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[🇧🇩] Monitoring Bangladesh's Economy

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[🇧🇩] Monitoring Bangladesh's Economy
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A six-month progress report on the govt's economic record

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VISUAL: SIFAT AFRIN SHAMS

The interim government (IG) headed by Dr Yunus is already facing some headwinds as it prepares to celebrate the first six months of its term on February 8. It has been fighting tooth and nail to contain inflation, solve the banking crisis, and reduce the budget gap. While the successes of the IG in these three areas are slow to come, social and print media have also highlighted some of the IG's economic and administrative setbacks. However, one also has to weigh the hurdles that the IG had to face and overcome. The transition of power was hardly smooth. Compared to other countries where autocratic regimes were recently deposed and the economies bounced back, particularly the Intifada in Syria or "Aragalaya" ("people's struggle") in Sri Lanka, Bangladesh is not doing too poorly.

The looming parliamentary election in Bangladesh is casting a long shadow over the country's political economy and on every move of the IG. Electioneering has already made an impact on the programmes launched by the interim government. Political parties are jockeying for power and publicly announcing that they can do better than the IG. Members of the various committees convened by the IG are also now openly pushing for their own points of view.

If it provides any solace to the IG, even a very popularly elected new administration often faces critics who are not gun-shy. Take the case of the US. On January 23, only three days after Trump's inauguration as the president, The New York Times ran an op-ed, "Trump Is Already Making America Weaker and More Vulnerable." The well-regarded columnist Nicholas Kristof, wrote that Trump's executive orders on the first day to allow TikTok to operate, withdraw from the Paris Agreement and the World Health Organisation, and tighten border security have put the lives of Americans at risk. It is well-known that the media "experts" are often prone to hyperbole, and you can never win them all.

Fortunately, nobody, not even diehard Awami League supporters, can proclaim publicly that the IG has made Bangladesh weaker. The IG has managed to contain dengue fever, is trying hard to manage inflation, and is making our borders secure. So, where is all the criticism targeting the IG coming from? I will only focus here today on a few of its economic vulnerabilities.

As mentioned, curbing inflation and raising revenue are two of the IG's toughest challenges. If the only goal was to curb inflation, the IG could use all the levers of monetary and fiscal policies, including higher interest rates, raising taxes, and curtailing government expenditures. It has done all of these. However, these steps are not popular and might conflict with the other goals—raising revenue, boosting investment, repairing the physical infrastructure, and providing social services.

The interim government recently raised VAT on several essential items. Being an indirect form of taxation, raising VAT will adversely affect the average consumer, and might trigger further inflation. Whether the increase was made in response to pressures from the International Monetary Fund (IMF) or as a short-term measure to close the shortage in its revenue collection, the IG needs to focus on tightening income and corporate tax loopholes.

The Daily Star published an editorial on January 20, "What was the point of a white paper on economy?" and advised the IG to take immediate actions based on the panel's recommendations. The editorial aptly reflects the views of many scholars and some concerned citizens. However, after a careful review of the white paper, I found that most of the recommendations are not specific enough and require vetting before the IG can take policy actions based on them. Some measures taken by the IG after it assumed power have already shown some results, including banking reforms, foreign exchange control, and providing support to the victims of the July uprising.

It is possible that the IG only has one more year before it becomes a "lame-duck" administration once elections are announced. After that, the complex political dynamics and the mood of the stakeholders will change. The legitimacy of the IG is already being questioned, and its actions may face more pushback. One has to wonder how much can be achieved in terms of reforms and economic growth in such a fraught environment.

The budget for FY2025-26 will be challenging. The previous government's imprint on the current budget is evident. It left a legacy of corruption and give-outs thanks to the megaprojects, and the lion's share of next year's budget will go to debt servicing. Balancing the development budget and providing a friendly investment climate will also require a lot of creativity from the finance adviser.

Higher interest rates, energy crises, and law enforcement issues have also raised uncertainty in supply chains. Business leaders of the country have called upon the IG to engage in more frequent dialogues and work closely with entrepreneurs and industrialists to foster a business-friendly environment. Finance Adviser Salehuddin Ahmed acknowledged this in a recent gathering organised by the American Chamber of Commerce in Bangladesh (AmCham). "We have to create a business-friendly foreign exchange market, credit flow, regulatory regime, and revenue customs tax," he said.

The white paper has made a set of recommendations to stabilise the economy. The country needs institutional reforms in the banking, energy, and the financial sector, as we all agree. The white paper recommends raising the tax rate on higher-income individuals and the corporate sector. Domestic resource mobilisation has been lagging and raising direct taxes is a recommended pathway. According to various sources, the National Board of Revenue is currently working on this. It has also taken steps to digitalise the tax filing system. Recently the chief adviser announced, "We are gradually preparing to collect all types of taxes online," and provided plans to make tax compliance more accessible for everyone.

Bangladesh Bank governor recently said the IG has set a target to reduce inflation to seven percent by the end of June and eventually below five percent in the next fiscal year. Unfortunately, the public may not see the benefits right away. Every month the BB has to assess data in real time. To quote Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, US, "It's hard to know for sure how things are going to evolve on a week-to-week or month-to-month basis." The US Fed has the world's best tools to gauge inflation, and tons of staff pouring over data and using some of the coolest models. So, the impact of the policies to curtail inflation in Bangladesh may take a little longer to manifest itself, and the impact may be felt probably after Ramadan.

There has been some progress initiated by the banking sector reform task force. To shore up the failing banks, asset quality review is in progress, and BB has hired auditors including some of the Big Four accounting firms.

The biggest challenge the IG will have to handle in the coming weeks is the election schedule. On January 24 at a World Economic Forum meeting, the chief adviser said that the government is waiting to hold elections, but the people have to decide whether they want a short-agenda or a longer-agenda in terms of reform. "If people want quick reforms, then we have set a target to hold elections by the end of this year. And if they say, no—we need long-term reforms; then we will need another six months," he said.

Dr Abdullah Shibli is an economist and works for Change Healthcare, Inc, an information technology company. He also serves as senior research fellow at the US-based International Sustainable Development Institute (ISDI).​
 

Bangladesh receives $15.96b in 7 months, a growth of 23.6pc
Expatriates sent $2.18b in remittances in January
UNB
Published :
Feb 02, 2025 21:54
Updated :
Feb 02, 2025 21:54

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Bangladesh received US $2.18 billion inward remittance in January by legal channel, a growth of 3.4 percent year-on-year.

A review of the Central Bank’s data showed that expatriates sent $15.96 billion remittances so far in 7 months from July to January of the current fiscal year 2024-25. In the same period of the previous fiscal year 2023-24, the expatriates sent $12.91 billion inward remittance. This means the flow of inward remittance grew by 23.6 percent in the FY2024-25.

The expatriates sent $70.49 million as remittance on average on each day of January 2025. In the last seven months, the country received $2.28 billion as remittances in each month from July to January.

Bangladesh received $1.91 billion as a remittance in July, $2.22 billion in August, $2.4 billion in September, $2.39 billion in October, $2.19 billion in November, and $2.64 billion in December, according to the central bank data.

Hosne Ara Shikha, Executive Director and Spokesperson of the central bank told UNB that the expatriates get instant incentives for sending remittances in the legal channel. So, the flow of inward remittance saw a growth in the legal format.

Besides, after the political changeover, the governor has taken strict measures to stop money laundering, which increased the trust among the remitters to send their hard-earned earnings to the country, she opined.

Sonali Bank received $179.26 million in remittances in January, the highest among the state-owned banks, while Islami Bank Bangladesh PLC received $282.26 million in the same month.

However, not a single penny of remittances came into 8 banks during the period. These are the public sector Bangladesh Development Bank (BDBL), and the specialised Rajshahi Krishi Unnayan Bank. Private banks include Community Bank, ICB Islami Bank, and Padma Bank. Foreign banks include Habib Bank, the National Bank of Pakistan and the State Bank of India.​
 

Trade policy: a strategic input in Bangladesh development
Zaidi Sattar and Samah Majid
Published :
Feb 04, 2025 00:11
Updated :
Feb 04, 2025 00:11

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Among the constituent macroeconomic policies, trade policy in Bangladesh typically draws the least attention, until it does. Since 2022, though the focus has been largely on trade and current account deficits and the financial account of the balance of payments (BOP), researchers on trade policy have drawn attention to the mismanagement of exchange rate and the high protective tariffs as among the sources of macroeconomic instability. The link between trade policy and Bangladesh development in the short-, medium-, and long-term is unambiguous.

Trade has been a handmaiden of Bangladesh development. After two decades of prevarication, in the 1990s policymakers in Bangladesh switched gear and changed trade policy stance, drawing from the new development paradigm - growth driven by exports.

The new trade orientation soon became the driver of rapid growth and job creation. Over the past few decades, Bangladesh has emerged as a success story of development, propelled by a thriving manufacturing sector, rapid urbanisation, and notable progress in human development indicators. Now, as we all know, this progress came at the expense of deep governance failures, institutionalised corruption, and rising inequalities, that will undermine future progress unless the root causes of this malaise are addressed swiftly and radically. Having entered the Lower Middle-Income Country (LMIC) group in 2015, Bangladesh faces an evolving global trade dynamics amid geopolitical fragmentation, deglobalisation, and rising protectionism. These present both challenges and opportunities in this evolving global phenomenon.

With the impending graduation from Least Developed Country (LDC) status, trade policy has become more crucial than ever. Historically a pillar of economic growth and poverty reduction, trade policy must now be reimagined to navigate the loss of preferential market access and sustain Bangladesh's growth trajectory. This necessitates a strategic and adaptive approach to maintain competitiveness and strengthen the nation's position in global trade.

HISTORICAL CONTEXT AND EVOLUTION: Since its independence in 1971, Bangladesh's trade policy has undergone transformative shifts. Historically, trade strategies have generally followed two paradigms: inward-looking import substitution (IS) and outward-looking export orientation.

Post-independence, Bangladesh's priority agenda centred on addressing widespread poverty and fuelling economic recovery, primarily through domestic-oriented policies backed by donor assistance. With zero foreign exchange reserves and the urgent need to import essential goods, high tariffs and import controls were implemented to conserve foreign exchange and prioritise the domestic market. However, while these measures provided short-term relief, they ultimately constrained economic growth and hindered long-term competitiveness.

The 1990s marked a significant turning point in Bangladesh's trade policy. Bangladesh adopted radical structural adjustments with technical support from the World Bank and International Monetary Fund (IMF), ushering in sharp tariff reductions, extensive import liberalisation, and a shift from fixed to flexible exchange rates, along with limited current account convertibility and elimination of the license raj. These reforms, coupled with market orientation and investment deregulation, not only restored macroeconomic stability but also laid the foundation for an export-led growth strategy.

This policy shift spurred rapid industrial expansion, job creation, and poverty reduction, earning Bangladesh recognition as one of the "globalisers" among developing nations propelling significant gains in income growth and poverty alleviation.

A key success story of this outward-oriented approach was the rise of the ready-made garments (RMG) sector. Benefiting from duty-free input schemes and access to global markets, the RMG industry became the backbone of Bangladesh's economy, growing from just 3.9 per cent of total exports in 1983-84 to 75 per cent by 1999-2000 (BGMEA 2019). This sector not only generated substantial foreign exchange but also created millions of jobs, particularly for women, driving significant inclusive growth. By successfully integrating into global value chains (GVCs), Bangladesh emerged as a key player in the international textile and apparel market, eventually becoming second largest exporter of apparel after China.

It was the trade liberalisation and market-oriented reforms of the 1990s that laid the foundation for sustained economic dynamism, positioning Bangladesh as a vibrant and competitive economy on the global stage.

CURRENT STATE OF TRADE POLICY: International trade has been a key driver of Bangladesh's remarkable economic transformation over the past three decades. Alongside industrial growth, trade has played a pivotal role in shaping the country's development trajectory. The contribution of industry to GDP has surged from under 10 per cent in 1972 to 37 per cent today, with Bangladesh yet to enter the de-industrialisation phase. International trade volumes have skyrocketed, reaching $130 billion in 2022, up from just $6 billion in 1990.

The trade liberalisation reforms of the 1990s, though not fully comprehensive, generated enough momentum to stimulate export-oriented manufacturing growth, job creation, and poverty reduction for the next two decades, and the momentum has merely weakened in the post-Covid era The economic impact of these reforms is reflected in rising decadal GDP growth rates: 4.8 per cent during FY 1991-2000, 5.9 per cent in FY 2001-2010, and 7.2 per cent in FY 2011-2019. This growth has translated into significant poverty reduction. The moderate poverty rate, which stood at 60 per cent in 1990, nearly halved to 31.5 per cent by 2010, and further declined to 18.7 per cent in 2022 (according to Household Income and Expenditure Survey, 2022) - a highly effective sign of inclusive growth.

Despite these achievements, Bangladesh's current trade policy presents a unique dualistic structure. While the 100 per cent export-oriented RMG sector benefits from a liberal trade regime (near free trade channel), non-RMG exports face restrictive and protectionist barriers. This trade policy dualism highlights a complex trade environment shaped by domestic policy choices that create a protected domestic market which typically yields higher profitability than exports, thus discouraging non-RMG exports and, consequently, stifling export diversification. This trade policy obfuscation is demonstrated in the following chart (Fig.1).

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The government keeps the tariffs on inputs lower than the tariffs on outputs/finished goods, so that the domestics producers get access to lower priced imports of raw materials. The higher output tariffs ensure that the competition from foreign consumer goods are lower and hence, the domestic producers retain an advantage in the domestic market. The values of average input tariffs have remained fairly stable post-2009 ranging from 12 - 15 per cent, while output tariffs are modestly on the rise. Effective tariff protection - outcome of changes in output and input tariffs - has been on the rise as input tariffs fell but output tariffs rose. Notably, the divergence between input and output tariffs fosters Anti-export bias, favouring domestic sales over exports. This phenomenon raises profitability of import substitute production and undermines incentives for non-RMG exports whose producers find the domestic market significantly more attractive!
Export diversification is imperative for sustaining growth. Bangladesh must broaden its export basket to include intermediate goods and deepen its integration into regional value chains (RVCs), particularly in East Asia. Apart from the tariff barrier, restrictive trade practices also divert much-needed FDI in non-RMG manufactures away from our shores. Addressing these challenges will be essential for sustaining inclusive growth and fostering greater diversification within Bangladesh's export portfolio.

FUTURE DIRECTIONS FOR TRADE POLICY: Bangladesh's trade policy is at a pivotal juncture, moulded by evolving global geopolitical and economic challenges that necessitate strategic shifts to sustain growth and competitiveness.

Geopolitical fragmentation, rising protectionism, homeland economics and strategic autonomy, and US-China decoupling are disrupting global trade dynamics, threatening the efficiency dividends of globalisation and GVC integration. However, these shifts also create new opportunities, particularly for Bangladesh's RMG sector, as production orders increasingly shift from China. McKinsey Global reports that at least $100 billion out of the $625 billion apparel market in 2030, will move away from China, in light of shifting geopolitical order, on top of the already rising wage costs in China.
Restoring macroeconomic stability is critical for navigating these challenges. Priority measures include curbing inflation, stabilising the exchange rate, and rebuilding foreign exchange reserves. Strategic tariff adjustments can help ease inflationary pressures while facilitating trade. Enhancing market access through free trade agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs) are equally essential for bolstering Bangladesh's post-LDC graduation competitiveness.

As Bangladesh prepares for LDC graduation by 2026, it faces the challenge of preference erosion. The phasing out of international support measures (ISMs) will diminish preferential market access, impacting export competitiveness. To navigate this transition successfully, Bangladesh must undertake a strategic overhaul of its trade policy. Attracting foreign direct investment (FDI) will be crucial, requiring improvements in the investment climate through streamlined regulations, one-stop window service, enhanced infrastructure, and competitive incentives. Proactive and forward-looking trade strategies will enable Bangladesh to navigate these challenges and sustain its economic momentum on the global stage.

STRATEGIC RECOMMENDATIONS FOR FUTURE TRADE POLICY: To navigate the challenges, Bangladesh needs to consider a new round of strategic trade policy reforms. This includes enhancing rationalisation of tariff protection, trade facilitation measures, diversifying export products and markets, reducing trade costs via digitization of international trade, and strengthening regional trade agreements to mitigate risks associated with global trade uncertainties, and position the country for sustainable growth.

Tariff rationalisation and Exchange rate flexibility

• First, the anti-export bias of trade policy must be eliminated by rationalising tariff protection through import duties, regulatory duties, and supplementary duties. Exports, particularly non-RMG exports, must be incentivised by scaling down protective tariffs and achieving neutrality between profitability of exports and domestic sales of import substitutes. This will pave the way for export diversification and compliance with WTO regulations. Moreover, prompt and effective implementation of the National Tariff Policy 2023 must be ensured. The policy already addresses some of the issues of anti-export bias, rationalisation of tariffs and consumer welfare. Therefore, it is crucial those suggestions are readily executed.

• Secondly, the exchange rate, being a pivotal pricing instrument for exports, must be governed with a flexible management approach to ensure export competitiveness through a market-determined exchange rate. There should be no scope for any appreciation of the real effective exchange rate, a key indicator of export competitiveness.
Export Diversification strategy. The current tariff regime is a major obstacle to export diversification. While the 100 per cent export-oriented RMG sector operates in a duty-free environment, diversifying the export basket requires giving non-RMG export the same duty-free environment and neutrality of incentives between exports and domestic sales.

Bangladesh can diversify its product range by venturing into higher-value garment categories such as apparel of man-made fibre and luxury clothing, leather and non-leather footwear. Assembly and manufacturing of electronic goods, and expand its ICT sector to boost software and IT services. Furthermore, the agricultural sector presents untapped opportunities - modernising agricultural practices, increasing productivity, and diversifying crops can increase exports of fruits, vegetables, and value-added products such as organic and processed foods (agro-processing). The pharmaceutical industry also holds significant growth potential. By producing generic drugs and obtaining international certifications, Bangladesh can access lucrative global markets.

Promoting Trade Facilitation. Trade facilitation is required to boost Bangladesh's competitiveness. Key measures include simplifying trade procedures, reducing bureaucratic hurdles, and modernising customs. These reforms can lower transaction costs and enhance the global competitiveness of Bangladesh's exports. Additionally, investing in transport, ports, and logistics infrastructure will further improve trade efficiency. Digitalising customs processes is another crucial step in reducing trade transaction costs, streamlining operations, and making Bangladesh's trade environment more efficient.

Enhancing Regional Value Chain Integration and Market Diversification. To accelerate trade and export growth, Bangladesh should focus on integrating more deeply into regional value chains (RVCs). This involves greater trade openness, boosting trade in intermediate goods, facilitating smoother movement of raw materials, and creating synergies with neighbouring economies. The development of regional partnerships will enhance Bangladesh's position in global value chains, ensuring greater market access and industrial growth.

To navigate the evolving global trade landscape, Bangladesh should focus on market diversification. As a potential "connector" country between different geopolitical blocs, Bangladesh can seize opportunities to serve as an intermediary for trade, positioning itself strategically in emerging markets. This approach will not only mitigate risks but also create new avenues for growth.

Pursuing Trade Agreements. Engaging in trade agreements is essential for securing market access and diversifying Bangladesh's trade portfolio. The country must pursue greater trade openness and create favourable conditions for export-seeking foreign direct investment (FDI). Signing more free trade agreements (FTAs) with larger economies or regional blocs is critical. Rationalizing tariffs and eliminating the anti-export bias of incentives will help Bangladesh leverage its strategic location and competitive labor force to position itself as a hub for regional trade.

Investing in Innovation and Quality. To transition from a price-driven competitiveness model to one focused on quality and innovation, Bangladesh must invest in innovation and elevate the quality of its exports. Increasing investments in health and education, with a focus on workforce upskilling, is key to preparing the labor force for high-tech industries and fostering innovation. Support for small and medium-sized enterprises (SMEs), alongside investments in infrastructure, will further catalyse this diversification.

Adapting to Global Financial Fragmentation. As global trade faces financial fragmentation, particularly the shift away from US dollar dominance in trade payments, Bangladesh must remain agile and responsive to this shift. Exploring alternative payment systems and diversifying financial partnerships will help the country maintain its position in the global trade arena. Strategic economic diplomacy will be essential to tread this emerging landscape with utmost circumspection.

Trade Policy as a tool for Sustainable Development. As Bangladesh aims to transition to an upper-middle-income economy, integrating sustainability into its trade policies is crucial for long-term growth. This includes promoting green exports, incentivising eco-friendly production, and supporting circular economy practices. Lowering tariffs on clean energy technologies can accelerate the shift to renewable energy. Additionally, aligning with global environmental and labour standards ensures continued access to key markets, especially in regions with strict regulations like the European Union. Trade policy should also empower SMEs and rural producers, fostering inclusive growth. By prioritising sustainability, Bangladesh can build a competitive economy that safeguards both its environment and its future development.

CONCLUSION: Trade policy is not merely a tool for economic growth; it is a critical pathway for Bangladesh's development. As the country moves away from LDC status, it must adopt a forward-looking open trade strategy that tackles current challenges, while seizing emerging opportunities. Through trade policy reforms, export diversification, and strategic agreements, Bangladesh can sustain its development momentum and accelerate towards achieving its goal of becoming an upper-middle-income country by early 2030s. The future of Bangladesh's development depends on its ability to navigate global trade complexities with strategic foresight and compatible economic diplomacy.

Dr Zaidi Sattar is Founder Chairman and CEO of Policy Research Institute of Bangladesh (PRI) where Samah Majid is a Research Associate.​
 

Inflation to drop to 6-7pc by June, adviser hopes
Staff Correspondent 04 February, 2025, 23:35

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Salehuddin Ahmed

Finance adviser Salehuddin Ahmed on Tuesday said that they would be able to bring down inflation within the next three months.

‘Hopefully, inflation will drop to 6-7 per cent in June,’ Salehuddin told reporters after a meeting of the advisory committee on government purchases at the secretariat in the capital Dhaka.

Unlike the share market indices, inflation cannot go down overnight, he said.

Referring to the underlining reasons for the rate of inflation prevailing close to double digit over the past three years, the finance adviser said that they had already taken measures to contain it.

He was critical of the talk-show participants and their reference to the fighting back inflation by Sri Lanka.

In September 2022, Sri Lanka’s inflation rate reached an all-time high of 67.4 per cent, but by June 2024, Sri Lanka’s headline inflation rate dropped to 1.7 per cent, well below the 5 per cent target.

In Bangladesh, consumers witnessed more than 9 per cent inflation after the ousted Awami League regime hiked the fuel oil prices by about 50 per cent in August 2022 to secure $4.7 billion loan programme from the International Monetary Fund to tackle a foreign exchange shortage.

Since then there has been no respite from the high inflation.

The finance adviser said that the Bangladesh’s financial crises were not comparable with those of Sri Lanka.

The plundering of banks during the AL regime ousted amid a mass uprising on August 5, 2024, was unprecedented, he said, adding that Sri Lanka would have been lost had the island nation faced the current situation in Bangladesh.

The finance adviser noted that he was sympathised with the section of people who were facing hardship following the recent hike in value-added tax rates and said that it was done to bring an end to VAT waivers.

Opposing VAT waivers, the finance adviser said that a comprehensive outline for revenue generation would be emerged while finalising the revised budget for the 2024-25 financial year.

Earlier, while presiding over the purchase meeting, he approved proposals to procure 1,00,000 tonnes of fertiliser and 10,000 tonnes of lentil.

Following a commerce ministry’s proposal, state-run Trading Corporation of Bangladesh will procure 10,000 tonnes of lentil from Nabil Naba Foods Limited with per kilogram costing Tk 97.22.

The Bangladesh Agricultural Development Corporation will import 40,000 tonnes of DAP fertiliser from Saudi Arabia at an estimated cost of $611 per tonne.

The Bangladesh Chemical Industries Corporation will import 30,000 tonnes of bulk granular urea from Saudi Arabia with per tonne costing $395.16.

Besides, the BCIC will purchase 30,000 tonnes of bagged granular urea fertiliser from Karnaphuli Fertilizer Company of Bangladesh with per tonne at $389.75.​
 

GDP growth target may be revised down to 5.25%

The GDP growth target may be brought down to 5.25 percent in the revised budget for the current fiscal year due to the damage caused by multiple floods and the interim government's contractionary monetary policy to contain high inflation.

The previous government had set the growth target at 6.75 percent in the original budget.

A discussion on the revised budget for the current fiscal year was held among top officials from the finance, commerce, and planning ministries, as well as Bangladesh Bank, at the Chief Adviser's Office on Tuesday, with Chief Adviser Professor Muhammad Yunus in the chair.

Finance ministry officials said they presented the current macroeconomic indicators and the revised budget during the meeting.

"The growth of the agriculture sector will decrease due to repeated floods at the beginning of the current fiscal year," said a finance ministry official.

Additionally, Bangladesh Bank introduced a tight monetary policy and raised the policy rate, reducing overall GDP growth, he added.

This comes as the World Bank, International Monetary Fund (IMF), and Asian Development Bank (ADB) have also lowered their GDP growth projections for Bangladesh for the current fiscal year.

The ADB has revised its growth forecast for Bangladesh to 5.1 percent from 6.6 percent, citing supply chain disruptions caused by political unrest in July and August.

The World Bank has slashed its growth forecast for the Bangladesh economy by 1.7 percentage points to 4 percent for the fiscal year 2024-25 due to "significant uncertainties following recent political turmoil" and "data unavailability."

The IMF has also revised the growth forecast for Bangladesh for this year, saying political uncertainty, industrial unrest, and floods continue to weigh heavily on economic activities.

In its flagship World Economic Outlook, the IMF lowered Bangladesh's growth projection by 2.1 percentage points to 4.5 percent, the lowest since fiscal 2019-20, when the global coronavirus pandemic struck.

In a visit last December, an IMF delegation revised the growth to 3.8 percent.

The inflation target may rise to 8 percent, up from 6.5 percent in the original budget.

Although the latest data showed that inflation in Bangladesh eased for the second consecutive month in January to 9.94 percent, it remains high.

On Tuesday, Finance Adviser Salehuddin Ahmed said the government was working on reducing inflation to 7 percent by June.​
 

Govt revises down forex reserve target

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The interim government has revised its aim for foreign exchange reserves, saying it expects to have $28.6 billion by June this year, capitalising on strong growth in inward remittances, exports, and budgetary support from development partners.

The budget initially set a target of $31.6 billion, based on the central bank's gross calculation.

As of January 29, the gross forex reserve stood at $25.32 billion, down from $26.20 billion in June last year, according to Bangladesh Bank (BB).

Bangladesh Bank now publishes two types of forex reserve figures—one of which is based on a calculation method advised by the International Monetary Fund, known as BPM6. Based on this, reserves stood at $19.97 billion as of January 29.

On Wednesday, the finance ministry presented the revised forex reserve and other macroeconomic indicators at a meeting at the Chief Adviser's Office, chaired by Chief Adviser Prof Muhammad Yunus.

To meet the revised target, forex reserves need to increase by $3.28 billion by June.

According to the finance ministry, substantial growth in remittances and exports will help increase the forex reserve.

There is also a high possibility of receiving $2.5 billion in budgetary support from three major development partners, including the International Monetary Fund, the Asian Development Bank, and the World Bank, by June.

Other bilateral and multilateral budgetary support is expected to contribute an additional $500 million to the forex reserve.

These prospects have made the finance ministry optimistic about increasing the reserve.

However, Zahid Hussain, former lead economist at the World Bank Dhaka Office, expressed scepticism about reaching the target.

"It's true that exports and remittances are growing and that there is a high possibility of receiving budget support from development partners, but Bangladesh must pay various outstanding bills, including those for power, energy, and fertiliser imports," he said.

"The government will have to import fuel and LNG (liquefied natural gas) to ensure uninterrupted electricity in the upcoming summer. Additionally, payments must be made for imports from India, including Adani Power," he said.

He noted that a significant quantity of fertiliser must be imported for the Boro season, meaning much of the budget support would be used to meet these expenses.

"So, it will be difficult to raise the reserve by more than $3 billion from current levels," said Hussain.

The government has also revised its export growth target to 10 percent, up from 8 percent in the original budget.

Meanwhile, remittance growth has been revised to 15 percent, doubling from the initial target of 7 percent.

Hussain described this as a modest and achievable target.

"The export sector has also witnessed satisfactory growth in the first six months despite labour protests, factory closures in the RMG sector, and violence," he said.

According to the central bank's balance of payments statistics, exports grew by 11 percent in the first six months of the current fiscal year.

Meanwhile, remittances increased by 27.56 percent during the same period.

However, the revised budget has lowered the import growth target to 8 percent from the original 10 percent.

Although imports have remained sluggish, they have shown signs of acceleration in recent weeks.

In the first six months, imports grew by 3.5 percent, recovering slightly after a 10.61 percent decline in the previous fiscal year.

The private sector credit growth target has been slightly increased to 9.8 percent in the revised budget, up from 9 percent in the original projection.

However, as of November, private sector credit grew by only 7.66 percent, falling short of the target.​
 

Can downward inflation curve be sustained?
Published :
Feb 07, 2025 23:35
Updated :
Feb 07, 2025 23:35

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Rising prices of food, energy and commodity coupled with depreciation of Bangladesh Taka (BDT) against US Dollar (USD) contributed to higher inflation throughout last year (2024) with the rate reaching a 12-year high in July at 11.7 per cent. The major driver of this high inflation was food inflation which in July surged to 14.1 per cent, a 13-year high. Later, the headline inflation gradually moderated and went down to 9.92 per cent in September (2024). But it again went up and continued to remain at two-digit level throughout the year.

Against this rather depressing backdrop, the Bangladesh Bureau of Statistics (BBS) last Tuesday (February 4) came up with the reassuring report that last month the inflation did come down to a single digit, 9.94 per cent, which is one percentage point lower than what it was by the end of last year (December) at 10.89 per cent. However, the credit for this encouraging development has been given to abundant supply of winter vegetables in the market which drove down the overall inflation rate to the reported record low level.

While appreciating the fall in last month's inflation, worries still remain in the general consumers' mind since they saw a similar fall in September last year, but it could not be sustained in the long run. Add to that the strong possibility that the vegetables supply would dwindle and their prices might again rise in the coming months to offset the gains achieved in January. At the same time, one cannot lose sight of the fact that the food inflation has still remained high above 10 per cent in the urban as well as rural contexts, especially due to the unpredictability of the staple market. Also, one needs to take into account the steady rise in the non-food inflation in both urban and rural areas. On this score, the central bank is learnt to have blamed the higher prices of staples and edible oils at the retail level as the factors that are pushing up the inflation rate thereby dampening the efforts at curbing it using various measures including tightening of money supply.

Naturally, the concern still remains in public mind about the sustainability of January's relatively low inflation rate, despite the finance adviser's reassuring words that measures including the tight monetary policy now in force would be able to maintain consumer price at this comfortable level and that by June, it would go down further to between 6.0 and 7.0 per cent. In this connection to dispel any misgivings expressed by some who often draw the instance of Sri Lanka, the finance boss would like to console them referring to the smaller size of that island nation's economy as well as the differences in the realties of Bangladesh and Sri Lanka. But whatever the differences in the details of the factors that led the economic downturn and high inflation rate in either country, the fact remains that the monetary tool used to bring down inflation level in Siri Lanka worked far more effectively than it did in Bangladesh. In that case consider that Sri Lanka's annual inflation rate surged astronomically to over 70 per cent in August 2022, while the food price rose by 84.6 per cent compared to what it was during the year before. But thanks to the prudent monetary policy pursued by that country's central bank, the inflation gradually declined and in November last year, it dropped to as low as 2.1 per cent which was the lowest ever in that country since 1961. But in Bangladesh around that time, the inflation rate was as high as 11.38 per cent. So, the public can't be blamed if they take any assurances from the government in this regard with a pinch of salt. Hopefully, the interim government will succeed in arresting inflation at the promised level to meet the public's expectation.​
 

World Bank VP for South Asia in Dhaka

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Martin Raiser, vice president of the World Bank (WB) for South Asia, arrived in Dhaka on a four-day visit today, which the global financial institution stated was aimed at reinforcing its longstanding partnership with Bangladesh.

Raiser is scheduled to meet high-ups of the government, including the chief adviser of the interim government, finance adviser, energy adviser, the governor of Bangladesh Bank, and other senior government officials, according to a press release.

His visit aims to strengthen the country's partnership with the global institution and advance discussions on key development initiatives.

His meetings will focus on Bangladesh's ongoing development priorities and future collaborations with the WB.

Raiser will be accompanied by Pablo Saavedra, the WB's vice president for prosperity, who leads the institution's work on economic policy, poverty reduction, finance, institutional development, competition, and investment.

The WB has been a key partner in Bangladesh's development journey since the country gained independence, said the statement.

Over the years, the WB has committed approximately $44 billion to Bangladesh, predominantly in grants and concessional credits.

This makes Bangladesh the recipient of the largest ongoing programme supported by the WB's International Development Association (IDA).

Raiser's visit highlights the continued focus on strengthening the WB's engagement in Bangladesh, particularly in areas like economic growth, poverty alleviation, and social development, said the statement.

It underscores the importance of sustaining and deepening this vital partnership for Bangladesh's future.

This visit comes at a time when Bangladesh is grappling with various economic challenges, and it is expected that discussions will revolve around supporting the country's development ambitions, including energy sector reforms, financial stability, and inclusive growth strategies.​
 

Why so many problems with FDI?

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Bangladesh has mostly failed to achieve its targeted level of foreign direct investments (FDIs), with investment inflow amounting to only 0.75 percent of GDP in 2023, according to UNCTAD. Efforts to attract foreign investors by developing economic zones and adopting one-stop services have not yielded much results, raising the question: what's the country doing wrong? A recent report by the US administration has identified precisely what's holding the country back -- corruption, bureaucracy, an anti-competitive procurement system, violation of intellectual property rights, unreliable logistics, and lack of skilled labour, among others.

The United States Trade Representative (USTR) in its 2024 National Trade Estimate Report on Foreign Trade Barriers showed corruption to be deeply ingrained in Bangladesh's commercial environment. This is partly laxity in enforcement of relevant legislative measures. US investors have voiced concerns over the undue delays and bureaucratic hurdles they face.

Efforts to undermine the independence of the Anti-Corruption Commission (ACC) through legislation such as the Sarkari Chakori Ain Bill—which limits its ability to investigate corruption allegations against government officials effectively—only accentuate the problem. Adding to that is the backlog of unresolved corruption cases and systematic attempts to dilute anti-government safeguards in procurement processes. The Daily Star reported a backlog of 3,300 cases in 2024 alone. Adding to the burden, the conviction rate hit a record low of 47% in the same year.

Despite building the central procurement and technical unit (CPTU) and then the Public Procurement Company, the US report also highlights the lack of transparency and fairness in public procurement. It also points out deficiencies in our legislative and rulemaking processes, particularly concerning patent law, copyright amendments, and the enactment of the Industrial Design Act. Meanwhile, the proposed Personal Data Protection Act and regulations for digital, social media, and the top platforms pose potential threats to privacy and freedom of expression, raising apprehensions among the international investment community.

Another significant hurdle is the country's infrastructure deficit and logistical inefficiencies. While the country has made strides in power generation and connectivity, gaps in transport networks, port congestion, and inconsistent energy supply remain persistent challenges. The World Bank's Ease of Doing Business Index previously highlighted delays in land acquisition, customs clearance, and business registration as major obstacles. Foreign investors often cite the high logistics cost and unreliable utility services as deterrents. Without improving these fundamentals, the country will struggle to compete with regional peers like Vietnam and India in attracting high-value foreign investments.

Beyond infrastructure, Bangladesh must focus on building a skilled workforce to attract knowledge-intensive FDI. While the country enjoys a large, young labour pool, gaps in technical expertise and vocational training hinder its competitiveness in IT, manufacturing, and R&D. According to the World Economic Forum, automation and AI are reshaping global industries, making skill development more critical than ever. To stay ahead, Bangladesh must invest in STEM education, industry-driven training programmes, and stronger university-industry collaboration.

These challenges need to be taken seriously by our policymakers, as cosmetic incentives to foreign investors can only work for a limited time. For Bangladesh to unlock its full economic potential and foster a conducive environment for foreign investment and sustainable growth, it must address the longstanding problems discouraging investors. This will require a concerted effort from the government, but first, there must be the political will to tackle entrenched corruption and bureaucratic inefficiencies. Meanwhile, the government needs to make serious improvements to the country's Intellectual Property (IP) regime, ensuring better coordination among enforcement authorities and government institutions and moving away from repressive regulatory frameworks for data protection and online content regulation.

The author is the chairman of Financial Excellence Limited.​
 

Financial sector crisis, labour unrest flagged as key risks

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Weakness in the financial sector and labour unrest might be the major sources of risk for the interim government in the short term, said a finance ministry report yesterday on Bangladesh's recent economic challenges and the way forward.

In view of this, the government should give the highest priority to bringing back discipline in the financial sector and mitigating labour unrest before it flares up, said the paper, presented by Finance Secretary Md Khairuzzaman Mozumder to Chief Adviser (CA) Muhammad Yunus.

Finance Adviser Salehuddin Ahmed, Bangladesh Bank Governor Ahsan H Mansur, and other senior finance ministry officials were present, according to the press wing of the CA.

The paper said factories near the Beximco Group's industrial enclaves are prone to the risk of labour unrest

The paper said factories near the Beximco Group's industrial enclaves are prone to the risk of labour unrest because of the layoff of 40,000 workers across the textile and garment units of Beximco.

Incidents of labour unrest have been taking place in factories whose owners are absconding on allegations of either corruption or money laundering.

The paper said a section of vested groups instigates the workers and students. This often deteriorates law and order and creates public suffering in industrial zones, it added.

The financial sector is also at risk because of the massive buildup of default loans.

Some 10 banks are at high risk due to mismanagement by the previous government, said the finance ministry paper, adding that authorities have appointed international firms to review the asset quality of banks.

At a press briefing after the meeting, Shafiqul Alam, press secretary to the CA, said the chief adviser asked the BB governor to ensure the autonomy of the central bank as soon as possible.

The BB has stopped all kinds of fresh recruitment until now, he added.

Alam said the government has been trying not to take on any unnecessary and less important projects anymore.

Citing the finance ministry paper, he said that major economic indicators are showing positive signs.

For instance, exports grew by 10 percent year-on-year, imports were increasing, jobs were being created, and inflation had come down to single digits.

Inflation decreased because of the hike in the interest rate, and it is expected that inflation will come down to 7.5 percent by July of this year, said Alam.

Furthermore, the government has taken some measures, such as a contractionary monetary policy and a conducive revenue policy, to arrest high inflationary pressure, he added.​
 

Supply chain disruptions thwart inflation fight
Says govt report, recommends special mobile courts to fix bottlenecks

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Bangladesh has adopted measures to curb inflation, including tighter spending controls and higher interest rates, but deep-rooted supply chain bottlenecks continue to drive up prices for essential goods, according to a report from the Finance Division.

The report shared by the chief adviser's press wing to the media yesterday recommended that these structural issues will require long-term solutions, even as inflation shows signs of easing.

Inflation, which surpassed 11 percent in July 2024, declined to 9.94 percent in January 2025. Food prices -- a major driver of inflation -- followed a similar trend, dropping from 12.92 percent in December 2024 to 10.72 percent in January this year.

Despite this progress, the report identifies supply chain inefficiencies as a key factor behind elevated costs, particularly for staples like rice, onions and potatoes.

To stabilise prices, the government should focus on improving storage and distribution networks for key commodities, the report suggested.

The report also recommends plans to conduct special mobile court drives at the district level to monitor and prevent price manipulation. It also calls for enhanced cold storage facilities and stricter oversight of food stockpiles.

Besides, the Bangladesh Competition Commission must be strengthened to prevent unfair market practices, with potential expansions to district-level operations under consideration.

"Although political shifts in 2024 brought some degree of economic uncertainty, the adoption of carefully planned monetary and fiscal policies by the interim government has resulted in positive developments in the economy," the Finance Division said in the report.

SHORT-TERM RELIEF EFFORTS

The government has rolled out several immediate measures to ease the price pressure on consumers. According to the report, subsidised sales of essential goods, including rice and cooking oil, are being conducted through Open Market Sales (OMS) in major urban areas.

As many as 1 crore families now benefit from subsidised food distributed through "family cards".

The government has also reduced import duties and taxes on key items like onions, potatoes, and edible oil to soften the impact of global price fluctuations.

Besides, public spending on non-essential projects has been trimmed to prioritise relief measures and ensure the availability of essential items.

Alongside supply-side efforts, the government has adopted contractionary monetary policies to temper inflation.

The central bank raised the repurchase agreement rate incrementally from 8 percent in July 2024 to 10 percent in December last year in an effort to curb excessive demand.

However, inflation remains elevated, signalling ongoing challenges, according to the report.

PATH AHEAD

While the recent decline in inflation offers some relief, the Finance Division report underscores that sustained progress will require addressing supply chain inefficiencies. Inflation is expected to drop to about 8 percent by June.

"Additionally, the external sector is showing signs of stability, which is a promising development," the report said. "If supply chain inefficiencies are effectively addressed, inflation control measures could restore economic momentum."

STRAIN ON FOOD STOCK

Bangladesh is facing significant challenges in maintaining food security due to the devastating impact of floods during the current fiscal year (FY) 2024-25.

The production of Aus and Aman rice has fallen short of targets by 9.55 lakh tonnes and 3.58 lakh tonnes, respectively.

This shortfall has led to a decline in government food stock, which currently stands at around 13 lakh tonnes -- 23.6 percent lower than in the same period last fiscal year.

While the government's effective storage capacity is 21.34 lakh tonnes, this gap highlights the urgency of stabilising food supply systems.

Plans are underway to import an additional 9 lakh tonnes of food grains this fiscal year. Buffer stock capacity for urea fertiliser has also been raised to 8 lakh tonnes, which will remain accessible through March.

Additionally, fertiliser subsidies have been continued, with Tk 28,000 crore allocated in the revised budget to stabilise fertiliser prices.

The government had made a separate allocation of Tk 8,059 crore to keep up food subsidies through programmes, including Open Market Sales and other year-round food assistance efforts.​
 

Economy improves, inflation, bank sector, worker unrest pose risks
Staff Correspondent 09 February, 2025, 23:56

The overall economy has been improving for the past six months, but worker unrests, inflation and fragile banking sector still pose risks, according to a Finance Division report released on Sunday.

The interim government led by Muhammad Yunus assumed power on August 8, 2024, three days after the ouster of Sheikh Hasina-led government amid a mass uprising against her 15 years of authoritarian rule.

Risks of the deterioration in the overall economic situation in the wake of regime change have been checked because of prudent monetary and revenue policies over the past six months, said the report submitted at a meeting presided over by the chief adviser at his Tejgaon office in the capital Dhaka.

Yunus instructed that individuals involved in bank robberies and those facing specific allegations against them must be brought to justice as soon as possible, said the chief adviser’s press secretary, Shafiqul Alam, at a post-meeting briefing at the Foreign Service Academy in the capital.

The meeting took stock of the country’s economy over the past six months.

The economy is recovering due to various measures taken by the interim government, said the press secretary adding that exports had increased by 10 per cent over the past five months.

The Finance Division report said that signs of improvement in the overall economy were visible as the inflation rate was falling from 10 per cent and was expected to come down to 8 per cent in June.

Noting that the external side is also signalling improvements, the report recommended overcoming flaws in the supply chain management to revive the economic activities across the board.

The report titled ‘Bangladesh economy: recent development and tasks ahead’ feared that worker unrests in the industrial sector and the scam-hit financial sector still posed risks.

It recommended clearing the payment of workers by selling the closed factories of BEXIMCO and the joint monitoring by police and intelligence agencies to check spill-over of the worker unrests.

The report also laid importance on bringing back discipline in the financial sector, especially the banking sector facing risks because of mismanagement by the past Awami League regime and ballooning non-performing loans.

Ten banks are at serious risks, said the report without naming the banks.

The report recommended providing liquidity supports to problem banks to enhance the confidence of depositors.

It also recommended making law department of banks powerful so that looted money of the banks could be recovered.

Recommending bolstering international efforts for bringing back the money stolen during the AL regime, the report suggested the continuation of monitoring of the trade-based letters of credit.

The report also focused on the country’s food and energy sectors, highlighting the steps taken in the past six months.

To ensure food security, the decision on importing additional nine million tonnes of grain has been made in the wake of 13 million tonnes less production of aus and aman than the estimate due to two rounds of flood.

For maintenance of the country’s energy security, the report said that the budgetary subsidy in the current budget had been increased to Tk 62,000 crore from Tk 40,000 crore to clear the arrears on power and gas.

The report recommended the automation of incomes and value-added-tax to generate more revenue to pull up the falling tax-GDP ratio to 8 per cent.​
 

Economy rebounding notably, policymakers tell CA
Inflation to ease to 7-8pc by June
FE REPORT
Published :
Feb 10, 2025 00:43
Updated :
Feb 10, 2025 00:43

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The top echelon of Bangladesh's present financial policymakers has noted that the economy, which endured stresses for long following mismanagement by the previous regime, now bounced back significantly.

They made their observations at a summit-level meeting Sunday on 'economic challenges and next steps', chaired by Chief Adviser Dr Muhammad Yunus.

After the stocktaking meeting was over, Shafiqul Alam, Press Secretary to the CA, apprised journalists in a media briefing about the discussions and decisions that also covered government actions for coming to grips with post-uprising law-and-order situation across the country.

Presentations on a string of economic and fiscal issues like inflation, export, import, foreign trade, and food and energy security were made in the meeting after which the chief adviser expressed his satisfaction over the performances on the economy with an observation: "We need to do better."

On the crucial issue of inflation, the meeting was told that during July last year, the average inflation rose above 11 per cent on a point-to-point basis, but it slid to 9.94 per cent in January this year.

"The government is expecting that due to the steps taken by it the inflation can be reduced to 7.0 to 8.0 per cent by June this year," Mr Shafiq told the media.

The CA was told in the meeting that gross domestic product (GDP) growth in the last fiscal was 4.22 per cent against the provisional estimate of 5.8 per cent.

The GDP size of the country in the last fiscal was 450 billion US dollars though it was estimated at $459 billion.

Similarly, the per-capita Gross National Income was finalised at 2738 dollars against the estimated $2784.

In the meeting the head of interim government directed the authorities concerned to ensure full autonomy of the central bank as soon as possible, and in response, the Bangladesh Bank Governor, Dr Ahsan H Mansur, told him that steps were underway in this regard.

The governor also mentioned that all kinds of hiring and recruitment in the central bank stayed suspended for the time being.

The meeting was told that due to the "plundering by oligarchs" during the past regime, 10 banks were in vulnerable condition but through constant monitoring by the central bank two of them showed signs of recovery.

The default loan in the banking sector stood at Tk2.84 trillion (284,977 crore) in September 2024.

The meeting also discussed the issue of bringing back the laundered money and it was told that the government is in discussion with several countries to repatriate the money through standard procedure.

Dr Yunus told the meeting those who were involved in laundering money must be brought to book, and in response, he was informed that 12 business groups were identified as the main perpetrators.

Already, all the assets of S Alam Group, one of the main oligarchs of the ousted regime, were expropriated, the BB informed the meeting.

Finance Adviser Dr Saleh Uddin Ahmed noted that the country gets back the macroeconomic stability and the situation is expected to improve further, the press secretary said.

The meeting was also told that with rising exports and employment, easing inflation, and improved balance-of-payments situation the economy will perform better in coming days.

"The government step to introduce tighter and contractionary monetary policy and enhance the rates on policy instruments coupled with supply of necessary commodities to poor people through safety-net programmes resulted in the easing of inflation," the meeting noted.

However, responding to a question on the CPD remark that the interim government had failed to take any significant step to revive the economy, the press secretary said easing of inflation and rise in exports resulted from the steps of the government.

The press secretary informed that the long standing issue of land mutation of the Korean EPZ in Chittagong was resolved by this government as the government handed over the mutation documents to the KEPZ authorities on Thursday.

"Many global giants like Samsung could not invest in this EPZ in a bigger way due to the mutation problem, which was not resolved by the previous regime," he said, adding that the oligarchs of the previous regime had "an ill intention to grab this land" and that is why the KEPZ problem was not resolved.

The meeting also dwelled on the latest law-and-order situation, in the wake of some troubles, and a coordinated crime-control action under a recently proposed command centre of forces. The government has just launched a countrywide drive codenamed 'Operation Devil Hunt'.

"The Command Centre under home ministry will roll out today where representatives of all the security agencies attached to the home ministry will be included. Even representatives of the armed forces will be there," Mr Shafiq said, adding that this centre will keep constant monitoring of the activities of the law enforcers in a bid to improve the law-and-order situation.​
 

Key economic sectors expand faster
January expansion index reading 65.7pt
FE REPORT
Published :
Feb 10, 2025 00:44
Updated :
Feb 10, 2025 00:44

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Bangladesh's key economic sectors expanded faster month- on-month in January, as reflected in the Bangladesh Purchasing Managers' Index (PMI) that recorded a reading of 65.7, up 4.0 points from December's.

The PMI provides a snapshot of economic activity, with a reading above 50 indicating expansion, below 50 signalling contraction, and 50 representing stagnation.

The latest reading was driven by stronger expansion in agriculture, construction, and services, while the manufacturing sector experienced a slower expansion.

However, the PMI report predicts that future economic momentum will depend on political stability, particularly regarding the timeline and roadmap for a transition to an elected government.

The agriculture sector recorded its fourth consecutive month of expansion, with a faster expansion in business activity. Both new business-and order-backlog indices returned onto expansion territory.

However, the employment index fell into contraction, while input costs expanded at a slower rate.

As for manufacturing, the sector posted its fifth consecutive month of expansion, but at a slower pace. Indicators for new orders, new exports, factory output, input purchases, imports, input prices, and supplier deliveries showed slower expansion.

The finished-goods index accelerated, while the employment index returned to expansion, and order backlogs contracted at a slower rate.

Construction sector recorded its second month of expansion at a faster pace, with stronger growth in new business, construction activity, and input costs.

However, the employment index moved into contraction, and the order-backlog index showed a faster contraction.

Services sector expanded for the fourth consecutive month, with a faster expansion in new business, business activity, employment, and order backlogs. The input- cost index also rebounded.

"The latest PMI readings indicate that the economy remains on an expansion track for the fourth consecutive month, likely driven by growing exports, seasonal consumption trends, and improvements in the agro-supply chain," says a press release on the PMI.

However, new business investments and expansion confidence remain weak, particularly among firms catering to the domestic market.

"This is attributed to sluggish demand, rising business costs, and energy-supply disruptions."

The Bangladesh PMI was launched in 2024 by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange Bangladesh, in collaboration with the Singapore Institute of Purchasing & Materials Management (SIPMM) and supported by UK International Development.

The index covers key economic sectors and is based on monthly surveys of over 500 private-sector enterprises. The survey measures changes in business activity compared to the previous month using the diffusion-index methodology, aggregating responses across various economic indicators. The methodology was developed by SIPMM, with technical support from Policy Exchange.​
 

BB keeps policy stance tight to tame inflation

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The Bangladesh Bank (BB) has maintained its tight monetary policy stance for the second half of the current fiscal year (FY) 2024-25 to tame the stubbornly high inflation.

To this end, the policy interest rate, a key tool of monetary policy, has been kept unchanged at 10 percent for the January-June period of FY25.

Besides, the standing deposit facility (SDF) and standing lending facility (SLF) rates -- at which commercial banks deposit with and borrow from the BB -- will remain at 8.5 percent and 11.5 percent, respectively.

During the announcement of the Monetary Policy Statement (MPS) at the BB headquarters in Dhaka yesterday, central bank Governor Ahsan H Mansur said that contractionary measures would continue until the desired level of inflation is achieved.

The governor said that the central bank kept the policy rate unchanged as inflation has begun to decline slightly. Price pressures, which crossed 11 percent in July 2024, fell to 9.94 percent in January 2025.

"We are now seeing the result of the tight monetary stance," said Mansur, adding that such results usually take six months to one year to become visible in other countries. "Therefore, it would take 12 to 18 months for us to achieve the target."

Inflation declined in December and further in January this year. We expect it would drop consistently in upcoming months.— Ahsan H Mansur Governor of Bangladesh Bank.

Inflation declined in December and further in January this year. The BB governor hoped that it would continue to decline consistently in the coming months.

"Our expectation is to bring down inflation to 7-8 percent by the end of June this year and we still stand by our expectation," he said.

The central bank has been raising the policy rate for nearly two and a half years since May 2022 in its battle against spiralling prices, which have eroded people's purchasing power and affected domestic demand.

Mansur, who assumed the role of central bank governor in August last year after the political changeover, has raised the policy rate, or repo rate, three times.

In December last year, the International Monetary Fund (IMF) said that near-term policy tightening is crucial to address the emerging external financing gap and persistently high inflation.

The BB expects the country's gross domestic product (GDP) growth in the current fiscal year to decelerate to 4-5 percent, due mainly to natural and industrial disruptions.

While replying to a query, the BB governor said the current situation is not for growth, as the government is now focusing its efforts on containing high inflation.

He also said that exchange rate stability is a must for economic stability, as the inflation target cannot be achieved without it. "As a result, the central bank is now also emphasising its attention on stabilising the exchange rate."

According to the governor, the banking regulator has already been able to stabilise the exchange rate, as the balance of payments is now in a stable position.

The difference between supply and demand would not widen ahead of Ramadan, he mentioned, saying that a huge number of letters of credit (LCs) have already been opened for importing goods and essential commodities for the month of fasting.

"The seasonal demand has already slowed this month," said the BB governor.

For the second half of FY25, the target for private sector credit growth has been increased to 9.8 percent. As of December last year, private sector credit growth stood at 7.3 percent.

Credit to the public sector decreased to 17.5 percent from an actual 18.1 percent as of December last year, according to the MPS.

While highlighting good governance in the banking sector, the MPS outlined the initiative for an asset quality assessment review programme to evaluate the scope and scale of banks' tangible assets, providing essential data for future policy adjustments.

Addressing this issue, the BB governor said both banks and the regulator share the responsibility of ensuring good governance in the banking sector.

"If there is poor governance within banks, external oversight alone cannot keep them in check. If a bank deliberately mismanages itself, no regulatory body can force it to perform well. Yes, we can shut it down or take legal action, but by that time, the damage will already be done."

CONTRACTIONARY POLICY WORRIES BUSINESSES

In its immediate reaction, the Dhaka Chamber of Commerce & Industry (DCCI) expressed concern over the decision to maintain a contractionary monetary policy.

"While aimed at curbing inflation, this rigid stance hampers private sector credit growth and economic expansion. The private sector relies heavily on banks for investment and high interest rates raise production costs and fuel inflation," said the DCCI.

Ashraf Ahmed, a former president of the DCCI, said the latest MPS maintains a high interest rate and tight liquidity regime, while public borrowing is crowding out the private sector.

"Private sector credit growth is already lower than inflation. A combination of high interest rates and constrained working capital supply could possibly lead to higher non-performing loans (NPLs), economic growth of less than 4 percent and job losses."

Zahid Hussain, former lead economist at the World Bank Dhaka office, said maintaining a tight monetary policy is indeed justified, though the business community prefers a more lenient approach.

"The BB cannot afford such a risk with inflation rates remaining unacceptably high. Non-food prices have risen every month for the past three months, mirroring the trend from the previous year, indicating that inflation has become endemic."

However, he cautioned that maintaining a 10 percent policy rate for an extended period cannot be the sole strategy to blunt inflation. "Effective inflation management necessitates coordination with other economic policies, such as fiscal policy and market management."

Ashikur Rahman, principal economist at the Policy Research Institute (PRI) of Bangladesh, said further tightening of the monetary framework is unnecessary.

He said the government needs to be cautious, as ongoing political instability could lead to supply chain disruptions, which might complicate the price pressure management.

[Md Asaduz Zaman and Jagaran Chakma contributed to the report.]​
 

Too many weak firms get through IPO net
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More than two-thirds of companies that got listed on the stock market in the last 14 years were subsequently downgraded to lower categories, with many turning into junk stocks soon after listing.

This has led market analysts to question their motivation for listing: were these decisions sound, or did they go public when they were already on the brink of financial meltdown?

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For a better understanding, consider the case of Sikder Insurance -- the non-life insurer that holds the record for being downgraded to junk status within just one year of its market listing.

The Dhaka Stock Exchange (DSE) expressed reservations about the listing of Sikder Insurance.

The objection was well-founded, given factors such as the insurer's heavy investment in the loss-making National Bank -- a company owned by its sponsors, and its lower-than-required investment in government T-bonds.

Both actions violate respective laws.

In 2022, Sikder Insurance invested Tk 132 crore, or 73 percent of its total assets, in National Bank, which was already classified as junk stock.

However, Insurance Development and Regulatory Authority (Idra) rules prohibit non-life insurance companies from investing more than 5 percent of their assets in a single stock.

In the same year of 2022, National Bank reported a record loss of Tk 3,260 crore, with 25 percent of its total loans classified as non-performing.

In contrast to National Bank, Sikder Insurance invested only Tk 2.5 crore, or 1.37 percent of its assets, in government treasury bonds -- far below the required minimum of 7.5 percent.

The DSE flagged in its report to the Bangladesh Securities and Exchange Commission (BSEC) that it was not convinced about the listing.

But the company was approved to go public in 2023.

After its listing in 2024, Sikder Insurance announced a 3 percent cash dividend in June, but failed to disburse it. As a result, its stock was downgraded to Z-category.

Even if the company manages to distribute the dividend, it will only be upgraded to B-category, as a minimum 10 percent cash dividend is required for A-category status.

An analysis of the insurer's 2023 financial report showed that its problematic investment in National Bank remains unchanged.

Since National Bank has not paid dividends for four years, Sikder Insurance's earnings from its primary investment source remain zero.

Besides, the company has not increased its investment in treasury bonds, continuing to flout regulatory requirements.

The Sikder case is not an isolated incident. Many other companies show similar IPO-related issues, raising questions about the stock regulator's due diligence in approving listings.

For instance, Apollo Ispat, whose flagship product "Rani Marka Dheu Tin", had already lost market relevance before its listing on the DSE.

Despite this, BSEC approved its IPO at a premium of Tk 12 per share, only for the company to decline into junk status within a few years.

On Thursday, the stock of Apollo Ispat traded at Tk 3.80.

'ROTTEN STOCKS'

Former BSEC chairman Faruq Ahmad Siddiqi said that these companies should never have been approved for listing, as their financials clearly indicated their businesses were in trouble.

According to DSE data, BSEC has approved 132 companies for listing, transitioning them from private to public entities over the last 14 years. However, nearly one-fourth of these companies have since become junk stocks.

Of the 132 companies approved, only 50 remain in A-category, while 43 have been downgraded to B-category and 38 have fallen to Z-category. One company was merged with another listed company.

Siddiqi said that the BSEC should be held accountable for approving so many questionable IPOs over the past decade.

"This is the right time to do it," he said.

He suggested that regulators should conduct case-by-case inquiries to assess whether struggling companies are failing due to genuine business challenges or mismanagement and poor financial decisions.

Companies with no recovery potential should be liquidated, he added.

Saiful Islam, president of the DSE Brokers Association, said that "the impact of these types of rotten stocks is long-term."

Even if some of these IPOs were approved under political pressure, now is the time to delist underperforming companies, he commented.

According to Islam, flawed listing regulations make delisting a lengthy and complicated process.

He called for easier listing and delisting procedures to prevent poorly performing companies from dragging down the market for years.

He added that although delisting such companies may cause losses for some investors, there is no benefit in holding stocks where major assets are at risk.

WILL THE REGULATOR TAKE NOTE?

The value of Sikder Insurance's investment in National Bank has already dropped by 50 percent since 2022.

Md Jakir Hossain, a stock investor, admitted that he did not analyse the company's financials before investing in its IPO.

He assumed that a company wouldn't become junk overnight and that it should take at least a few years to be downgraded.

Contacted, BSEC spokesperson Rejaul Karim said that insurance companies are required by law to be listed and that Sikder Insurance met the public issue rules at the time of approval.

"In IPO approval, the regulator sees whether the company followed the public issue rules properly," he said.

However, he admitted that BSEC is now more cautious to prevent poor-performing companies from receiving IPO approvals.

In 2021, BSEC intervened by restructuring the boards of several underperforming companies, but none of them have fully recovered.

Karim said if the stock market taskforce formed by the interim government makes recommendations regarding these struggling companies, the regulator will analyse the cases and take action.

Abdur Razzak, company secretary of Sikder Insurance, said the insurer has already paid most of its announced dividend and expects to be upgraded to B-category soon.

He admitted that the company -- whose stock traded at Tk 21.90 on Thursday -- has not received any dividends from its major investment in National Bank but defended the decision not to sell its shares, citing the current low market price.

He also said that their buying price was around Tk 10 per share, while National Bank shares are now trading below Tk 5.​
 

Bangladesh calls for reforms in global financial system
Says Bangladesh’s permanent representative to the UN

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Bangladesh has called for a reformed international financial system and enhanced technology support to address critical social development needs.

Ambassador Salahuddin Noman Chowdhury, Bangladesh's permanent representative to the UN, made the appeal while addressing the 63rd session of the Commission for Social Development (CSocD63) at the UN Headquarters in New York today.

He underscored the need for international cooperation to bridge existing gaps and ensure sustainable and inclusive development.

Highlighting Bangladesh's key national initiatives under the current interim government led by Muhammad Yunus, the ambassador reaffirmed the country's commitment to inclusive policies aimed at advancing social development.

The ambassador also stressed the government's focus on eliminating poverty, tackling unemployment, and reducing net carbon emissions.

He outlined Bangladesh's efforts to combat climate change through adaptation and mitigation programmes despite limited resources.

Additionally, he called for renewed global commitments in financing, technology transfer, and capacity-building to create a just, inclusive, and resilient future.

The 63 session of the Commission for Social Development (CSocD63) is taking place at the United Nations Headquarters in New York from February 10 to 14.

Bangladesh is a member of the commission for the 2023-2027 term.​
 

Bangladesh poised for record remittance inflow this year: Governor
UNB
Published :
Feb 12, 2025 20:26
Updated :
Feb 12, 2025 20:26

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Bangladesh is on track to set a record for inward remittances through legal channels this year, as expatriates regain trust in the banking system, said Bangladesh Bank Governor Dr Ahsan H Mansur.

The governor made the remarks while addressing concerns over recent media reports alleging loan irregularities involving an independent director of Islami Bank Bangladesh PLC.

Following an investigation, Bangladesh Bank found no evidence to support the claims against Abdul Jalil, an independent director of the bank.

“Publishing reports in newspapers is not a probe that proves someone guilty. Sometimes, misinformation and lack of proper verification lead to misleading reports,” Dr. Mansur told UNB on Wednesday.

He suggested that vested groups opposing banking sector reforms might be spreading such propaganda.

He, however, emphasised the positive trajectory of the banking sector, particularly in remittance collection. “We have confidence in the current board of Islami Bank. The bank has made a remarkable turnaround and is excelling in areas such as deposit growth, investment, and remittance collection.”

Dr Mansur expressed optimism that remittance inflows through official channels would hit a new high this year. “Expatriates now have renewed confidence in the banking system, and this will reflect in record-breaking remittance figures,” he added.

About small depositors in some troubled banks, the governor reassured that Bangladesh Bank is working on policies to safeguard depositors’ interests.

“There is no reason to worry about customer deposits in any scheduled bank. We are working on long-term solutions, but people need to be patient for a steady recovery,” he said.

With increasing trust in the banking system and ongoing reforms, Bangladesh is expected to see strong economic gains from its remittance-dependent financial sector.​
 

Interim govt adopting wrong policies at wrong times: Mustafa K Mujeri
Staff Correspondent
Dhaka
Published: 12 Feb 2025, 21: 24

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Jago News 24 organised a roundtable under the title “Burden of additional taxes on consumers: What to be done” at the MCCI conference room in the capital’s Gulshan Prothom Alo

Bangladesh Institute of Development Studies (BIDS) for director general and former chief economist at Bangladesh Bank, Mustafa K Mujeri has remarked that the current interim government is adopting wrong policies at wrong times.

The eminent economist said, “It has been six months since the interim government took over. Unfortunately there has been almost no success in the financial sector of the country in this time. The economy has largely stagnated due to some core problems such as high inflation rate and slow pace of financial growth. There has not been much success in terms of other problems we have. As a result the economy is yet to bounce back.”

Mustafa K Mujeri further said, “There is a common pattern of the economic policies adopted so far by the interim government. And that is adopting wrong policies at the wrong time. The consequences won’t be good in the coming days.”

He came up with these remarks at a roundtable under the title “Burden of additional taxes on consumers: What to be done” organised by news portal Jago News 24 at the MCCI conference room in the capital’s Gulshan. Centre for Policy Dialogue (CPD) research director Khandaker Golam Moazzem presented the keynote at the roundtable.

Economist Mustafa K Mujeri said, “Monetary policy alone cannot control inflation in a country like Bangladesh. The Bangladesh Bank (BB) has raised the policy interest rate to more than 10 per cent. There hasn’t been any impact of this initiative on inflation. Inflation is pursuing its own course. Rather, it is doing harm to the country’s economy. It is also hampering the business and production too. As a result the amount of loss is rising.”

The former BIDS director general said, “The policies being adopted by the interim government have no correlation. The government is not thinking much before taking up any policy. The decisions are sudden. The decision to increase VAT is one such decision. It was a sudden decision. The condition imposed by the International Monetary Fund (IMF) played a key role behind the decision. Finance ministry officials think increasing VAT is the easiest way to increase revenue. They think additional VAT will increase the revenue by Tk 120 billion.”

He further said, “The prescriptions provided by the IMF or the World Bank since the 80s haven’t worked. Each of those failed. And so is going to happen this time too.”

The processes must be proper for the economy to bounce back, he said adding “The economy must be dynamic to increase revenue. We will never be able to increase revenue collection by stalling the economy.

Bangladesh Auto Biscuit and Bread Manufacturers Association President Shafiqur Rahman Bhuiyan raised the demand to keep food products VAT-free.

“How much to reduce the amount of biscuits in the packet to adjust with the additional VAT? How much to decrease the size of the packet. If things continue to be like this, then we will have to sell empty packets one day.”

Pran-RFL group chairman and CEO Ahsan Khan Chowdhury said the country would run smoothly if the VAT rate was rational.

He said, “Traders and businesspersons are important to move the country forward. The government needs to enhance contacts with businesspersons and conglomerates.”

Economist MM Akash said the main goal of the government was to reduce the price hike. As they failed to do that despite various efforts, they reduced the tariff. But instead of decreasing the prices of daily commodities, it created a revenue deficit. Following that, the IMF said that it would not disburse the fourth installment if there is a revenue deficit. In these circumstances, the government imposed additional VAT on some products, which created more pressure on low and middle income people.

Jago News Acting Editor KM Ziaul Haque moderated the roundtable discussion, which was attended by Policy Exchange Bangladesh chairman M Masrur Riaz, former National Board of Revenue (NBR) member Rezaul Hasan, BKMEA president Mohammad Hatem, former Dhaka Chamber president Ashraf Ahmed, former BGMEA director Mohiuddin Rubel, Consumers Association of Bangladesh (CAB) vice president Nazer Hossain, ACI Foods chief business officer Faria Yasmin, SMC Enterprise Limited managing director Saif Uddin Nasir, Bangladesh Agro Processors Association (BAPA) president MA Hashem, ERF president Daulat Akhter Mala, former banker Saiful Hossain and Supermarket Owners Association general secretary Md. Zakir Hossain.=​
 

Key challenges and barriers in Bangladesh's export diversification
UNB

Published :
Feb 13, 2025 10:11
Updated :
Feb 13, 2025 10:11

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Although Bangladesh’s export volume has grown by over 5 per cent in the last 35 years since 1989-90, the diversification of export products remains elusive, with exports still concentrated in just 8 to 9 major items.

Why has Bangladesh been unable to achieve significant export diversification despite sustained efforts?

According to Abu Mukhles Alamgir Hossain, Director (Policy and Planning) of the Export Promotion Bureau (EPB), several other promising sectors, such as leather and leather goods, jute and jute products, agricultural and processed products, handicrafts, pharmaceuticals, ICT and ICT-enabled services, and light engineering products, do not receive the same level of policy support and incentives as the readymade garments (RMG) sector.

He emphasised that sector-specific policy papers are essential to assess the advantages and disadvantages of diversification while also analysing the strategies of competing nations.

Barriers to Export Diversification

A range of challenges hinder Bangladesh’s export diversification efforts.

These include low technological advancement, inconsistent trade policies, environmental and compliance issues, skill shortages, limited innovation and research & development (R&D), inadequate logistics, intense global competition, and restricted access to finance for small and medium-sized enterprises (SMEs).

Alamgir Hossain said that SMEs in Bangladesh struggle due to limited access to affordable credit. High interest rates and collateral requirements create significant barriers to business expansion.

“Although SMEs are regarded as the lifeblood of the economy, Bangladesh must prioritise their development if serious about export diversification,” he said.

He added that export diversification cannot happen overnight. There is no shortcut to achieving it. Long-term strategies, sector-specific policies, business-friendly customs procedures, and efficient logistics are crucial for ensuring a diversified export sector.

Current Export Scenario

According to the EPB, Bangladesh exported goods worth Tk 2.94 lakh crore (US$28 billion) in the seven months from July to January, of which Tk 2.46 lakh crore (US$23.5 billion) came from garments alone. During this period in the current 2024-25 fiscal year, total export earnings grew by 11.68 per cent.

The ready-made garment sector grew by 12 per cent, with knitwear expanding by 12 per cent and woven garments by 11.97 per cent compared to the same period last year.

Bangladesh’s export earnings are still overwhelmingly dependent on the clothing sector. The EPB reports that in the 2023-24 fiscal year, knitwear accounted for 44.6 per cent of exports, woven garments 37.2 per cent, home textiles 3.3 per cent, footwear 2.3 per cent, jute products 1.9 per cent, and fish 1 per cent.

Despite expert recommendations and government initiatives to promote export diversification, non-RMG sectors have shown little improvement, continuing their weak performance year after year.

Bangladesh’s export products remain concentrated in just eight categories: knitwear, woven garments, agricultural products, leather and leather goods, jute and jute products, home textiles, frozen and live fish and engineering products.

Challenges in Expanding Export Markets

Bangladesh’s primary export destinations are the European Union, the United States, and the United Kingdom. While these markets are large, they primarily import clothing items from Bangladesh due to the country's expertise in the sector and its competitive pricing, industry insiders say.

Dr Mohammad Abdur Razzaque, Chairman of the Research and Policy Integration for Development (RAPID) think tank, stressed that the time for serious efforts towards export diversification is now.

“Although achieving major export diversification is a long-term process and Bangladesh has been trying for years, there is no alternative but to achieve diversification to sustain the export sector,” he stated.

Dr Razzaque, who has also served as a trade expert in the UK and EU, warned that global challenges could lead to declining demand for clothing products in the USA, UK, and EU, as competing countries ramp up their export capacities.

Furthermore, he pointed out that US sanctions on China may indirectly affect Bangladesh’s garment sector, given that Bangladesh imports a significant portion of raw materials for garments from China. The evolving global trade landscape poses additional risks.

Key Issues Preventing Export Diversification

Responding to why Bangladesh has failed to diversify its exports, Dr Razzaque said, “We have not taken the issue of product diversification seriously enough. Compliance is another major concern.”

He noted that the potential of the leather sector remains largely untapped due to compliance issues. “Bangladesh had ample time to address compliance challenges in the leather industry, but mismanagement and corruption have kept the sector lagging behind,” he added.

Dr Razzaque emphasised the need for improving workforce skills to enhance competitiveness in the global market.

He argued that producing diversified and high-end products would provide Bangladesh with a crucial advantage in exports.

While Bangladesh’s export sector has seen remarkable growth, its overwhelming reliance on the RMG industry makes it vulnerable to shifts in global demand and competition.

Addressing barriers such as inadequate policy support for non-RMG sectors, compliance shortcomings, skill gaps, and financial constraints on SMEs is essential for meaningful diversification. Without significant reforms and targeted investment in emerging export industries, Bangladesh risks stagnation in its export growth and long-term economic vulnerability.​
 

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