangladesh Institute of Development Studies (BIDS), made this remark during a seminar titled "Current Economic State and Way Forward," held at the Bangladesh Institute of Social Research (BISR) Trust office in Lalmatia.

He further stated that the current sluggishness of the economy could lead to a recession.

“Although government spending has decreased, both public and private investment have significantly dropped. Additionally, the National Board of Revenue does not have a separate research cell. They create and implement policies, which is why there are no positive outcomes,” Monzur added.

Moreover, Bangladesh's tax-to-GDP ratio is the lowest in South Asia. Therefore, the current tax policy is unlikely to remain sustainable for long, he noted.

“The Bangladesh Bank is currently trying to provide liquidity support to fragile banks by arranging cash from other commercial banks. However, stabilizing the banks will still be difficult. During the previous government, there were no economic policies, which is why countries around us have been able to reduce inflation while we have not. Inflation cannot be controlled solely through monetary policy; if extremely high rates are imposed, all sectors, including industry and trade, will collapse,” Monzur Hossain stated.

He said maintaining reserves between $25-30 billion is sufficient. At one point, reserves reached around $48 billion because imports were restricted after the pandemic, while exports were performing well. He also advised focusing on quality investments.

In response to a question from Munem Ahmad Chowdhury, a research associate at BISR Trust, Monzur mentioned that even if autonomy is granted to the Bangladesh Bank, the country's central bank, it is crucial to fulfill such responsibilities. In that case, the governor must act impartially under this autonomy, and lobbying should not occur.

He added that the Bangladesh Bureau of Statistics is not very responsible, as accurate information is not always available.

The seminar was moderated by Khurshed Alam, Chairman of BISR Trust, who emphasized the need for data to accurately understand any developmental activity or issue.

“Many dismiss data from the previous government as baseless, raising the question of why people should still trust government data. Transparency and accountability are thus crucial,” he remarked.

Khurshid also noted a common issue in mega projects like the Jamuna Bridge, Padma Bridge, and Karnaphuli Tunnel: weak planning. He questioned whether spending on the Karnaphuli Bridge would have been more beneficial than spending on the tunnel.

Md. Murad Ahmed, Senior Researcher at BISR Trust, stated that enhancing the efficiency of the capital market would restore investor confidence, leading to diversified investments and profits. If certain instruments can be introduced to the country's economy, inflation will decrease, and the economy will move toward a more robust position.

AKM Riaz Uddin, Senior Research Fellow at The Hunger Project, remarked that just as abnormal symptoms arise when a drug addict stops using drugs, abnormalities will emerge if economic irregularities are addressed all at once. Therefore, patience is necessary to achieve sustainable solutions.

During the discussion, prominent businessman Swapan Kumar Das pointed out that previous agreements regarding loan contracts have caused millions in losses, placing investors in significant danger.

He noted that the system is being driven by words rather than actions. If this situation is not quickly resolved, investors will lose interest, potentially leading to an economic collapse, he added.

Mohammad Yakub, CEO of the All Bangladesh Research and Development Group, highlighted the importance of research in ensuring transparency in the financial sector.​

 

[Saif]

Chinese debt rescheduling, import credits seen imperative for BD economy

Leading economists and foreign-relations experts stressed debt rescheduling by the Chinese side raising the loan-repayment and grace periods to enable Bangladesh to absorb economic shocks, as closer cooperation between the two countries came into the limelight. Addressing an international seminar

thefinancialexpress.com.bd

Chinese debt rescheduling, import credits seen imperative for BD economy
FE REPORT
Published :
Oct 15, 2024 00:10
Updated :
Oct 15, 2024 00:10

Leading economists and foreign-relations experts stressed debt rescheduling by the Chinese side raising the loan-repayment and grace periods to enable Bangladesh to absorb economic shocks, as closer cooperation between the two countries came into the limelight.

Addressing an international seminar on 'Bangladesh-China Relations: A Future Outlook'" they also opined that if China provides credit arrangements to Bangladesh for its import from China, it would help the country address the fragile BoP situation.

Bangladesh Institute of International and Strategic Studies (BIISS) and the Centre for China Studies (SIIS-DU) jointly organised the meet to commemorate the 50th anniversary of the establishment of diplomatic relations between China and Bangladesh.

Md. Touhid Hossain, Adviser for Foreign Affairs of the current interim government, was the chief guest at the seminar which was also addressed by Yao Wen, Ambassador of China in Bangladesh, and Dr Debapriya Bhattacharya, Distinguished Fellow of CPD and Chair of the Committee on White Paper on the State of Bangladesh's Economy.

"Almost a quarter of our imports are coming from China, but the trade deficit is increasing. Trade deficit is increasing at a faster rate than the volume of the trade itself. China has been generous in order by providing us, first, the 97-percent duty- free and quota-free market access. Now it has gone up to 100 per cent, but we know by now in the world, trade does not depend on only market access based on tariffs and other regulatory or other forms of financial considerations. It also depends on the process through which it happens. It also depends on the non-trade barriers which are there," said Dr Debapriya.

"So I think if you look at the future of Bangladesh exports to China, then it is not tariff, it is the non-tariff barriers which we need to look at."

He also stressed the need to look at the lengthy processes. "Quite often it takes to dispute settlement."

Highlighting the need for debt rescheduling with China he said, "As I mentioned, almost 9.0 per cent to 10 per cent of the financial flows are coming from China. And, well, if you look at the debt situation of Bangladesh at this moment, almost 5.6 billion dollars are owed to China which is almost 10 per cent of the total debt of Bangladesh has overseas. So the debt per repayment is becoming an increasing challenge for Bangladesh."

The economist also points out that some of the loans come as supplier's credit.

And shorter repayment period, shorter grace period, and higher commitment charges than others show there are opportunities for streamlining them in the future.

He argues that Chinese loan and debt in Bangladesh definitely demand a bit much closer look.

He suggests making the debt situation more compatible with the upcoming development requirements of this country.

Mr Debapriya also observed that although the foreign-exchange reserves improved in the recent weeks, and the foreign-exchange flow stayed quite sustainable in the recent past, a debt rescheduling is not totally out of picture.

"At this moment, a debt-rescheduling issue may soon come up to look at how we really pay back some of these loans which are really maturing very fast," he told the cutting-edge function at an important crossroads in Bangladesh's political history following the July-August uprising.

About the importance of more Chinese investment in Bangladesh he said China can bring Bangladesh into the regional value chain through investing in the garment and manufacturing sector.

"What is becoming important now to have the Chinese investment more in Bangladesh over here, and where the Chinese investment can go in Bangladesh," he said, adding that it has to go to the Chinese economic and industrial zone which has been allocated in Anwara upazila in Chittagong.

He also argues that more investment in the Anwara EPZ is needed to make the Karnaphuli Tunnel economically viable.

The CPD economist stresses the need for Chinese credit to support Bangladesh's import from that country. Import from China is critical for Bangladesh, and given that Bangladesh does not have adequate foreign exchange now to pay up debt, it is important to get a financing from China in order to underwrite those imports.

"It is the old-fashioned open general licence system that you open up a credit line which can only go to finance the imports which are coming from China and support that one and create no less pressure on our balance-of-payments situation," he said.

He notes that China remains the single-largest provider of financial support to Bangladesh, as of last year (2023). The latest data show Dhaka received nearly US$4.0 billion almost in financial support which is about 9.0 per cent of the total flow which came to Bangladesh in that year.

The economist mentions that Bangladesh imports almost $25 billion of goods from China. It is about 23 per cent of the total imports coming to Bangladesh, and China's investment has now reached almost $1.5 billion.

"And what we see is important also in terms of human development. There're 20,000 students from Bangladesh currently studying in China at this very moment. So if this is one of the benchmarks and if you look at the future, why

Bangladesh should be looking at China as its major source of development cooperation and economic cooperation in the future."

Speaking on the strengths of China, he said, "China, as you may know, remains the driver of global economy at this moment, at least 30per cent of the global good is attributable to China. We make the joke that if China catches cold, then the whole world sneezes. That is the economic situation what we have now. So we are talking about a country which has generated $600 billion of trade surplus. We are talking about a country which has 3000 billion of foreign-exchange reserves."

Foreign Adviser Touhid Hossain said Bangladesh could not capitalise on the duty-free access that China has given for many reasons. "I would say that it's basically our lack of competitiveness in many areas and lack of diversification. I think we need to concentrate on these two. We need to enhance our competitiveness."

He agrees on the issue of debt rescheduling by the Chinese side.

The adviser said Bangladesh and China have very important defence cooperation. "As we all know, China is a major supplier of our defence equipment and the modernisation of our military services that we are looking forward to. I think we need a lot of cooperation in this respect, from China."

About the collaboration in the infrastructure-development sector, he said, "Of course, there are some limitations, as has already been mentioned, and we need to overcome those so that the infrastructure-development cooperation that exists between our two countries becomes more useful, more sustainable."

The foreign affairs' adviser of the interim government also stressed enhanced cooperation in the energy sector, both in green and traditional. Some projects are ongoing in various areas, and he hopes that these will be expedited so that they can be completed in time and become more useful for the Bangladesh economy.

One important area of cooperation between the two countries, as has been already touched by the ambassador, is technological know-how and communications, and Information and Communication Technology, he said.

Seeking Chinese cooperation in resolving the Rohingya crisis he said China has been cooperating in this respect for the return of the refugees. "We know that there is only one solution to this problem, which is that the people who are now in the camps in Bangladesh have to go back to their home. That is the only solution."

"China has been with us and there were trilateral dialogues, but, unfortunately, the previous initiatives have not resulted in any return of any of the Rohingya people to their homeland."

He notes that China has a lot of influence in Myanmar Dhaka looks forward to more active Chinese role in ensuring that these people, who are in a very deplorable situation, can be sent back.

"There their rights have been trampled upon, and they should be allowed to go back with rights and security so that we can get over this problem once and for all, and it is not repeated one again and again. Cash has been in the past," the foreign adviser opined.

He said both countries, from the very beginning, supported each other on the matters of core interest and work together on a path to realising the respective development.

"Now, in the current situation, as Bangladesh has witnessed the most significant political change in its national history, the future of Bangladesh in a post- revolution setting requires a more comprehensive approach," he said.

Ambassador AFM Gousal Azam Sarker, Chairman, BIISS, presided over the seminar where Major-General Iftekhar Anis, Director-General, BIISS, delivered the welcome address.

Dr Yang Jiemian, Professor, Director of the Academic Advisory Council, SIIS, made a special remark during the session.

There were three working sessions in the international seminar. The first working session titled 'The Impact of Bangladesh's Changing Political Landscape on Regional Dynamics' was moderated by Ambassador Farooq Sobhan, former Foreign Secretary. The second working session titled 'Bangladesh's Political, Economic, and Social Reforms and the Trends' was moderated by Dr Zhang Jiu'an, Associate Research Fellow, Academy of Contemporary China and World Studies. Professor Amena Mohsin, Department of International Relations, the University of Dhaka, moderated the third working session titled 'Strengthening China-Bangladesh Cooperation and Advancing the Comprehensive Strategic Cooperative Partnership'.​

 

[Saif]

Go-ahead given for RCEP dealmaking negotiations

A standing proposal gets the go-ahead from the interim government to begin formal negotiations towards signing on the Regional Comprehensive Economic Partnership (RCEP), an emerging economic bloc encompassing the Asia-Pacific region, sources said. Commerce ministry Monday received the approved sum

thefinancialexpress.com.bd

Go-ahead given for RCEP dealmaking negotiations
Joining the bloc may boost BD exports by over 17.37pc: Study
REZAUL KARIM
Published :
Oct 15, 2024 00:13
Updated :
Oct 15, 2024 00:13

A standing proposal gets the go-ahead from the interim government to begin formal negotiations towards signing on the Regional Comprehensive Economic Partnership (RCEP), an emerging economic bloc encompassing the Asia-Pacific region, sources said.

Commerce ministry Monday received the approved summary note sent to Chief Adviser Prof Muhammad Yunus for the nod, they informed.

Recently, the ministry sent the note to the interim government's premier for permission to starting off talks on striking the proposed agreement on the RCEP that accounts for a third of world GDP.

Contacted, commerce secretary Md. Selim Uddin said, "We have received the summary. We have got approval from the CA for starting process regarding signing the deal."

He expects that Bangladesh will be able to net significant trade facilities from a good number of countries if the agreement gets through.

"We in principle have taken a decision to prepare a detailed workout plan which will be formed within next one week," Mr. Uddin mentions.

The immediate-past government kept in abeyance the move to join the world's largest trade regime due to last general election. But, the commerce ministry had sent a summary of the RCEP deal and dos to the then prime minister for necessary approval.

In August 2023, an inter-ministerial meeting under the then government had recommended joining the trade bloc, as an assessment suggested that joining would increase Bangladesh's exports to the global market by more than 17.37 per cent.

The commerce ministry expects to kick-start formal proceedings at the forum headquarters for the country's membership in RCEP after completion of the workout plan, the commerce secretary mentioned.

He said, "We expect to send formal proposal to the RCEP for joining the bloc through the Foreign Affairs Ministry."

Bangladesh has started the process of joining mega trade bloc on hope of a boost to export to the member-countries, but it had been postponed since October 2023, they added.

It expects to send a formal proposal to the depository and temporary secretariat of the world's largest trade bloc at the ASEAN headquarters for the country's membership.

Bangladesh decided in principle to join the emerging vast trade bloc at a workshop held at commerce ministry on August 01, 2023.

The ministry already completed necessary scrutiny and review in this regard, based on commitments fulfilled by Vietnam, a member of the China-mooted bloc.

A high official also says the commerce ministry will have to take cabinet approval to move ahead. Vetting from the law ministry may also be required.

Bangladesh's inclusion in the RCEP will be positive although the existing regional deals with the South Asian Association for Regional Cooperation (SAARC) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) have hardly made any visible outcomes, says Research Director of CPD Dr Khondaker Golam Moazzem.

He hopes that huge cross-border trade opportunities will be created for Bangladesh after getting membership in RCEP. Besides, Bangladesh can be able to enter important manufacturing hubs, including China. It will also be a part of value chain.

An earlier study conducted by Bangladesh Trade and Tariff Commission (BTTC) showed Bangladesh's trade with RCEP-member countries mostly concentrated on trade in goods.

Bangladesh's export may grow more than 17 per cent and gross domestic product (GDP) 0.26 per cent if free-trade agreement is signed with the bloc members, it mentioned.

The RCEP deal came into force in January 2022 and any country/customs territory is eligible for applying for membership.

As of now, 15 Asia-Pacific nations are party to the world's biggest free-trade domain.

The ASEAN members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, while its FTA partners are Australia, China, Japan, New Zealand and Korea.

An outstanding feature of the RCEP is that it represents world's largest FTA, comprising about 30 per cent of global GDP and about a third of the world population.

The economic-cooperation forum, spanning Asia-Pacific realm that covers 2.3 billion people, accounts for US$ 25.8 trillion or about 30 per cent of global GDP.

Also, it accounts for $12.7 trillion or over a quarter of global trade in goods and services, and 31 per cent of global foreign direct investment (FDI) inflows.

In the fiscal year (FY) 2020-21, Bangladesh exported goods worth $3.9 billion to and imported goods worth $24.5 billion from these countries.

On the other hand, at the same time, the services export was worth US$1.8 billion and import worth $2.6 billion.

Bangladesh enjoys preferential market access to many of the RCEP countries, either through preferential trade agreement (PTA) or through GSP facilities.

After graduating from the least-developed country (LDC) status in 2026, the duty-free access will no longer be available except for reciprocal general preference under the Asia-Pacific Trade Agreement (APTA).

In such a situation, sustaining the consistent progress achieved by Bangladesh in bilateral export trade with some of the RCEP countries as well as availing the opportunity to some potential destinations in RCEP will be a real challenge.

The study says RCEP includes some of the major export destinations as well as major import sources of Bangladesh. "Considering the bilateral-trade scenario, RCEP remains more as an important partner from the Bangladesh perspective."

Imports from RCEP contribute around 43.92 per cent of the total global imports by Bangladesh, 55.33 per cent of the total tax-revenue and 58.56 per cent of total revenue from customs duty collected under home consumption, as of FY 2020-21.

Thus, the probable accession of Bangladesh to RCEP may, however, have a negative impact on revenue generation from customs duty.

Since some major import sources of Bangladesh like China, Japan, Thailand, South Korea, Indonesia, Malaysia and Australia are involved with RCEP, there is a threat of losing a certain amount of revenue from these countries.

More than 68 per cent of total merchandise exports to RCEP are under apparel-product category. Top twenty export items to RCEP mostly consist of apparel products and these twenty products constitute 64 per cent of total exportable.

The study found that the average most-favoured nation (MFN) tariffs for Bangladesh had been comparatively higher than that of the RCEP members.

It says the probable increase in import along with a comparatively protective regime of Bangladesh estimated a probable high revenue loss for Bangladesh compared to that of the RCEP.

"However, as estimated trade creation would likely be higher than the trade-diversion effect for Bangladesh, it may generate additional revenue from other duties and charges, if not reduced due to a possible accession in RCEP," the study mentions as regards a tradeoff.

The Trade and Tariff Commission recommends that the government may express its positive stand regarding the accession of Bangladesh to RCEP through weighing all the pros and cons. In that case, domestic rules and regulations may need to be changed in some cases, if a situation arises.

The RCEP negotiations were formally launched during the 2012 ASEAN Summit in Cambodia. India withdrew from the agreement in November 2019 despite participation from the beginning of negotiations.​

 

[Saif]

Reform and the pressing needs of our economy

As the current political transition in Bangladesh stands, it presents a rare opportunity for massive reform that must not be missed. Navigating this pivotal time requires focus on changes that enhance governance, foster a business-friendly environment, and protect the rights and freedoms of our...

www.thedailystar.net

Reform and the pressing needs of our economy

As the current political transition in Bangladesh stands, it presents a rare opportunity for massive reform that must not be missed. Navigating this pivotal time requires focus on changes that enhance governance, foster a business-friendly environment, and protect the rights and freedoms of our people. This reformative era should aim to build a transparent, competitive ecosystem that boosts investor confidence and curbs corruption.

The challenges of our economy, particularly in the financial sector, cannot be overlooked. High levels of non-performing loans (NPLs) and liquidity crises arise from systemic flaws, a lack of protection, and insufficient accountability. These shortcomings have created opportunities for political interference, resulting in significant losses for our nation.

Our flawed financial frameworks hinder our pursuit of an economy driven by youth and small-and-medium enterprises (SMEs), primarily protecting the interests of lenders. The absence of an exit policy traps borrowers in uncertainty, denying them the chance to turn their situations around. This scenario is a significant drawback for young entrepreneurs. To overcome these constraints, we must create a system that prevents undue interference and upholds accountability and fairness; one where laws serve the greater good, leaders act as enablers of progress, and discrimination is actively addressed.

Political reform is a crucial step for a new governance paradigm -- one that emphasises transparency and accountability at every level. A political system that prevents vested groups from wielding undue influence and resists the politicisation of institutions is essential for progress.

At this critical time, businesses must not be victims of politics, particularly given the disruptions we've seen, like internet blackouts and political activities affecting supply chains. There must be a consensus that the economy should take precedence over politics and that industrial security must be prioritised.

A governance structure fostering inclusivity in decision-making is essential. Regulatory coherence, improved policy coordination, and greater accountability are needed to minimise the risks of arbitrary decisions that harm businesses. A clear separation of functions within government departments is equally crucial to address conflicting priorities effectively.

The failure to integrate plans across various government sectors undermines effective governance and transparency, affecting industries' day-to-day operations, whether in customs, port or tax-related activities. Dismantling siloed governance and embracing effective public-private partnerships are necessary steps.

A smoother transition from LDC status is also crucial for our economy; however, given our limitations in resources, time, administrative capacity and governance challenges, our position regarding this transition must be carefully considered.

An acute focus on infrastructure, logistics, supply chain management and long-term energy policies should take precedence in the reform agenda. Infrastructure development has been a cornerstone for countries like Malaysia, South Korea, and Vietnam, providing valuable lessons for Bangladesh in terms of industrialisation and economic growth.

As things stand, Bangladesh lags behind many of its competitors in the Global Logistics Performance Index. Even during recent floods, our national highway connecting to a major port was submerged, exposing our infrastructure's vulnerabilities and raising questions about our resilience and investment in infrastructure and sustainable energy.

In aligning policies with global competition, we must revisit trade and foreign policies to ensure they are responsive to market realities and position Bangladesh as a competitive player on the international stage. Developing strategic partnerships, enhancing trade agreements and promoting initiatives that attract foreign investment in niche sectors are essential steps.

While prioritising our economic agenda, attention must also be given to protecting SMEs, advancing the ESG agenda and promoting technology and skills adoption. Innovative approaches supported by thoughtful policy frameworks are needed to create synergies that drive meaningful impact.

This reformative era must inspire a collective vision that aligns with our people's hopes and aspirations. It is our moment to break free from past constraints and usher in a new chapter of growth and opportunity. The time for change is now.

The author is a director of the Bangladesh Garment Manufacturers and Exporters Association​

 

[Saif]

Diverse income streams needed for poverty alleviation

Households with diverse income streams, both farm and non-farm, are more resilient and can escape poverty faster, said experts yesterday.

www.thedailystar.net

Diverse income streams needed for poverty alleviation
Say speakers at a roundtable

Participants of a roundtable titled “Pathways to prosperity for extremely poor people” at The Daily Star centre yesterday. The Palli Karma-Sahayak Foundation, European Union, and The Daily Star jointly organised the event marking the International Day for the Eradication of Poverty. Photo: Star

Households with diverse income streams, both farm and non-farm, are more resilient and can escape poverty faster, said experts yesterday.

Research over the last 20 years on the impact of microcredit indicates, both nationally and internationally, that pure microfinance will not have a sustainable impact on poverty alleviation, said MA Baqui Khalil, professor and dean for the School of Business at the University of Asia Pacific.

This is because poor people need insurance, savings, health expenses and other non-financial services beyond credit, he said at a roundtable styled "Pathways to prosperity for extremely poor people (PPEPP)".

Palli Karma-Sahayak Foundation (PKSF), the European Union and The Daily Star jointly organised the event to mark the International Day for the Eradication of Poverty at The Daily Star Centre in Dhaka.

"People with multiple income opportunities are less vulnerable to poverty and can graduate out of it at a faster rate," Khalil said.

If a household has both farm and non-farm activities, it can absorb shocks, and income from multiple sources contributes to savings.

The creation of wage employment is important as an alternative to farm employment to reduce extreme poverty.

"These issues were reflected in the PPEPP project of the PKSF," he added.

In 2019, with lessons learned from various extreme-poverty projects, PKSF undertook a multi-dimensional initiative titled PPEPP with funding from the UK's Foreign, Commonwealth and Development Office (FCDO) and the EU.

The project aims to eradicate extreme poverty for approximately 250,000 households (about 1 million people) in selected poverty-prone districts across the northwestern char areas, the southwestern coastal belt and the Haor region.

The project also includes ethnic minority pockets in Dinajpur and Thakurgaon districts.

Since 2022, the PPEPP project has been funded by the EU and renamed PPEPP-EU, targeting 215,000 households.

It provides a carefully sequenced package of livelihoods, nutrition and primary healthcare, inclusive finance and community mobilisation interventions as the core components.

To address the multidimensional nature of poverty, the project also integrates climate resilience-building, disability inclusion and women empowerment with the core components.

"If we want to bring the issue of sustainable poverty reduction to the forefront, there needs to be a linkage between this project and a market-based linkage," said Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development.

"If we can provide them with loans and create such enterprises, then it is possible to move them toward a sustainable livelihood. So, it is necessary to think about how we can link them with cottage, micro and small enterprises," he added.

Poverty and inequality are two different things and should not be conflated together, said Zakir Ahmed Khan, chairman of PKSF.

"What we are doing now is dealing with poverty, not inequality. Poverty is not only a lack of money -- it means many more things."

The PPEPP should be taken as a programme and not as a project, he said.

There must be a connection between sustainability and the market, said Mohammad Muslim Chowdhury, chairman of Sonali Bank.

"Otherwise, we may go from one project to another. If we don't link it with the market and create self-employment opportunities, it won't succeed."

Different projects and programmes should be linked to central policies and aligned with the national strategy.

The programme needs to be implemented comprehensively, he said, adding that the local government should also be linked.

The primary goal of PKSF is to eradicate inequality along with poverty, aiming for zero poverty and the creation of an inclusive and equitable society, said Md Fazlul Kader, acting managing director of PKSF.

Bangladesh has witnessed remarkable growth and development, but unfortunately, extreme poverty still exists, said Michal Krejza, head of cooperation at the delegation of the EU to Bangladesh.

For example, in the southern coastal belt, the incidence of extreme poverty is quite high and is increasing in some areas due to the impacts of climate change.

To make these people less vulnerable, better access is needed to basic public services such as education, health care, safe drinking water and sanitation, and safe and nutritional food, he said.

"They need skills development and jobs. Those for whom the need is the highest often have the poorest access."

Since its inception of the project in 2019, 72 percent of the extremely poor households covered by the project have risen above the international poverty line, he added.

Macroeconomic policies do have a significant impact on poverty reduction at the national level, said Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh.

"The impact on poverty comes from the kind of macroeconomic policies we have. Macroeconomic stability is essential and macroeconomic policies for economic growth are also essential," he added.

Bangladesh has done very well on many things including poverty, said Mahfuz Anam, editor and publisher of The Daily Star.

"But what remains is also a massive task. Let us not get into some sort of a comfort zone that we have done well."

As the most densely populated country, whatever the country achieved really stands threatened because of climate change and Bangladesh needs global support, he added.​

 

[Saif]

Gross forex reserves cross $25b in steady rebound

A steady rebound on the back of changed milieus helps Bangladesh see its gross foreign-exchange reserves climb over US$25 billion again amid tightfisted import payments and higher remittances, officials said. The forex reserves rose to $25.14 billion on October 15 from $24.97 billion on Octo

thefinancialexpress.com.bd

Gross forex reserves cross $25b in steady rebound
Lower imports-outflows, higher remittances help in changed milieus
Siddique Islam
Published :
Oct 17, 2024 00:37
Updated :
Oct 17, 2024 00:37

A steady rebound on the back of changed milieus helps Bangladesh see its gross foreign-exchange reserves climb over US$25 billion again amid tightfisted import payments and higher remittances, officials said.

The forex reserves rose to $25.14 billion on October 15 from $24.97 billion on October 08 as per traditional calculation method of the Bangladesh Bank (BB). It was $24.86 billion on September 30.

As per the International Monetary Fund (IMF) Balance of Payments International Investment Poisson Manual-six edition, generally known as BMP6, the reserves rose to $19.93 billion during the period under review from $19.83 billion, according to the central bank's latest data released Wednesday.

The IMF-calculated figure was $19.86 billion on September 30.

Forex reserves--one of the major macroeconomic indicators of an economy--fell to $24.53 billion in terms of gross calculation by the central bank after clearing $1.37 billion import payments to the Asian Clearing Union (ACU) on September 07 last while the amount stood at $19.46 billion as per IMF's BMP6 arithmetic.

"Higher inflows of remittances have helped the country see forex reserves cross $25-billion mark further," a senior official of the central bank told the FE while replying to a query.

He also said Bangladesh received $1.21 billion in inward remittances during the first 14 days of October.

Meanwhile, the flow of inward remittances grew over 33 per cent to $6.54 billion in the first quarter (Q1) of the current fiscal year (FY), 2024-25, from $4.91 billion in the same period of FY '24.

This surge indicates a growing trend of expatriates utilising formal banking channels to send money to Bangladesh, bankers said, adding that this increase is a shift away from informal methods like hundi since the formation of the new government.

Besides, the purchasing of the US currency from the commercial banks directly has contributed to growth in the forex reserves in recent days, another central banker explains.

Nearly $50 million has so far been bought from the commercial banks in October as part of the regulator's intervention in the market, the central banker adds.

On the other hand, the selling of the greenback from the central bank almost suspended recently as part of a move to build up the recently depleted forex reserves in Bangladesh.

"We've sold only $10 million so far to the commercial banks in the month of October 2024," the BB official adds.

However, the actual import in terms of settlement of letters of credit (LCs) fell by 5.58 per cent to $16.10 billion during the July-September period of the FY'25, from $17.05 billion in the same period of the previous fiscal year, due to political unrest as well as uncertainty associated with post-unrest regime.

On the other hand, the opening of fresh LCs, generally known as import orders, dropped by 8.44 per cent to $15.65 billion in the first three months of this fiscal from $17.09 billion in the same period of FY'24.

Bangladesh's forex reserves had surged to $48.04 billion on 24 August 2021, setting a new record, from $46.58 billion of the previous working day. The rise was propelled by the receipt of $1.45 billion from the IMF as general allocation of Special Drawing Right (SDR).​

 

[Saif]

Budget support from WB, IMF, ADB: Bangladesh may get $5.65b by this fiscal year

The government is expecting at least $5.65 billion in budget support this fiscal year from the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB) to expedite reforms.

www.thedailystar.net

Budget support from WB, IMF, ADB: Bangladesh may get $5.65b by this fiscal year

The government is expecting at least $5.65 billion in budget support this fiscal year from the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADB) to expedite reforms.

Of the expected funds, the IMF is likely to provide $3 billion, the World Bank $1.5 billion and the ADB $1.15 billion.

Around $3 billion of the funds could come by December for stronger support to ensure good governance in banking and other sectors, according to officials at the finance ministry, Bangladesh Bank and the three development partners.

The global and regional lenders may impose several conditions for the loans, including some on revenue, public expenditure, and dissemination of data, finance ministry officials said.

A high-powered government delegation led by Finance Adviser Salehuddin Ahmed will visit the US from October 21-29 to attend the World Bank-IMF Annual Meetings.

They will sit with World Bank and IMF officials on the sidelines of the main event to discuss the fresh financings, their modalities, and reform conditions.

High-ranking officials of the World Bank and the IMF have assured the government of providing necessary funds to boost the depleting foreign currency reserves after the interim government took charge in August.

The IMF is likely to approve $3 billion in fresh loans under a separate programme, in addition to the $4.7 billion in funds approved in January last year, under which Bangladesh has got $2.3 billion in three tranches so far.

The IMF may disburse the fresh funds in multiple tranches as well. However, the modality of the loans will be finalised during talks in Washington this month.

A finance ministry official said they are hopeful about getting more than $1 billion under the two IMF programmes this year, subject to the IMF board's approval in December.

An IMF team is likely to visit Dhaka in November to set the reform conditions for the fresh funds and also review the existing loan programme.

The World Bank is expected to clear $1.5 billion in fresh funds in the ongoing fiscal year, including $1 billion under two programmes by December.

A finance ministry official said the World Bank will provide $750 million to strengthen economic governance and reform programmes.

Another $250 million will be provided for capacity building of the finance ministry, Bangladesh Bank, National Board of Revenue (NBR), and Bangladesh Bureau of Statistics (BBS), said the official.

From the ADB, the government expects $1.15 billion by the end of this fiscal year. The funds will include $650 million expected by December for a programme to strengthen economic management and governance.

The interim government also sought $1 billion from the ADB for the banking sector and another $1 billion for the energy sector.

Out of these, there has been significant progress in getting the $1 billion for the banking sector. The ADB could provide $500 million of the funds by June next year.

The Bangladesh delegation will also hold talks with officials of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA) and International Finance Corporation (IFC), and the US Treasury Department during the WB-IMF Annual Meetings.

IFC in 2022 proposed to issue Taka-denominated bonds worth $4 billion among local investors, either through public issuance or private placement, to lend the proceeds to projects in Bangladesh.

There has not been much progress regarding the proposal, but recently the member of the World Bank Group has shown renewed interest in the matter.

MIGA has offered Bangladesh Bank $1 billion in guarantee facilities for international trade to reduce import costs.

MIGA and IFC's proposals will be discussed further during the Bangladesh delegation's visit to Washington, a central bank official said.

POSSIBLE CONDITIONS

Officials said the conditions for the fresh World Bank and IMF loans may include the separation of tax policy from revenue collection administration. The lenders have been raising the issue for a long time, but it could not be realised due to a lack of interest from NBR officials.

The lenders may also want the existing multiple VAT rates replaced with a uniform rate, and the introduction of a modern electronic VAT system to increase revenues and improve compliance.

The World Bank recommended these reforms in its latest development update for Bangladesh last week.

It suggested enhancing efficiency in expenditure by aligning national savings certificate interest payments with market rates and controlling subsidy spending.

The report recommended implementing market-based tariffs in the power sector and transitioning from fertiliser subsidies to a voucher-based programme. It suggested replacing emergency procurement with competitive bidding to reduce generation costs.

A finance ministry official said the lenders may impose a condition under which the BBS will have autonomy and publish data independently.

Currently, BBS sends data to government high-ups for approval before publication.​

 

[Saif]

Bangladesh Remittance Fair to begin in NY October 20

Two-day Bangladesh Remittance Fair will begin at Jamaica Performing Arts Centre in New York on October 20 to increase remittance flow from the USA to Bangladesh.

www.newagebd.net

Bangladesh Remittance Fair to begin in NY October 20
Bangladesh Sangbad Sangstha . Dhaka 18 October, 2024, 23:57

Two-day Bangladesh Remittance Fair will begin at Jamaica Performing Arts Centre in New York on October 20 to increase remittance flow from the USA to Bangladesh.

The theme of the fair is ‘New Opportunities, New Markets, New Partnerships’.

The Bangladesh-American Chamber of Commerce and Industry, Mukto Dhara New York and the US-Bangla Business Link are jointly organising the event powered by Dhaka Bank.

Islamic Bank, National Bank and Bank Asia will be honoured in the event as the top remittance-receiving banks.

Focusing on promoting legal remittance flows and sustainable growth, the fair aims to explore how to increase these foreign earnings and encourage expatriates to utilise legitimate channels for remittance, thereby further energizing the economy.

The participating institutions include banks, financial institutions, money transfer operators, remittance channel partners, mobile financial services, offshore banking service providers and expatriate small entrepreneurs.

Over 30 financial institutions from both Bangladesh and the United States, including IFIC Bank, Islami Bank, Standard Bank, Social Islamic Bank Limited, Dhaka Bank, Chevron Express and Standard Express, will take part in the event.

The fair will also feature seminars and symposiums on remittances, along with awards for the top 10 Bangladeshi-American remittance senders.

Moreover, awards will be given to the top three money exchange or remittance channel companies.

The fair will remain open from 4:00pm to 10:00pm NY time on both days at the venue where popular artists Pousali Banerjee and Shah Mahbub will enthral the audience through performances on October 20.​

 

[Saif]

High tax expenditure: A paradox in Bangladesh’s tax system

Bangladesh has an unusually high tax expenditure to GDP ratio despite having low revenue generation through direct tax.

www.thedailystar.net

High tax expenditure: A paradox in Bangladesh’s tax system
High tax expenditure in Bangladesh

VISUAL: ANWAR SOHEL

Revenue efforts—i.e., revenue generated from the national income or GDP, which is defined as tax to GDP ratio—have historically been low in Bangladesh. Between 2011 and 2023, the country's revenue efforts declined from 11 percent to 8.3 percent in 2023—a 2.7 percentage point drop over the 12-year period when the per capita GDP increased by about 200 percent. Since the trend in per capita GDP is increasing, suggesting that income is increasing (hence broader tax base), more revenue should be generated (even when the tax rates remain the same). Thus, the falling trend of revenue efforts point to an inefficient revenue system in Bangladesh.

A paradox in our tax system is maintaining a high tax expenditure ratio (or simply put, revenue forgone) when the revenue efforts are dismal. Tax expenditure refers to special provisions of the tax code, such as exclusions, deductions, deferrals, credits, and tax rates that benefit specific activities or groups of taxpayers. The outcome is a loss of revenue. Although data on tax expenditure in Bangladesh is not available every year, according to a recent study (March 2024) by the National Board of Revenue (NBR), the estimated total tax expenditure for direct tax in FY21 amounts to 3.56 percent of GDP. Although some of the tax expenditures may be justified on merit grounds, such a high level of tax expenditure against very low revenue efforts is clearly untenable. If one adds VAT and custom duty, the total tax expenditure may well be above five percent of GDP.

Furthermore, since the methodology to estimate tax expenditure is usually subjective, the final estimate is generally underestimated. The Global Tax Expenditure Database (GTED) progress report published in 2022 highlights this aspect. According to the report, over the past three decades, "the global average of reported revenue forgone from TEs was close to four percent of GDP and more than 24 percent of tax revenues. Yet, real numbers are probably significantly higher, since one of the main issues we encountered when building up the GTED was widespread underreporting." If this aspect is considered in Bangladesh, tax expenditure may be even higher, perhaps around seven to eight percent of GDP.

The GTED progress report compiled tax expenditure data of 95 countries who have been grouped into four categories: lower income countries (LICs); lower-middle-income countries (LMICs); upper-middle-income countries (UMICs); and high-income countries (HICs). The average tax expenditure of LICs (14 countries) in 2021 was 2.8 percent of GDP. In the same year, it was three percent for LMICs (20 countries), four percent for UMICs (23 countries), and 4.7 percent for HICs (38 countries). Compared to this data, Bangladesh's tax expenditure estimate (only for the direct tax) of 3.6 percent appears to be high.

Since transparency in this field has been limited, it is difficult to measure the benefits of this mechanism. Thus, a major concern with such high tax expenditure is uncertainty or ambiguity regarding its impacts on the economy and society. Since there has been no assessment to justify the existing tax expenditure, this practice should be limited. Consider a situation where a one percent cap has been imposed on the tax expenditure, which would release revenue of about four percent. In such a situation, revenue efforts will jump to 15 percent of GDP. The forgone revenue of four percent may be put to better use where one percent may go to social sectors, one percent may go to infrastructure, one percent to agriculture, and the rest to skills and productivity enhancement programmes.

Another justification for such an approach—i.e., enhanced public expenditure through realised revenue by capping the tax expenditure—is that expenditure allocations are usually subject to better transparency and scrutiny via the medium-term budget framework (MBTF) carried out by line ministries and the finance ministry, and the Annual Development Programme (ADP) conducted by the Planning Commission.

In 2023, the Policy Research Institute's (PRI) Centre for Domestic Revenue Mobilisation (DRM) carried out an exercise to justify the need to enhance expenditure in the merits sector through additional revenue mobilised through the direct tax system. Simulations were conducted to identify the impact of raising revenue from personal income tax with an analysis to understand the effects on the national economy. The simulations assume that the additional revenue raised is spent on infrastructure, social sector, social protection, agriculture and other public spending areas. Specifying public spending assumes the same proportional split between sectors, as is currently the case. The core finding from PRI's exercise shows that increases in personal income tax led to increases in GDP growth and labour income. This is primarily through the effect of allowing the government to invest more in public services. If revenue from personal income tax were to increase by two percentage points, economic growth would likely rise by 0.5 percent on top of the existing growth rates. Moreover, such a move may increase labour income by three percent.

The above analysis suggests that the practice of maintaining high tax expenditure is not feasible on grounds of forgone revenue, lack of transparency, and low value for money. Immediate action must be taken to improve the fiscal system in Bangladesh utilising this low-hanging fruit. Some strategic recommendations in this regard are: i) put a cap on the overall size of tax expenditure at the maximum level of one percent of GDP for the next two fiscal years; ii) form a high power committee to make decisions on who should be eligible for receiving tax expenditure benefits. The criteria may focus on employment generation, poverty reduction, productivity growth, and welfare of women, children and minority groups; and iii) the NBR/government should earn the right to provide tax expenditure. For instance, it could implement a formula where an additional 0.25 percent of tax expenditure is provided for every two-percentage-point gain in tax efforts. However, the overall ceiling should be around two percent of GDP.

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

 

[Saif]

Macroeconomic recovery for whom?

Fitch, the US-based global credit-rating agency, forecasts a good tiding for Bangladesh economy provided that the government pursues reform. The uncertainty arising out of the political changeover over the economy, the agency maintains, is likely to be short-lived and the country's mid-term macroec

thefinancialexpress.com.bd

Macroeconomic recovery for whom?
FE
Published :
Oct 23, 2024 22:13
Updated :
Oct 23, 2024 22:13

Fitch, the US-based global credit-rating agency, forecasts a good tiding for Bangladesh economy provided that the government pursues reform. The uncertainty arising out of the political changeover over the economy, the agency maintains, is likely to be short-lived and the country's mid-term macroeconomic outlook is positive. However, the rating agency duly recognises the adverse effects of the shockwaves of the violent movement that toppled the immediate past government. Thus it has downgraded the country's output growth from its earlier projected 5.3 per cent to 4.5 per cent following identical slashing of growth projection by the International Monetary Fund (IMF) from 6.6 per cent for the fiscal year 2024-25. The other Bretton Woods Institution, the World Bank, also revised the growth projection downward to 4.0 per cent last week. The rating agency, however, sees an economic recovery in 2026 when the country may witness an economic upturn riding on a 5.7 GDP growth rate.

This recovery is, however, conditional. If external metrics like that of remittance sent by workers abroad remain stable, only then can it experience a turnaround. Improved macroeconomic performance alone cannot guarantee a country's social progress because much depends on how the national wealth is created and distributed. Under oligarchy, plutocracy or kleptocracy, outsize wealth may be created depriving the majority of its benefits. International agencies may wax eloquent about developments of any such order but outrageous socio-economic inequality marked by abject poverty for a hapless segment of society can negate the macroeconomic success. As many as 41.7 million people in Bangladesh now live in extreme poverty, according to a report titled "2024 Global Multidimensional Poverty Index released jointly by the United Nations Development Programme (UNDP) and the Oxford Poverty and Human Development Initiative of the Oxford University. Of them 6.5 per cent are particularly vulnerable to food insecurity.

Right now, inflation has been raging after a slight lull in the previous month. Earlier, disruption of the supply chain was thought to be responsible for the latest soaring inflation but it has proved wrong. Although the World Bank projects an easing of inflation to 9.0 per cent in the fiscal 2025, signs are to the contrary. Market manipulation and exchange of several hands all along the supply chain before agricultural produce and other commodities reach the consumers have now been blamed for abnormal price escalation. The low-income segments in society are increasingly becoming disillusioned with the administrative measures because they read in the anti-discrimination movement some relief was on their way. Many of the lower classes also felt prompted to join the movement with hope for better days. Now they are utterly disappointed.

The year 2026, when Bangladesh economy is expected to recover reasonably and create employment opportunities, is a long way off for the poor and the marginal and even the lower-middle class people. Their urgency is so pressing that any further wait for brighter economic prospects proves very painful. Yet another round of price rise of essentials including rice of late makes matters worse for them. It would be prudent to focus on microeconomic resurgence. The sector of small and medium enterprises (SMEs) has failed to avail of the stimulus packages meant for industrial recovery in post-pandemic period mostly because of a lack of collateral. If appropriate policies are formulated and effective monitoring along with support for marketing products of such enterprises is put in place, economy at the grassroots level can buoy up and create employment opportunities.​

 

[Saif]

Six priority areas up for reforms

Six priority areas are up for reforms under conditions binding a World Bank-offered budget-support credit, including an overhaul in fiscal, revenue, and public-welfare arenas, officials said. The World Bank is providing the development-policy credit under its Building Economic and Institutional

thefinancialexpress.com.bd

Six priority areas up for reforms
Syful Islam
Published :
Oct 26, 2024 00:06
Updated :
Oct 26, 2024 00:06

Six priority areas are up for reforms under conditions binding a World Bank-offered budget-support credit, including an overhaul in fiscal, revenue, and public-welfare arenas, officials said.

The World Bank is providing the development-policy credit under its Building Economic and Institutional Resilience programme for tidying these areas of finance.

The Ministry of Finance has formed a policy actions-implementation committee headed by an additional secretary of the finance division to push through the reforms.

As part of the spadework for such major changes, policy matrix has already been prepared in consultation with the ministries and divisions concerned, the officials said.

In the six-point reform recipe are rationalisation of tax expenditure, a new definition of non-performing loan (NPL) classification, establishment of bank-restructuring department in Bangladesh Bank, amendment of the statistics act, and the strengthening of Bangladesh Bureau of Statistics (BBS).

Officials concerned say Bangladesh's tax-to-GDP (gross domestic product) ratio is one of the lowest in the world and so needs a gradual raise. They see such low tax-revenue collection as a "big barrier facing economic development of the country",

Under this reform programme, the committee will work on implementation of policy actions aimed at finding potentials for broadening tax base, ways for additional revenue collection, and elimination of less-effective tax exemptions.

They say an updated definition of classified loans will also be prepared under this reform drive. Under the current definition loans which are at the stages of substandard, doubtful, or bad loan are called classified loans and they are considered NPL.

The banks and financial institutions fail to collect interest from the loans which fall in these categories. Recovery of both the interest and principal amount becomes uncertain when a loan is classified as bad loans.

Officials concerned have said the restructuring of some banks "has become very necessary as financial health of many public-and private-sector lenders has deteriorated following wanton plunder in the recent past".

The central bank, they say, will soon begin assessment of the asset quality of the banks before restructuring. Under the budget-support credit of the World Bank a bank-restructuring department is going to open in the Bangladesh Bank.

The central bank governor few weeks back sought some $270 million from the World Bank under Financial-Sector Support Project II from where some $70 million will be spent on strengthening Bangladesh Bank's technical capability and capacity for effective regulation and supervision.

Officials say the Statistics Act 2013 will also be amended under the budget-support programme of the World Bank. Also, the Public Procurement Act 2006 will be amended to make it more time-befitting.

The strengthening of the Bangladesh Bureau of Statistics (BBS) is also in the ambit of reforms under the Word Bank's budget-support credit to make statistics produced by the state agency more authentic and credible to remove a credibility gap.

Officials say in the past, the statistics produced by the BBS "used to be called in question home and abroad for a lack of accuracy".

Dr Zahid Hussain, a former lead economist at the World Bank's Dhaka office, earlier told the FE that reform is necessary in various public institutions and acts in Bangladesh to make them fit in international best practices.

On a question over data accuracy, he said, "There is a common perception in Bangladesh for many years that the GDP data produced by the BBS are inflated. Also, the accuracy of many social-indicator data remained under question for years which the government did not pay heed too."

He underscored the need for strengthening the BBS and for generating accurate data for their well acceptance.​

 

[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.

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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

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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.​

 

[Saif]

Increased remittance inflow encouraging

Upskilling workers, easier migration process can further increase it.

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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.

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‘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.

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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

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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.​

 

[Saif]

Economy might have expanded in October: PMI

All key economic sectors of Bangladesh witnessed expansions in October, although the country continues to grapple with frequent protests, sluggish improvements in law and order and a slowdown in public administration activities, said the MCCI yesterday.

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Economy might have expanded in October: PMI

All key economic sectors of Bangladesh witnessed expansions in October, although the country continues to grapple with frequent protests, sluggish improvements in law and order and a slowdown in public administration activities, said the MCCI yesterday.

Bangladesh Purchasing Managers' Index (PMI) climbed to 55.7 in October, said the Metropolitan Chamber of Commerce and Industry (MCCI) in its latest PMI report.

This was a 6-point increase from that in the previous month, signalling a shift back to expansion after three consecutive months of contraction, according to an MCCI press release.

Bangladesh Purchasing Managers' Index climbed to 55.7 in October, said the Metropolitan Chamber of Commerce and Industry

The Bangladesh PMI is an economic indicator which helps understand the direction in which the economy is headed and based on data compiled from monthly surveys of over 500 private sector enterprises.

It was developed in 2024 by the MCCI and Policy Exchange Bangladesh, in cooperation with the Singapore Institute of Purchasing & Materials Management and supported by UK International Development.

A reading of above 50 generally indicates expansion and below that contraction.

The October reading suggests a strengthening economic outlook, with all major sectors—agriculture, construction, manufacturing, and services—posting positive trends, said the MCCI.

The manufacturing sector, a vital pillar for Bangladesh's economy, demonstrated accelerated growth across key metrics, including new orders, factory output, and input purchases, despite ongoing contractions in employment, supplier deliveries, and order backlogs, it said.

Agriculture showed its first expansion in business activity and new orders after months of downturn, although employment remained in contraction, it said.

Input costs, a key metric, rose swiftly, reflecting rising expenses across sectors, said the chamber.

Construction returned to growth, albeit marginally, as it recorded slower contraction rates in employment and order backlogs, it said.

The services sector similarly moved to an expansion phase, driven by a rebound in business activity and order backlogs, though employment contraction persisted, it added.

However, the broader economy faces domestic hurdles, including public protests, law enforcement issues, and stagnant public administration, which may affect near-term gains, said the chamber.

All sectors reported slower expansion rates in future business expectations, reflecting cautious optimism amid continued challenges, it said.​

 

[Saif]

Higher remittance makes only difference

The higher inflow of remittance on the back of a slim export growth is the major exception amid deterioration of other major economic indicators during the first quarter of the current financial year...

www.newagebd.net

Higher remittance makes only difference
Shakhawat Hossain 09 November, 2024, 00:22

The higher inflow of remittance on the back of a slim export growth is the major exception amid deterioration of other major economic indicators during the first quarter of the current financial year marked by the historic regime change.

Economists observe that the incumbent interim government led by Nobel laureate professor Muhammad Yunus is facing trying times in taming the prolonged high inflation and bringing back economy on track after assuming power at a critical juncture marked by the faltering growth in gross domestic product at 3.91 per cent in the April–June quarter of FY24.

The April–June growth rate was the lowest in the past five quarters due to late contractionary monetary policy adoption following the implementation of flawed and expansionary policies for years by the Sheikh Hasina-led Awami League regime ousted amid a student-led mass uprising on August 5.

With the interim government struggling to stabilise the law and order and the civil administration, the higher flow of remittance registering 38 per cent growth in August, and 80 per cent growth in September on a year-on-year basis brought some relief for the government.

Besides, a 5.04 per cent growth on export earnings in the first quarter—July–September period—of FY25 from 4.34 per cent negative growth in FY24 reduced pressure on forex reserves hovering around $20 billion and also on the current account balance.

But hardly any improvement has been recorded in the sluggish imports of consumer goods, capital machinery and intermediate goods, according to the ‘Weekly selected economic indicators’ released by Bangladesh Bank on October 31.

In the July–September period, the import of consumer goods decreased by 17 per cent compared with the same period of FY24; the import of capital goods saw a decrease by 24 per cent; and intermediate goods by 13.38 per cent. The scenario signals inertia in fresh business investments amid the ongoing political uncertainty and shortage of energy and power, observes former World Bank Dhaka office chief economist Zahid Hussain.

The change is huge, he continues, and has shaken the crucial baking sector following revamping of a dozen of banks’ boards, including the largest private commercial bank, Islami Bank Bangladesh Limited, securing their control from the S Alam Group, one of the most closest cronies of the previous Awami League regime.

Leakages from the banking sector have been checked, but the interim government still faces challenges to bring back the overall economy on track, according to Zahid Hussain.

Echoing Zahid, the Institute for Inclusive Finance and Development executive director Mustafa K Mujeri said that average inflation remained high at around 10 per cent in the past three months.

The interim government has cut import duties on essential goods, including main staple rice, to 25 per cent from previous 62 per cent after flash floods and massive rain in August–September affecting the cultivation of Aman, country’s second largest rice crop.

The supply situation needed improvement by removing others barriers, including extortions, MK Mujeri stressed.

To check the persistent high inflation, the central bank is also tightening the flow of money by raising interest rates, which according to businesses, discouraging for investment and private sector employment.

In October, the general inflation returned to double digit at 10.87 per cent, after it somewhat eased in September, which was 9.92 per cent.

The October food inflation recorded at 12.66 per cent by the Bangladesh Bureau of Statistics was the main factor behind that month’s rise in general inflation.

Inflation that has been prevailing at a decade-high since 2023 had hit 11.27 per cent in July, and was recorded at 10.49 per cent in August when the interim government assumed power after the fall of the Awami regime.

The private sector credit growth in the country already dropped to 9.86 per cent in August from 10.13 per cent in July amid turmoil in the banking sector and business environment.

The ‘Bangladesh Development Update’ released by the World Bank in the past month viewed that factors, including inflation, external pressure, financial sector vulnerabilities, and political uncertainty, would continue to put pressure on the country’s economy in the current FY25.

The finance ministry is mulling to cut the overall national budget of FY25 by around Tk 70,000 crore, mainly from the development allocations to offset possible revenue losses.

The National Board of Revenue’s income in the July–September of FY25 recorded 6 per cent negative compared with the income during the same period of FY24.

M Masrur Reaz, chairman and chief executive officer of think tank Policy Exchange Bangladesh, said that the foreign direct investment, export and small and medium entrepreneurs should get equal priority from the interim government.

Confidence of foreign investors needed worked upon since the foreign direct investment hit 8.80 per cent negative in FY24 from that in FY23, he said.

Besides, efforts were urgent to check factory unrest to increase the export growth, while support should be given to the small and medium entrepreneurs accounting for at least one fourth of the country’s GDP.​

 

[Saif]

Prioritising Economic Zones

The immediate past regime planned to launch 100 Economic Zones (EZs) across the country mostly on personal, political and other considerations. To that end, the Bangladesh Economic Zone Authority (BEZA), an agency to operate under the Prime Minister's Office (PMO), was created in 2010 to manage the

thefinancialexpress.com.bd

Prioritising Economic Zones
FE
Published :
Nov 12, 2024 21:39
Updated :
Nov 12, 2024 21:39

The immediate past regime planned to launch 100 Economic Zones (EZs) across the country mostly on personal, political and other considerations. To that end, the Bangladesh Economic Zone Authority (BEZA), an agency to operate under the Prime Minister's Office (PMO), was created in 2010 to manage the Economic Zones (EZs). In 2015, BEZA rolled out this highly ambitious plan of setting up so many industrial enclaves with the target of operationalising them by 2030 and gave approval to as many as 97 EZs, of which 68 were government-owned and the rest 29 were to be run privately. But given the bureaucratic sloth, the history of time overruns regarding initiation and implementation of development projects, and not to mention the complexities involved in land acquisition, activating such a large number of EZs by the set deadline of (2030) proved impractical. Also, the EZs in most cases failed to draw investors due to inappropriate site selection, among other reasons. Only a few including the Bangabandhu Shilpa Nagar in Mirsarai of Chattogram, the Japanese Economic Zone at Araihazar in Narayanganj and the Srihatta Economic Zone in Moulvibazar, for instance, could make any visible progress. In all, only 10 EZs, about 10 per cent of the total envisaged economic zones, could finally get off the ground before the previous government's ouster.

However, the interim government, according to a recent FE report, is going to take a selective approach to EZs on the basis of viability. It is going to select a smaller number of government-owned EZs and fast-track their development with clearly defined timelines in keeping with the requirements of the investors. Out of the EZs identified by the past regime, the ones that might find themselves in the priority list as prepared by the interim government include the National Special Economic Zones in Mirsarai, Sitakunda and Feni, Jamalpur, Srihatta, Moheshkhali and Sabrang Tourism Park.

Given the experience gathered on this score in the past, especially during the previous government, the investors are better given the opportunity to choose the industrial enclaves they want to invest in. In this connection, some experts are of the view that before actually prioritising the EZ plots, the BEZA might well carry out a survey to assess the investors' point of view in this regard. To have a better understanding of what particularly discouraged the potential investors in majority of the EZs opened up for them by the previous government, the new executive chairman of BEZA appointed by the interim government should have exchange of views with them. At the same time, he should listen to the complaints and grievances of the entrepreneurs who did finally invest in the EZ sites awarded to them by the deposed previous government and take early measures to address their problems.

In fact, the emphasis of the interim government should be on not to repeat the mistakes the previous government committed in this regard. Notably, many investors in the EZs are learnt to have complained that the previous government failed to provide the promised facilities including utility connections. Even some were not duly informed of the VAT they had ultimately to pay against the land allotted to them to set up their ventures. So, the main focus of the interim government should be on building trust with potential entrepreneurs who might feel confident to put their money in selected EZs.​

 

[Saif]

BEZA gets the priority right

It is good to see that the current government is sticking to its promise of moving away from multiple mega projects involving billions of dollars in foreign loans. The previous government had the grand plan of setting up nearly 100 Special Economic Zones (SEZs). Indeed, the industrial zoning scheme

thefinancialexpress.com.bd

BEZA gets the priority right
Syed Mansur Hashim
Published :
Nov 12, 2024 21:35
Updated :
Nov 12, 2024 21:35

It is good to see that the current government is sticking to its promise of moving away from multiple mega projects involving billions of dollars in foreign loans. The previous government had the grand plan of setting up nearly 100 Special Economic Zones (SEZs). Indeed, the industrial zoning scheme that had been envisaged has effectively been shelved and according to a report published in this newspaper, "developing prioritized zones on fast track with clearly defined timelines" appears to be the plan now.

Even when the grand vision of setting up 100 SEZs had been formulated, economists had raised questions about such an ambitious target. As this plan was not based on reality since foreign direct investment (FDI) has shown dismal growth year-on-year over the last 15 years. So what possessed the previous regime to come up with this fantastic number? As pointed out by a former chief economist of the World Bank, it had everything to do with political preferences, business interests becoming the overriding factor over and above SEZ selection and overlooking investors' desire on whether or not to actually invest in Bangladesh.

Hence the current shift in thinking at policy level concurs with what is actually feasible for the economy and likely FDI commitments that may be made and then developing select zones "on a fast track with clearly defined timelines." Had the previous idea been implemented, it would undoubtedly have landed the country in even greater debt as billions in foreign exchange would have had to be borrowed, much of it from foreign lenders leading to an even greater debt trap.

The new executive chairman of the Bangladesh Economic Zones Authority (BEZA) has gone on record saying that a smaller number of zones would be developed. "We will set specific timelines to address investors' needs in a realistic and achievable way," he adds. "What investors are looking for is a stable fiscal policy, not just tax cuts." The zones expected to receive priority include the National SEZ (Mirsarai, Sitakunda and Feni), Jamalpur, Srihatta, Maheshkhali, and Sabrang Tourism Park.

Indeed, it is not merely a matter of setting up a SEZ. Undoubtedly, investors are interested in state-of-the-art infrastructure, but they will also be looking specifically at the cost of doing business in the country. For years, Bangladesh has scored low on the international indices in this regard and those nagging issues need to be worked out by the BEZA. If need be, the government should think of bringing the exercise of issuing permits and licences under one roof at the BEZA, so that a prospective investor doesn't need to run around all over the place to get required permissions. If policymakers are genuinely serious in attracting greater FDI to the country, these changes must be made.

Again, simply putting up a SEZ with requisite infrastructure and even having a "one stop service" will not be enough. When BEZA authorities talk about conducting a survey amongst investors, it ought to have another survey done because foreign company / industry workers will not simply be working all day and browsing the internet during leisure time. The quality of life for them and their families in the areas where these SEZs will be located needs to be complemented with quality education and entertainment sites. There must be good communication between SEZs and major metropolitan cities so that foreign and local officers and employees can visit their loved ones easily and safely on weekends. These are all doable and if done rightly, there is every reason why SEZs will flourish.​

 

[Saif]

Can Bangladesh reduce income inequality by 2030?

In Bangladesh, challenges hindering the achievement of economic equality are: low public expenditure on education, training, health, rural development and social protection.

www.thedailystar.net

Can Bangladesh reduce income inequality by 2030?

Inequality is the overwhelming centralisation of the decision-making process. PHOTO : REUTERS

The first target under Sustainable Development Goal (SDG) #10 reads, "By 2030, progressively achieve and sustain income growth of the bottom 40 percent of the population at a rate higher than the national average." This calls upon all nations to bolster the income of the bottom 40 percent of the population by promoting economic, social and political inclusion of all people, irrespective of their sex, age, physical conditions such as disability, religion, race, class, ethnicity, etc. The achievement of this global target requires creating appropriate and equal opportunities, empowerment of women, and reduction of poverty and inequality. The ongoing work of the interim government's public administration and constitutional reform commissions needs a focus on these aspects so that the future elected government may work to fulfil SDG 10, as Bangladesh has only six years in hand to establish substantial improvements on this global goal.

There are data challenges with regard to having a proper understanding of the income inequality situation in Bangladesh. According to UNDP data, the income share of the bottom 40 percent of the country's population is 11 percent. In sharp contrast, for the top 10 percent, the income share is 43 percent. Based on Household Income and Expenditure Survey (HIES), 2022, the income of the bottom 40 percent population grows at 7.7 percent per annum, while the annual growth rate of income of the total population is 9.1 percent. The HIES 2022 shows that the top 10 percent of households increased their share of wealth to 40.91 percent, around 2.83 percent rise since 2016. The bottom 50 percent of the households had 19.05 percent of the total income in 2022, which came down from 20.23 percent in 2016.

Even though the country achieved progress in poverty reduction, the income Gini coefficient has been on the rise. It increased from 0.458 in 2010 to 0.499 in 2022. During the same period, consumption Gini coefficient increased from 0.321 in 2010 to 0.334 in 2022. The data from surveys over the last two decades clearly shows that income and wealth inequality is growing in Bangladesh. Whether we consider the well-known measure, the Gini coefficient, or an alternative measure like the Palma ratio, and compare the income share of the top 10 percent with the income share of the bottom 40 percent, we get the same result, which demonstrates that inequality is consistently rising in our society.

The constitutional commitment of ensuring social and economic equality among the citizens of the country can sustain without resulting in major social and political unrest. However, there is no reason to assume that income and wealth inequality will come down automatically. The common strategic options that are available to reduce inequality are participatory planning and inclusive development, pro-poor budget formulation and implementation, skills development, progressive taxation of income, adoption of appropriate legislation, scrapping of discriminatory laws, realistic minimum wage fixation, improved governance, effective measures against corruption, containment of inflation, promotion of social protection measures, investment in small and medium enterprises, and greater investment in the social sector.

In Bangladesh, the major challenges hindering the achievement of economic and social equality are: low public expenditure on education, training, health, rural development and social protection; poor direct tax collection and a culture of tax evasion; high level of selection error in social protection schemes; and high percentage (12.6 percent) of female-headed households with limited assets and means of production. The benefits of economic growth in the country have gone to the upper-income groups while the poor remain marginalised. The "pro-poor growth" concept is not being applied properly. Programmes and projects that benefit the poor need to be taken up in a greater number. Micro-credit and SME loans should be increased to help accumulate assets of small entrepreneurs and create additional employment in the formal sector. The high inclusion and exclusion errors in the social protection programmes must be corrected through a bold and one-time correction of the beneficiary list. Irregularities in the banking sector, money laundering, and tax evasion must be curbed with a strong hand. Health and nutritional services must be freed from corruption and mismanagement, so that the vulnerable population gain access to the benefits of these public services.

A vital issue that exacerbates inequality is the overwhelming centralisation of the decision-making process. The politician-bureaucracy nexus is strong, and this keeps people out from participating in the governance process. Unless the attitude of the politicians, bureaucrats and policymakers change towards a more people-centric approach in planning and development as well as local governance, the level of inequality is unlikely to come down in the near future. Additionally, the political parties should be committed to the greater good of the general people instead of continuing the culture of benefiting a select few, and adopt social-democratic norms for economic development with strong emphasis on securing socioeconomic equality in the country.

Dr Nawshad Ahmed, a retired UN official, is an economist and urban planner.​

 

[Saif]

Removing hurdles to investment in SEZs

An economic zone, by definition, is a special designated area within a country's national borders. It is created with its own set of applicable laws to encourage and enhance business and trade investment, and job creation. The primary reason behind setting up such a zone is the desire to attract fo

thefinancialexpress.com.bd

Removing hurdles to investment in SEZs
Atiqul Kabir Tuhin
Published :
Nov 13, 2024 21:29
Updated :
Nov 13, 2024 21:29

An economic zone, by definition, is a special designated area within a country's national borders. It is created with its own set of applicable laws to encourage and enhance business and trade investment, and job creation. The primary reason behind setting up such a zone is the desire to attract foreign direct investment. Free zones have been popular and used for centuries to guarantee free storage and exchange along trade routes.

Modern economic zones, however, developed only in the late 1950s, initially in industrialised nations. Notable early examples include the SEZ at Shannon Airport in Clare, Ireland, and, in the 1970s, zones in Latin America and East Asia focused on labour-intensive manufacturing. China's first SEZ, the Shenzhen Special Economic Zone, was established in 1979 under Deng Xiaoping, attracting multinational investment and accelerating industrialisation in the region. These zones attracted investment from multinational corporations.

Inspired by the economic promise of SEZs, the former Awami League government launched an ambitious plan to establish 100 economic zones on 75,000 acres of land across the country by 2030. The government envisioned these zones would create 10 million jobs and generate USD 40 billion in goods and services. The vision was overly optimistic. To make matters worse, the plan was driven by political interests and corruption rather than economic viability and benefit to the people.

Consequently, despite much talk about establishing 100 economic zones, the deposed government, over a span of 15 years, made visible progress in only a few projects-such as Bangabandhu Shilpanagar in Chittagong, the Japanese Economic Zone in Narayanganj, and the Srihatta Economic Zone in Moulvibazar-while work on the vast majority remains stalled or never began.

One notable example of a misguided and whimsical approval of economic zone can be found in the Netrakona SEZ. Sajjadul Hasan, who served as the private secretary (PS) to Prime Minister Sheikh Hasina from 2015 to 2018, allegedly used his influence to secure government approval for an economic zone in his home district, Netrakona. In 2018, during a visit to Mymensingh, Prime Minister Hasina laid the foundation stone for the Netrakona SEZ, a 1.5 billion taka project. Nine years on, there has been little progress, with officials from the Bangladesh Economic Zones Authority (BEZA) now expressing doubts about its financial viability, citing political pressure as the reason for its initial approval. This is just one example among many. Reports indicate that former ministers, secretaries, and politicians have pushed through around 30 economically unviable economic zones, which has now become an albatross around the government's neck.

Speaking to the media, Ashik Chowdhury, Executive Chairman of the Bangladesh Economic Zones Authority (BEZA), recently stated that the authority will concentrate on a smaller number of government zones to better meet investors' demands. This recalibrated strategy, supported by the new leadership of two investment-promotion agencies-BEZA and the Bangladesh Investment Development Authority (BIDA)-will focus on developing a set of prioritised zones on a fast track with clearly defined timelines. Concentrating on fewer, high-potential zones offers a more sustainable approach to developing SEZs.

Apart from planned development of SEZs, Bangladesh has still a long way to go in increasing ease of doing business to attract a healthy flow of foreign investment. Vietnam's success in attracting foreign direct investment (FDI) stands in stark contrast to Bangladesh's performance. In the first eight months of this year, Vietnam secured $14 billion in FDI, while Bangladesh could not attract even a billion dollars. In Bangladesh, investors face a series of obstacles; chief among them is bureaucratic red tape. For example, in Vietnam, a new company can be up and running in just seven days; but in Bangladesh, the same process could drag on for seven months. The bureaucratic hurdles that plague businesses in Bangladesh must be addressed to create a more investor-friendly environment.

The launch of the One Stop Service (OSS) by BEZA and BIDA to support both local and foreign investors had raised high expectations about Bangladesh's investment climate. However, progress towards achieving these goals has fallen far short of expectations. While some advancements in enhancing its systems and processes has been made, OSS remains far from functioning as a true "one-stop service" for investors. Currently, investors require access to as many as 155 services across 44 institutions for tasks such as company registration, land acquisition, and utility services. Yet BIDA and BEZA can only expedite around 60 services from 23 institutions. For the remaining services, investors must still navigate cumbersome bureaucratic processes in various government offices, as the two regulatory bodies have yet to establish agreements with all service-providing agencies.

Regrettably, in many government offices, bribery remains the only way to move files from one desk to the next. For foreign investors, bribery and corruption presents an even more complex challenge, as they risk accountability in their home countries if found to have engaged in corrupt practices to establish a business abroad. Not only do they face dismissal but aso jail time. Addressing these issues with meaningful reform is critical if Bangladesh is to cultivate a truly welcoming and efficient investment environment.

Another major challenge for foreign investors is the frequency of policy changes in Bangladesh, which disrupt business operations. While policy adjustments can be necessary, in Bangladesh investors often allege that government resorts to policy flip-flop without even holding dialogue with private sector partners, leading to uncertainty and reducing profitability for investors.

According to a survey by the World Bank and Business Initiative Leading Development (BUILD), 83 per cent of businesses felt that new regulations released without prior consultation are a major barrier, while 67 per cent expressed frustration at rarely receiving feedback on whether their input has been considered in policy-making. Intergovernmental agencies also struggle to coordinate effectively, creating inconsistencies and uncertainty that harm investment competitiveness.

It is worth mentioning that foreign investors have long been demanding a consistent tax policy in Bangladesh. However, tax policy in Bangladesh changes almost every fiscal year, further complicating investors' decision-making and affecting business confidence.

So, while the interim government is planning to streamline SEZ projects, it must also address the underlying issues hindering foreign investment in Bangladesh. By implementing regulatory reforms, improving infrastructure, and ensuring political stability, the government can create a more attractive investment climate. Simply inviting foreign investors without addressing these fundamental issues is unlikely to yield any positive results.​

 

[Saif]

Hastening pace of economic recovery

A sense of uncertainty centring Bangladesh's economic situation has been persisting for months. Policymakers and economists alike are now burning midnight oil to craft suitable measures to stabilise and revive a faltering economy. After assuming power, the interim government has initiated several

thefinancialexpress.com.bd

Hastening pace of economic recovery
Mir Mostafizur Rahaman
Published :
Nov 13, 2024 21:26
Updated :
Nov 13, 2024 21:26

A sense of uncertainty centring Bangladesh's economic situation has been persisting for months. Policymakers and economists alike are now burning midnight oil to craft suitable measures to stabilise and revive a faltering economy.

After assuming power, the interim government has initiated several measures, but a significant boost appears to be elusive, and a few underlying issues are still hampering progress. The roots of the crisis lie undoubtedly in the immediate past style of governance, as a decade of cronyism, rampant money laundering, and large-scale bank embezzlement under the previous regime led to a systemic weakening of financial foundations.

Now, Bangladesh faces the urgent challenge of recovery, but achieving it will require more than reactive policy adjustments -- it will require a bold, coordinated strategy.

Economic experts believe it is high time to address fundamental challenges to growth and devise a pathway to sustainable recovery. However, one obstacle remains evident: much of the governmental machinery is caught up in distractions, focusing on trivial concerns rather than making decisive, strategic efforts to address the economy's most pressing needs. Rather than shuffling chairs on the deck, it's time to focus entirely on turning around the ship.

The current economic landscape presents a grim prospect for many in Bangladesh. Inflation has been steadily climbing, with the cost of essential goods rising month by month. This escalation hits the poor and middle class hardest, igniting fears about the future, as shrinking incomes and depleting savings erode their financial security. The plight of these households, whose purchasing power dwindles daily, reflects the larger contraction gripping the national economy. Without a clear, forceful response to inflation, the crisis may continue to deepen, and the gap between the affluent and the vulnerable will only widen.

The pro-people government, as it calls itself, could seize this opportunity to reduce colonial-style bureaucratic practices and allow people, having grass-root experiences to devise policies.

The Bangladesh Bank has attempted to counter inflation by raising policy interest rates. Yet, rather than easing inflation, this measure has stifled investment, which in turn has stymied business activity and eroded employment opportunities. The resulting atmosphere of economic contraction has deterred entrepreneurs and caused businesses to reduce hiring. Without a vibrant investment climate, Bangladesh risks a prolonged period of stagnation, unable to create the jobs needed for a young and growing workforce. Inflation management, though crucial, should not inadvertently crush the aspirations of small and medium enterprises, which are the backbone of the Bangladesh economy.

On a broader scale, the Annual Development Program (ADP) remains a key tool for economic stimulus, yet it has been mired in inefficiencies. The government has rightly trimmed the ADP to exclude politically motivated, non-essential projects inherited from the previous regime. While this streamlining will reduce the long-term debt burden, the pace of implementation has been slow, potentially derailing immediate recovery efforts. Trimming wasteful spending is sensible, but a delay in executing critical infrastructure projects could exacerbate the economy's sluggishness.

Bangladesh cannot afford complacency. The government should embrace a more holistic strategy that balances macroeconomic stability with micro-level interventions. Traditional bureaucratic approaches to combating inflation are simply insufficient; they do not address the root causes, including market syndicates and extortion practices that continue to disrupt fair competition. A more effective strategy might involve a bottom-up approach, engaging local businesses and communities to tackle price hikes through localised, demand-driven solutions.

At this critical juncture, a transformation in governance practices is also warranted. A more transparent, results-driven public sector approach, rather than top-down control, will better align policy with public need and increase accountability in executing development programs. Reconfiguring leadership structures within the government to promote merit over administrative hierarchy can empower those with the necessary expertise and local knowledge to lead recovery efforts.

Bangladesh stands at a crossroads. With inflation persisting and business activity waning, time is running out to implement the far-reaching changes needed to steer the country out of its economic malaise. Deploying the full force of government resources, both financial and human, toward a resilient recovery is not only prudent but essential.​