[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Bangladesh economy to grow 4.1% in FY25: World Bank report

Bangladesh’s economy may grow 4.1 percent in FY25, the WB said in its latest Global Economic Prospects released Thursday

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Bangladesh economy to grow 4.1% in FY25: World Bank report

The World Bank (WB) has kept its forecast for Bangladesh's economic growth almost unchanged for the current fiscal year (FY) 2024-25, citing subdued investment and industrial activity amid heightened political uncertainty.

Bangladesh's economy may grow 4.1 percent in FY25, the WB said in its latest Global Economic Prospects released Thursday.

The growth projection is slightly higher than its October forecast of 4 percent for FY25.

Growth is projected to pick up to 5.4 percent in FY26, assuming broad political stability, successful reforms in the financial sector, an improved business climate, and increased trade, the WB report said.

"Easing inflation is expected to boost private consumption," said the multilateral lender.

The WB's latest forecast is also higher than the 3.8 percent growth projection made by the International Monetary Fund (IMF) in December last year, which cited output losses caused by the July uprising, floods, and tighter policies.

As per the predictions of the two multilateral agencies, Bangladesh's Gross Domestic Product (GDP) growth in FY25 would be the lowest since FY20, when the Covid-19 pandemic wreaked havoc on the globe.

Earlier this month, the Bangladesh Bureau of Statistics (BBS) said GDP growth was 1.81 percent in the July-September quarter of FY25.

The first-quarter growth was the lowest since the second quarter of FY21, when the pandemic continued to cripple the economy.

In the first quarter of FY24, GDP grew 6.04 percent.

The WB said inflation in Bangladesh has remained persistently high, and monetary policy has been tightened further.

The 12-month average inflation in Bangladesh rose to 10.34 percent in 2024, up from 9.48 percent a year earlier.

In 2022, the annual average inflation was 7.7 percent, according to the BBS.

In December, the IMF kept its projection of inflation in Bangladesh elevated for the current fiscal year, ending on June 30, 2025.

The WB said political turmoil in mid-2024 dampened economic activity and worsened investor confidence.

It said growth in FY24 is estimated to have slowed to 5 percent, a downward revision of 0.6 percentage points from previous projections.

"Supply constraints, including energy shortages and import restrictions, weakened industrial activity and led to increased price pressures."

"High inflation reduced the purchasing power of households, slowing services growth."

The WB also cautioned about the risk of social unrest in countries, including Bangladesh, where youth unemployment has risen since the pre-pandemic decade.

It said elevated social unrest could weigh on productivity and investor confidence in South Asia.

"In addition, the incidence of political violence has increased in some countries in the region," it added.

More frequent or more severe weather events could reduce food production, drive up food price inflation, and raise living costs, the WB report added.

The Washington-based multilateral agency said slower-than-projected growth in major trading partners and the resulting weaker demand could dampen activity, particularly in countries with strong economic ties to Europe and the USA, including Bangladesh, Pakistan, and Sri Lanka.

"For example, countries in Europe account for about half of total goods exports in Bangladesh."​

 

[Bilal9]

Indian origin IMF administrators pressuring Bangladesh govt. on behalf of Indian Govt., Bangladesh may cut off relations with IMF.

 

[Saif]

Will protect investments of new entrepreneurs: Yunus

Yunus held a meeting with young entrepreneurs at the state guest house Jamuna where15 male and female entrepreneurs participated

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Will protect investments of new entrepreneurs: Yunus

Photo: UNB

Encouraging the country's young and new entrepreneurs, Chief Adviser Professor Muhammad Yunus today said they want to make sure that new entrepreneurs do not face any problems with their investments and can work safely to significantly contribute to the country's economic growth.

"I learned a lot from your discussions and suggestions today. We want to build poverty-free Bangladesh," he said.

Stating that he got ideas about the future path from today's discussions, he added, "Please stay in touch with us."

Yunus held a meeting with young entrepreneurs at the state guest house Jamuna where15 male and female entrepreneurs participated.

In the meeting with the chief adviser, the entrepreneurs shared the stories of their struggle to become financially independent and sought advice from the CA on various issues relevant to their journey ahead.

Thanking Yunus, the entrepreneurs described how the investment received from the Grameen Telecom Trust, formed in 2010 to promote social business, helped the entrepreneurs to become financially independent from zero.

Most of the entrepreneurs who participated in the meeting are doing business with investments from the Grameen Telecom Trust and Grameen Trust, according to the CA's press wing.

Some of them have received investments for the sixth and fifth time.

Yunus was excited to hear the stories of the entrepreneurs' struggles and wanted to know what further steps could be taken for the entrepreneurs.

At the meeting, the entrepreneurs suggested increasing the publicity of the Grameen Telecom Trust and Grameen Trust's programmes for young entrepreneurs to promote social business.

They said most people do not know about these initiatives and many poor people will benefit if the publicity is increased.

They also urged Yunus to provide appropriate training to entrepreneurs in addition to investing in them.

The entrepreneurs said many cannot grow their businesses due to lack of skills.

If appropriate workshops can be organised, more skilled and successful entrepreneurs will be developed in each district, they said.

Principal Coordinator for SDGs Affairs Lamiya Morshed, Managing Director of Grameen Trust Tasmina Rahman and Managing Director and CEO of Grameen Telecom Trust Ashraful Hasan were, among others, present.​

 

[Saif]

Snapshots of Bangladesh’s major export challenges

Bangladesh’s economy is significantly dependent on its export earnings. The export sector has faced several challenges under the interim government.

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Snapshots of Bangladesh’s major export challenges

Bangladesh's economy is significantly dependent on its export earnings. The export sector has faced several challenges under the interim government. Business insiders opine that the recent political upheaval has created an uncertain environment for businesses. The interim government's efforts to restore stability are becoming visible, but the situation has led many international buyers in the garment sector to reconsider placing orders in Bangladesh, anticipating potential disruptions.

The garment sector accounts for over 80 percent of Bangladesh's export earnings and has experienced significant obstacles due to worker protests demanding higher wages and better working conditions. These protests have led to the closure of many medium-scale factories as well as production delays, causing concerns among international buyers about the continuity of Bangladeshi suppliers.

Rising temperatures due to climate change have increased heat stress among garment factory workers, potentially affecting productivity, lead times, and timely shipments. Global brands are legally required to address these conditions in their suppliers' factories under new EU regulations, exerting pressure on Bangladeshi exporters to improve working conditions.

In July 2024, discrepancies were identified between export figures reported by the Export Promotion Bureau (EPB) and the National Board of Revenue (NBR). The EPB acknowledged a $3.16 billion mismatch in export data for the July-September period of the previous fiscal year, causing a temporary suspension of regular export data publication. This has confused stakeholders and may affect trade decisions in the future.

The government reduced export incentives across various sectors in July 2024, aiming to encourage exporters to raise competitiveness ahead of the country's graduation from the least developed country (LDC) status in 2026. Business leaders have expressed concerns that curtailing incentives could adversely impact industries already struggling with increased production costs and global competition.

The snowball effect of political turmoil, labour unrest, and reduced incentives has strained the economy. The interim government is seeking international assistance to rebuild the economy, but challenges persist in restoring investors' confidence and ensuring sustainable growth.

To address the major export challenges, the interim government has adopted the following strategies:

* Restoring law and order, which is crucial to regain the confidence of international buyers. The interim government has been working on industrial security and anti-corruption reforms to achieve this.

* Improving working conditions and ensuring fair wages in the garment sector, which are vitally important. The government is reviewing the wage structure and addressing legal concerns for workers to prevent further unrest.

* Reducing logistics costs, which can significantly boost exports. Implementing the National Logistics Policy 2024 aims to lower business costs, enhance competitiveness, and integrate Bangladesh into the global value chain.

* Curtailing dependency on the garment sector by supporting other industries such as leather, agriculture, and electronics. Inconsistent policies have been barriers to export diversification, and addressing these can open new markets. The government is putting efforts into reducing inconsistency.

* While the government has set an ambitious export target of $110 billion by 2027, economists and business leaders are pessimistic about its feasibility due to persisting challenges. Setting achievable goals can help in better planning and execution. The interim government is reassessing previously set export targets to establish more realistic and achievable goals, considering recent data discrepancies and global economic trends.

* Investing in infrastructure, such as ports and transportation networks, which can improve efficiency and reduce costs, making Bangladeshi exports more competitive. The National Logistics Policy 2024 also emphasises infrastructure development.

* Implementing the Export Policy 2024-27, which would help increase annual export earnings to $110 billion by 2027, focusing on product diversification, infrastructure development, and market expansion.

* Strengthening diplomatic and trade ties, particularly with key partners like the US and the EU. The interim government is engaging in dialogues to foster these relationships, aiming to improve market access and trade conditions.

* Stabilising the labour market, especially in the garment sector. The government is working to resolve disputes and improve working conditions to ensure uninterrupted production and maintain buyer confidence.

* Efforts are underway to rectify data collection processes to provide accurate export statistics, which are essential for informed policymaking and maintaining credibility.

* Promoting the inclusion of new products in the export basket, such as handicrafts, vegetables, and light engineering, to reduce dependency on traditional export sectors and tap into unexplored markets.

* Developing logistics, ports, and transportation networks, which is important to enhance export efficiency and reduce costs, thereby increasing competitiveness in the global market.

Lastly, a stable political environment is essential to attract foreign investment and reassure international buyers of Bangladesh's reliability as a global trading partner.

Dr Nasim Ahmed is additional secretary at the Ministry of Home Affairs.​

 

[Saif]

Can IMF prescriptions salvage our economy?

There seems to be much confusion among the citizenry regarding how our economy is being managed, and challenges are addressed.

www.thedailystar.net

Can IMF prescriptions salvage our economy?

There seems to be much confusion among the citizenry regarding how our economy is being managed, and challenges are addressed. There is a popular belief that it is none other than the International Monetary Fund (IMF) behind raising interest rates to combat inflation, pushing for raising taxes and now especially VAT to manage the government's earnings gap, and some say this may also be applicable for continuous depreciation of the taka against the greenback. The principal reason for these tightening or regressive decisions is -- increasing the government's ability to pay for their increased local and foreign payment obligations.

The government's debt escalated by 13.3 percent in the last fiscal year, attaining a concerning Tk 18.3 lakh crore due to a consistently fragile income footing. Upon the inauguration of the preceding administration in 2009, the national debt was $33.66 billion. By its departure in August 2024, the debt had surged to $156 billion. Although the current debt-to-GDP ratio of 36.3 percent is within the IMF's acceptable threshold, this statistic becomes concerning compared to the nation's lacklustre revenue generation and diminishing dollar reserves.

The acute cash shortage is a critical issue affecting domestic and international transactions. On one hand, income collection is exceedingly low; on the other hand, interest payments are escalating significantly.

The recently released white paper on the economy forecasts that by June 2025, the debt-to-GDP ratio may escalate to 41.3 percent, heightening the dangers of fiscal instability. Interest payments alone surged by 21 percent last year, totalling Tk 1.1 lakh crore -- representing one-sixth of the national budget. This substantial expenditure on debt payments has constricted the fiscal capacity, allowing minimal opportunity to support growth-focused initiatives. As inflation elevates interest rates on government bills and bonds, the fiscal constraint may intensify in the forthcoming years.

Bangladesh's foreign debt per capita has more than doubled in the past eight years, a worrying sign of the country's reliance on external borrowing. The government is now compelled to take out further loans to settle foreign debt and keep importing necessities like energy and fertiliser. Sustainable debt management requires fundamental adjustments, particularly in revenue yield. However, recent efforts to increase VAT and other taxes on almost 100 items and services could backfire, driving up inflation and raising prices for average people.

Addressing long-term tax evasion and greatly expanding the tax base are superior strategies. The government has been using indirect taxation, which unfairly burdens the poor more than the rich, for many years. This strategy deepens economic inequality and disadvantages the most vulnerable.

Bangladesh urgently needs a progressive taxation structure that reconciles equality with fiscal necessities. Enacting progressive revenue policies prioritises augmentation of direct taxes, maintains adherence to regulations, and curtails tax evasion. This will allow the government to address its escalating debt without further taxing the strained middle and lower classes. A comprehensive public financial management reform is necessary to reestablish budgetary discipline, optimise expenditures, and prioritise investments that yield long-term prosperity.

The country faces a pivotal decision: adhere to short-term solutions that exacerbate inequality or adopt enduring reforms that foster stability and advancement.

We need massive readjustment within our revenue architecture or public financial management model. A proven development partner like the IMF should be helping us there with all necessary tools and capacity building and refrain our government from taking any temporary or one-off regressive path to make the already suffering common person on the street in a widening income inequality and poverty-stricken country like Bangladesh.

The writer is the chairman of Financial Excellence Ltd​

 

[Saif]

Bangladesh economy in transition

Like the body politic, Bangladesh economy is in transition at present. Both macroeconomic management by the government and microeconomic performance by the market are facing headwinds. While policy making in the first instance is within the bailiwick of the government, the latter is embodied by dec

thefinancialexpress.com.bd

Bangladesh economy in transition
Hasnat Abdul Hye
Published :
Jan 18, 2025 21:55
Updated :
Jan 18, 2025 21:56

Like the body politic, Bangladesh economy is in transition at present. Both macroeconomic management by the government and microeconomic performance by the market are facing headwinds. While policy making in the first instance is within the bailiwick of the government, the latter is embodied by decisions of millions of producers, suppliers and consumers mediated by regulatory framework of the government. The disconnect between the two yawned wide during the past autocratic regime as crony capitalism and kleptocracy-dominated policy making at macro level. As a result fiscal gap ( the difference between public expenditures and public revenue) has widened, making bank borrowing chronic while fast depletion of foreign exchange reserves has hung like Damocles' sword, threatening default in repayment of foreign loans. Remittance by wage earners and steady export earnings, particularly by the readymade garment sector, kept the foreign exchange crisis at bay, albeit precariously. But the pressure on foreign exchange has led to depreciation in the value of taka, which in turn has fed into inflationary pressure already made stubborn by supply chain problems and high global prices of export items.

The interim government has inherited both the problems of fiscal deficit and dwindling foreign exchange reserves spawned in the reckless and self-serving policy regime of the ousted government. While the problem of inadequate resource mobilisation in the fiscal arena has been sustained by an inefficient and venal tax collecting machinery, burgeoning volume of 'sick' loan of commercial banks has been the handiwork of predators patronised by political mentors, making both fiscal and monetary policy anaemic and lacklustre. To have an idea of the macroeconomic problem facing the interim government in concrete terms, certain figures can be mentioned. To finance the budget for fiscal 2025, a target of Tk 4,700 billion was estimated to be collected as tax and VAT by the National Board of Revenue (NBR). During the first five months of the present fiscal, a total of Tk 1,207 billion was collected by NBR, which is less than Tk 423 billion less than the target for the period. Foreign aid as loan for budgetary support (revenue) was estimated to be Tk 1.70 billion against which T 0.60 billion have been received so far. During last fiscal, repayment of loan (Tk 1.71 billion) amounted to more than the foreign exchange received ( Tk 1.54 billion) as loan from donors and lenders. The prospect does not seem to be brighter during this fiscal. For the development component of the budget (ADP), commitments for Tk 0.52 billion have been received from donors and lending agencies so far, which is one-tenth of the amount committed for the same period last year. The 'foreign exchange gap' has been manageable until now because of uptick in both remittances sent by wage earners and export earnings in recent months. The present reserve of US$20 billion (according to BPM of IMF) is just enough to pay for four month's import bill to ACU ( Asian Clearing Union). While the economy ( the country) has managed to scrape together to defray foreign expenditures, the fiscal deficit has been not only persistent , but has panned out. The only recourse open to the government is to fall back on bank borrowing. But the double digit inflation stubbornly prevailing for nearly a year has precluded that option.

The diagnosis of the malaise with which the economy is afflicted is the easy part. What is difficult is to formulate the prescription that will restore workable health to the ailing economy. It is one of the irony of macroeconomics that proper diagnosis may indicate what medicines should be prescribed and administered, but the side effects may be such that course of treatment becomes unpalatable for both the producers and consumers. The interim government, in its wisdom, has opted for biting the bullet i.e. austerity in the form of increase in indirect taxes which makes it possible to collect revenue immediately. But being indirect it is regressive in nature, increasing the tax burden of middle and lower income earners. The brunt of Tk 120 billion is expected to be earned through recent increase (January 9, 2025) of VAT and supplementary duties is to borne by the income groups mentioned above. On the supply side, the increases in VAT are likely to impact production of goods and services, as can be concluded from reactions of private sectors.

It is obvious that government has plumped for increase in indirect taxes to reduce fiscal deficit in the near term to qualify for the disbursement of the fourth tranche of $4.7 billion of IMF loan. But the government could be more discerning in selecting the items for increase in the rates of taxes, keeping their incidence on the lower income groups and producers in view. For instance, additional tax on LP gas, lubricant and transformer oil is likely to have adverse impact on producers in the first place and increase prices at retail level as secondary effect. Increasing VAT and supplementary tax on these and other intermediate goods from the present 5 per cent to 15 per cent may be counterproductive from the perspective of equity and productivity. On either count, the impact on price level cannot but be adverse. NBR could be little more circumspect in selecting the items for increase in tax rates.

If the announcement of increase in VAT and supplementary tax has been done surreptitiously and all on a sudden, the finance advisor has given advance notice about reduction of subsidy on water, gas and electricity soon. There is no surprise in this as subsidy is a favourite whipping horse of IMF and World Bank, notwithstanding the fact that it is in practice in America and Europe for many years. But the present government has to be aware of the fact that being an unelected one, it does not have the mandate to dismantle the entire structure of subsidy that has been put in place by successive elected governments. At the most, some tinkering can be made in the volume of subsidy targeted for specific groups on the basis of their income levels.

An area where ample scope exists for curtailing allocation of funds under the budget is the ADP. The overall implementation of projects under ADP during the first half of the present fiscal is only 12 per cent, the lowest during the last five years. Given this abysmally low rate of utilisation about 50 per cent of fund allocated for ADP can be hived off in keeping with the trend rate of utilisation.

There is no denying the fact that in times of fiscal crisis some degree of austerity is inevitable. But the burden of austerity measures should be borne equally by both the private and public sectors. In times of fiscal crisis like the present one, any increase in salary and allowances of public sector personnel should be kept on hold. The granting of dearness allowance to government officials, proposed across the board, does not satisfy this condition. There are many other items of public expenditures that can be curtailed in an economy drive. The scope of this curtailment is given by the size of public expenditures which is Tk 5,060 billion out of the total of Tk 7,970 billion in the present budget. Though many commissions on reforms have been formed by the present government, reform and rationalisation of public expenditures is conspicuous by its absence.

During the present transition it is the monetary policy that has been on the right track. Keeping the paramount importance of containing inflation, a tight money policy has been put in place. The policy rate was raised immediately after the new governor of Bangladesh Bank took over charge. There is indication that it is going to be raised again as both headline and core inflation has increased recently. But the anti-inflationary measure of monetary policy can work only if fiscal policy does not undermine it, either through profligate spending or increasing taxes regressively. As seen in the latest decision to increase tax on as many as one hundred items, the two policies are on collision course. The government has to decide which is of greater importance, bringing down price level or austerity measures that exacerbate inflationary pressure?​

 

[Saif]

Bangladesh receives $1.21b in remittance in 18 days

Expatriate Bangladeshis sent over US$1.21 billion in remittance during the first 18 days of January in the 2024-25 fiscal year...

www.newagebd.net

Bangladesh receives $1.21b in remittance in 18 days
Bangladesh Sangbad Sangstha . Dhaka 19 January, 2025, 23:13

New Age file photo

Expatriate Bangladeshis sent over US$1.21 billion in remittance during the first 18 days of January in the 2024-25 fiscal year.

Of this, remittances through state-owned and specialised banks accounted for $309.85 million, while private banks received $893.31 million, according to Bangladesh Bank (BB) data released today.

Six state--owned commercial banks - Agrani, Janata, Rupali, Sonali, Basic and BDBL - received $258.87 million while one state-owned specialized bank- Bangladesh Krishi Bank- received $50.98 million.

Of the state-owned banks, Agrani Bank received $66.79 million, Janata Bank $60.43 million, Rupali Bank $56.95 million, Sonali Bank $74.64 million and Basic Bank received $0.06 million.

The highest $177.37 million in remittance came to the country through Islami Bank Bangladesh Ltd.​

 

[Saif]

We want to know the government's economic plan

There are easy and difficult paths to increasing revenue. The easy path is to raise import duties or value-added tax (VAT). The difficult path is income tax collection. The interim government chose the easy path. However, the question arises: why did the government need to raise VAT and...

en.prothomalo.com

We want to know the government's economic plan
The government inherited a fragile economy, and fixing it overnight is not easy. However, it is essential to understand what the government is doing to steer the economy in the right direction and what its priorities are.
Shawkat Hossain
Updated: 19 Jan 2025, 15: 37

There are easy and difficult paths to increasing revenue. The easy path is to raise import duties or value-added tax (VAT). The difficult path is income tax collection. The interim government chose the easy path. However, the question arises: why did the government need to raise VAT and supplementary duties on more than a hundred products halfway through the fiscal year? Why did the government opt for the easy path? Were there alternatives?

Before answering these two questions, let’s recall some key events in Bangladesh’s economic history. For instance, on 16 April 1975, the then Awami League government declared the 100-taka note obsolete. A month later, on 17 May, the exchange rate of the taka against the British pound was drastically changed. The value of one pound, which was Tk 18.16, was increased to Tk 30, a devaluation of 58 per cent.

In 1975, Ziaur Rahman came to power, and as the acting economic adviser to the finance ministry, he increased the prices of fertilizer in the budget of 1976-77 fiscal year as part of reducing subsidies in agriculture, and also imposed tax in the agriculture.

In the 2005-06 fiscal year, the then finance minister M Saifur Rahman made significant changes to the tax structure just over a month and a half after the budget was passed. He reduced the import duty on 3,352 products by 1.5 to 2 per cent. Such changes without the budget were a rare incident.

Between 2012 and 2015, the then Awami League government raised fuel prices five times, electricity prices eight times, and water prices five times.

In recent years, a major economic crisis began in 2022 with the onset of the Ukraine war. The dollar price surged, and inflation pressures increased. In this context, on 5 August 2022, the government raised fuel prices by up to 51 per cent. That was the first government step inviting the high inflation. The pressure from inflation has persisted since then.

The latest development occurred on 9 January, when the government issued an ordinance raising VAT and supplementary duties on over a hundred products.

Where is the connection between these events

Now, the question arises: Is there a connection between these events? Let’s explore. After Tajuddin Ahmad’s resignation in 1974, Dr. Azizur Rahman Mallik became the finance minister of the Awami League government. His two main decisions were related to fulfilling the conditions of the International Monetary Fund (IMF) loan.

Bangladesh first received an IMF loan on 14 June 1974, and the second loan on 28 July 1975. According to a World Bank report published on 22 March 1976, titled "Bangladesh: Current Economic Performance and Short-Term Prospects," the 58 per cent devaluation of the taka in May 1975 was part of the economic reforms under the IMF’s loan programme.

In 1975, Ziaur Rahman took power, and the World Bank's report stated that the new government continued the IMF programme, committing to reduce subsidies, impose taxes on agriculture, and liberalise imports. It turned out that these conditions were consistently fulfilled.

In 2005, the massive reduction in import duties was a condition for obtaining a $300 million development support credit (DSC) loan from the World Bank. The Vice President of the World Bank’s South Asia region, Prof. Praful C. Patel, met with finance minister Saifur Rahman on 21 July of that year to discuss reducing duties in exchange for the loan.

After the Awami League came to power in 2009, finance minister Abul Maal Abdul Muhith sought a loan from the IMF in 2010. Between 2012 and 2015, the then Awami League government raised fuel prices five times, electricity prices eight times, and water prices five times. It is true that the interim government inherited the IMF loans and their conditions. Moreover, the government has sought an additional $1 billion or 100 crore from the IMF. Because if the economic situation does not improve, inflation pressure does not decrease, and employment and income do not increase, then people will have little interest in reforms.

After the Awami League came to power in 2009, finance minister Abul Maal Abdul Muhith sought a loan from the IMF, which was granted in 11 April 2012. As part of this loan agreement, fuel, water, and gas prices were regularly raised.

Even though global oil prices dropped from $110 per barrel in 2013 to $27 per barrel within two years, the government did not lower fuel prices, as it did not prioritize easing the burden on ordinary people.

Overall, Bangladesh has taken 12 loans from the IMF, fulfilling numerous conditions, yet no finance minister or government has ever publicly acknowledged this. Even budget speeches make no mention of it.

The story of VAT begins in 2012

After the Russia-Ukraine war began, then finance minister AHM Mustafa Kamal wrote to the IMF on 24 July 2022, requesting a loan. Subsequently, fuel prices were increased by up to 51 per cent on 5 August of that year, followed by a 5 per cent increase in water prices. In November 2022, the IMF gave its initial approval for the loan, and the final decision was made on 30 June the following year. One of the conditions of this loan was to pass and implement new VAT and supplementary duty laws.

As part of fulfilling this condition, the new VAT law was passed in parliament on 27 November 2012, but it was delayed due to pressure from businesspeople. When the IMF delayed releasing funds, the government promised to implement the law on 1 July 2015, after the 2014 elections. After this promise, the final two installments of the IMF loan were released.

The law came into effect in 2019, after the 2018 national elections.

Although the new VAT law was implemented, many provisions of the original law were dropped to appease various stakeholders. The original VAT rate was set at 15 per cent, but the new law broke this into eight rates. Bangladesh Bank's current governor, Ahsan H Mansur, at the time, described the new law as "old wine in a new bottle." The law did not significantly contribute to increasing the country’s revenue.

Increasing revenue through the easy path

To secure IMF loans, the interim government revised the VAT law once again. On 9 January, the government raised duties and taxes on more than a hundred products. During this time, the single VAT rate for various goods and services was also reinstated according to the price law.

It is true that the interim government inherited the IMF loans and their conditions. Moreover, the government has sought an additional $1 billion or 100 crore from the IMF. In December, an IMF team visited Bangladesh and recommended increasing revenue by 0.6 per cent of GDP. As part of this, taxes and duties on over a hundred products were raised.

However, the government has not yet acknowledged the IMF’s conditions. Even policymakers claim that these changes will not negatively impact the market, although the reality may be different.

For 54 years, Bangladesh has had one of the lowest tax-to-GDP ratios in the world. Therefore, increasing revenue is crucial. At one time, import duties were a major source of revenue; now VAT has taken that place. VAT is an indirect tax, and the burden falls on consumers.

The ideal way to increase revenue would be through direct taxes or income tax. This is where Bangladesh faces a challenge. The government cannot collect income taxes from the powerful and wealthy, so it chooses the easy path of collecting indirect taxes. The interim government followed the same path.

What is the government’s economic plan?

The government inherited a fragile economy, and fixing it overnight is not easy. However, it is essential to understand what the government is doing to steer the economy in the right direction and what its priorities are.

It is true that in the past five months, the government has made several positive decisions regarding the economy. However, if people and investors do not trust the government’s actions, inflation will never decrease, and investment will not increase. It is clear that, with high inflation on one side and VAT increases on the other, it will be difficult to regain people’s trust through this path.

The interim government took office on 8 August, just one month and seven days after the current fiscal year began. So, the government has nearly the entire fiscal year to implement the budget. However, given the state of the economy the government inherited, implementing this budget will be a difficult task. Therefore, many expected the finance ministry to provide an economic review at least by the end of December, updating the public on the budget implementation.

Economist Debapriya Bhattacharya, head of the White Paper Drafting Committee, also recommended a mid-term review of the economy. This would have allowed the public to understand the current economic situation, the measures taken, their impact, and what needs to be done in the remaining months of the fiscal year.

The main allegation of the previous authoritarian government was its poor economic management and ad-hoc handling of the economy. There was no structured consultation or discussion with economists and experts. It was hoped that the current government would at least form a consultation group with experts and investors to address economic issues, especially since those who criticized these matters during the previous government are now in charge.

Therefore, whether raising VAT is the right way to increase revenue or there are other ways, where the funds for high allowances will come from, whether VAT increases can be delayed through negotiation with the IMF, what the interest rate policy should be, and how the government plans to rehabilitate those losing employment—discussions on these matters would have increased the transparency of the government’s work. People would also have understood the government’s goals. We all know that transparency has a deep relationship with trust.

Discussions are underway regarding the outlines of elections or reforms. In the current situation, it is equally important to know the economic roadmap. At least the government’s economic plan until June should be known. Because if the economic situation does not improve, inflation pressure does not decrease, and employment and income do not increase, then people will have little interest in reforms.

*Shawkat Hossain, Head of Online, Prothom Alo

**This column appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Rabiul Islam​