[🇧🇩] Monitoring Bangladesh's Economy

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Source : https://www.thedailystar.net/anniversary-supplement-2024/bangladesh-the-world-stage/news/our-journey-towards-smart-revolution-agriculture-3544191

Challenges on the road to becoming the 28th largest economy​

Investment, both domestic and foreign, plays a pivotal role in fostering economic growth. PHOTO: REUTERS

Bangladesh undeniably stands out as one of the most promising economies in the region. Despite facing resource constraints, the country has made commendable economic and social progress since independence. This success is a testament to the indomitable spirit of the Bangladeshi people, their relentless struggle for survival, and their remarkable commitment, determination, and entrepreneurial spirit. With an average annual GDP growth of six percent since the 2000s, Bangladesh currently holds the 35th position among global economies, and it is projected to become the 28th largest economy by 2030. However, this ambitious journey toward economic advancement is not without its challenges. The critical hurdles on our path include tackling poverty, addressing income inequality, managing high inflation and external debt burden, attracting foreign investment, improving resource mobilisation, addressing foreign exchange shortages, curbing corruption, ensuring the stability of the financial sector, and others.

In recent years, Bangladesh has borrowed heavily to finance various mega projects. Consequently, annual debt servicing has been on the rise, which now constitutes a substantial share of the government's expenditures. According to data from the Bangladesh Bank, the total government debt, comprising both domestic and foreign, reached around the $100-billion mark at the end of June 2023. While some of these projects may yield long-term benefits, the immediate requirements for debt servicing pose a challenge for the government's financial capacity. Currently, Bangladesh has to repay foreign loans ranging from $2-2.76 billion annually, and this amount is expected to rise in the coming years. According to a finance ministry projection, foreign debt repayments, including interests, will reach $4.5 billion in 2025-2026. The increasing external debt service payments are straining the country's foreign exchange reserves.​

With an average annual GDP growth of six percent since the 2000s, Bangladesh currently holds the 35th position among global economies. VISUAL: TEENI AND TUNI

Concurrently, debt-service payments are diverting already scarce fiscal resources from critical sectors such as healthcare, education, social assistance, and infrastructure development. While experts argue that Bangladesh's current debt-GDP ratio is not a cause for concern, it shouldn't be seen as a green light for indiscriminate loan accumulation. To secure the nation's economic future, it is crucial for policymakers to prioritise projects by carefully assessing payback periods, thus preventing potential debt traps. Ensuring the efficient utilisation of borrowed funds is paramount to sustaining the economic cycle in the face of challenges.

Investment, both domestic and foreign, plays a pivotal role in fostering economic growth, improving the skills of the local workforce through the transfer of technology, leading to job creation, higher incomes, and improved standards of living. Research shows that to transform Bangladesh into a high-income country, it would need to raise its investment-to-GDP ratio to around 40-44 percent of GDP. Regrettably, private investment has shown little growth, hovering at around 23-24 percent of GDP for the past decade, as reported by the Bangladesh Bureau of Statistics (BBS). We are also lagging behind in attracting foreign direct investment (FDI). While even during the pandemic (2020) FDI flow to developing countries in Asia increased by four percent to $535 billion, according to figures from the UN Conference on Trade and Development (UNCTAD), Bangladesh could not achieve the expected FDI. As per Bangladesh Bank's data for the fiscal year 2023, the nation attracted approximately $3.2 billion in foreign direct investment. The rate of FDI inflow in Bangladesh is only around one percent of GDP, one of the lowest in Asia.

ILLUSTRATION: Salman Sakib Shahryar

It's crucial to recognise that the level of convenience in doing business holds significant importance for foreign investors when deciding where to invest. The ease of doing business and global competitiveness are key factors influencing their investment choices. Investors assess various aspects, including the clarity of existing policies, reliability of government officials, taxation policies, adherence to rules and regulations and, most importantly, the security provided for their investments.

Regrettably, in the case of Bangladesh, investors often express frustration due to bureaucratic hurdles that impede smooth business operations. These challenges include bureaucratic red tape, inadequate socio-economic and physical infrastructure, inconsistent energy supply, corruption, underdeveloped money and capital markets, a complicated tax system, along with delays in decision-making processes. Furthermore, hidden costs related to procedures, policies, laws, and infrastructure significantly impact the overall cost of doing business.

Therefore, in light of the current economic challenges, it is essential to boost investment inflow by making timely adjustments to policies. The government should remove the impediments that are responsible for the high cost of investment and promptly take measures to improve public goods and services, including roads, electricity, gas, water, and sewerage. Additionally, the government should implement business-friendly policies safeguarding the rights of enterprises, workers, consumers, the environment and, most importantly, ensure a stable political environment to attract both domestic and foreign investments.

Bangladesh undeniably stands out as one of the most promising economies in the region. VISUAL: REHNUMA PROSHOON

Bangladesh's export portfolio is primarily dominated by its ready-made garments (RMG) sector. In the fiscal year 2022-2023, the total export from Bangladesh amounted to $55.56 billion, with RMG exports contributing $46.99 billion. Currently, the RMG sector accounts for 85 percent of the country's total exports, with primary destinations being the European Union and the United States. The RMG sector has played a transformative role in shaping our economy, job market, and income, but due to ongoing global geopolitical conflicts, energy price hike, domestic political unrests, currently, the RMG sector is in a sluggish state. Hence, for Bangladesh to sustain its growth trajectory, diversification of the export basket and tapping into new markets is imperative.

Industry insiders say that there are promising export sectors such as pharmaceuticals, bicycles, shipbuilding, leather and leather goods, frozen and live fish, terry towels, furniture, and agricultural products, if the government provides adequate policy support, similar to what is offered to the RMG sector.

According to a finance ministry projection, foreign debt repayments, including interests, will reach $4.5 billion in 2025-2026. VISUAL: TEENI AND TUNI

Foreign remittance is Bangladesh's lifeline. Despite an increasing number of Bangladeshis leaving for jobs abroad, in recent times, the remittance inflow has been decreasing at an alarming rate. In September 2023, migrant workers sent home $1.34 billion—the lowest since April 2020, according to data from Bangladesh Bank. Large remittances are sent through informal channels like hundi despite a 2.5 percent incentive for the remitters through the banking channel. Many argue that the widening gap between official and unofficial exchange rates, lack of motivation, and institutional barriers such as high transaction costs and formalities for sending remittances through formal channels hinder remitter's use of banking services. Currently, Bangladesh is struggling with a prolonged dollar crisis and is compelled to restrict imports due to falling reserves. Remittances play a vital role in growing foreign exchange reserves and economic growth. Hence, an urgent policy focus is required to shift remittances from informal to formal channels.

One of the biggest concerns for the economy is our ailing banking sector, which has, on numerous occasions, been tarnished by unwanted malpractices. It is now an open secret that the country's banking sector has been entangled in a series of scams and irregularities, such as the funnelling of loans worth billions of taka by violating banking rules and procedures to influential people known for lax repayments. Unfortunately, violators of banking norms and regulations are hardly ever punished, and they are allowed to continue to default on loans with impunity. As a result, at the end of FY 2022-23, defaulted loans in the banking sector stood at a record Tk 156,040 crore.

Banks are the lifeblood of the economy; therefore, regulators should take pre-emptive measures to control the current situation before it worsens and gets out of control. A combination of strong policy reforms and good governance in the banking sector is the need of the hour. Measures should include legal action against wilful loan defaulters, enhanced banking regulation and supervision, addressing banking sector weaknesses, tighter criteria for loan rescheduling/restructuring, and improved legal systems to accelerate loan recovery. If enforcement authorities take these measures with the right intentions, Bangladesh will embark on a path to creating a stronger economy.

A vendor sells fish at a market in Dhaka. PHOTO: REUTERS

Over the past decade, Bangladesh has consistently demonstrated impressive economic growth. However, one may ask: has everyone been able to share its benefits equally? The answer, sadly, is "no." The growth has, unfortunately, bypassed the majority of the population while higher-income groups have been its main beneficiaries. The country has experienced a rapid increase in income inequality, with 10 percent of the population owning 40 percent of the national income, while the bottom 50 percent possess only 19.05 percent of GDP. The primary factors which deprive poor and vulnerable people of their most elementary rights—and which lead to greater income inequality—are unequal access to education and employment opportunities, low-wage jobs, unchecked corruption and systemic irregularities (such as those enabling the various scams in the banking sector), tax evasion, money laundering, and so on.

The growing gap between the rich and poor not only hinders sustainable growth but also increases the risk of social and political unrest. As such, it's essential for our policymakers to stop favouring the wealthy and start focusing on fair treatment for everyone. The main goal should be to achieve inclusive growth. We need to address issues like wealth sharing, good governance, and social policies that promote fairness and equality. It may be noted that a society that is happy, equal, and just will always experience peace and prosperity.

Inflation has been adversely affecting the common people in Bangladesh. Prices of daily essentials, including eggs, chicken, onions, potatoes, sugar, and oil, have consistently increased, contrasting with the global trend of decreasing prices. Purchasing daily necessities has become increasingly challenging, as highlighted in a recent report by the World Bank. According to the report, 71 percent of families are being affected by rising food prices. This alarming statistic implies that out of the 4.10 crore families, almost 2.91 crore are facing food insecurity, a matter of grave concern. If the current trajectory of inflation and escalating living costs persists, there is a significant risk of more families falling into poverty.

VISUAL: STAR

Experts say that soaring food inflation rates in the country are linked to flawed government policies, poor market management and the profit-seeking behaviours of certain businessmen involved in syndicates. Moreover, the control of essential commodity imports by powerful businesses has resulted in market monopoly. The government has to address all the underlying reasons behind food inflation through a well-formulated action plan.

The need for continued investment in education and skill development is another challenge that Bangladesh must address. Over the past few years, numerous experiments have been carried out in the name of modernising and updating our primary, secondary, and higher secondary education. Yet, the existing education curriculum is not aligned with industry needs. While educational institutions worldwide emphasise soft skills like team-building, problem-solving, critical thinking, communication, negotiation, and decision-making, our education system is still stuck in the past.

So, often, we hear complaints from the business community about their inability to find skilled workers, leading them to hire foreign professionals due to a lack of efficient local human resources. This not only hampers the country's job market but also increases the strain on Bangladesh's depleting foreign-currency reserves.

Regrettably, our education budget doesn't reflect the urgency of developing human resources. The country spends around two percent of its GDP on education, which is the lowest among South Asian countries. It is high time for Bangladesh to focus on enhancing its education system, ensuring that the workforce is equipped with the skills necessary for the evolving job market. A well-educated and skilled population is not only vital for fostering innovation but also for attracting high-value industries and investments.

It's unfortunate that, even after 52 years of independence, the country's healthcare sector is in shambles. It is shameful that a nation on the path to becoming the 28th largest economy in the world still witnesses a substantial number of its citizens, including politicians, businessmen, and ordinary people, seeking medical treatment abroad each year. This trend reflects a lack of confidence in our own healthcare system. While individuals choosing overseas medical care may argue that they owe no public explanation, the scenario takes a more alarming turn when Bangladeshi leaders and politicians follow suit. Their decision to seek medical treatment abroad is not just a personal matter but a cause for concern, as they bear the responsibility for the development of a robust healthcare system for their fellow citizens.

This prevailing culture needs to be transformed urgently, given its detrimental impact on our hard-earned foreign currency reserves and the nation's image. The government should prioritise and guarantee equitable access to high-quality health services for all citizens. Failing to improve our health sector not only jeopardises the well-being of our population but also threatens to erode the significant economic gains Bangladesh has achieved over the years. Therefore, concerted efforts are imperative to instigate a paradigm shift and ensure that the healthcare system becomes a source of pride and reliability for every citizen, discouraging the need for seeking medical treatment abroad.

Corruption is a global problem, and Bangladesh is no exception to this pervasive issue. While the country holds the 147th position out of 180 countries in the Corruption Perceptions Index (CPI) for 2022, according to Transparency International, it is important to recognise that this ranking does not implicate every citizen in the web of corruption. I firmly believe that the majority of Bangladeshis are honest and possess integrity. Nevertheless, the harsh reality persists that a handful of people within key sectors such as government offices, businesses, healthcare, education, and political institutions are involved in corrupt practices such as bribery, embezzlement of public funds, bank loan scams, money laundering, under/over invoicing, adulteration of food and drugs, and various forms of cheating.

It is unfortunate that despite governmental claims of zero tolerance for corruption, there is a disconcerting trend where powerful individuals often escape accountability. It should be noted that instances of overlooking or condoning corrupt practices among associates, friends, and political supporters erode public trust, perpetuating a culture where dishonesty might be perceived as justifiable. The need to break free from this complacency is urgent. Holding wrongdoers accountable and instituting stringent measures against corruption are imperative. Currently, the absence of severe consequences for influential figures engaged in corrupt activities not only perpetuates a cycle of impunity but also undermines public confidence in the democratic process. It is time to revisit and reinforce our commitment to eradicating corruption.

Effective law enforcement is a critical pillar in ensuring that the corrupt face justice and that the culture of impunity is dismantled. However, punitive measures alone are insufficient, a comprehensive approach that includes legal reforms, institutional strengthening, and increased societal awareness is indispensable to combatting corruption. These measures are not only vital for sustained economic growth but are also fundamental for elevating Bangladesh's standing on the international stage.​

 

[Saif]

Decoding the social dynamics of Bangladesh’s rising middle-class

Bangladesh is rapidly reaching a tipping point, where the country’s middle-class will expand dramatically over the next several years. At present, more than a fifth or about 34 million of the country’s total population belong to the middle-class category (defined as having per capita income...

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Decoding the social dynamics of Bangladesh’s rising middle-class​

Bangladesh is rapidly reaching a tipping point, where the country’s middle-class will expand dramatically over the next several years. ILLUSTRATION: BIPLOB CHAKROBORTY

Bangladesh is rapidly reaching a tipping point, where the country's middle-class will expand dramatically over the next several years. At present, more than a fifth or about 34 million of the country's total population belong to the middle-class category (defined as having per capita income ranging between $2 to $3 per day). This share is likely to reach 25 percent by 2025 and 33 percent by 2030. This means that the size of the country's middle class is likely to increase to around 44 million and 60 million in 2025 and 2030, respectively.

For a lower middle-income country like Bangladesh, one must also realise that the size of the middle-class alone is not what matters the most for economic growth and development. In addition to its demographic size, other dimensions of the distribution of income within the middle-class reflecting the internal heterogeneity and asymmetry of this income group are also important determinants of income growth across time and space. Empirical analysis shows that a "wealthier" middle-class is what positively impacts economic growth the most.

Given the low share of "wealthier" middle-class in Bangladesh, upward mobility between subcategories of the middle-class seems rather difficult. There is also the possibility of downward transition. Besides, an increase of the "floating class" size, which is composed of vulnerable middle-class households that have barely escaped from poverty, has negative impacts on growth. This suggests that, to take full advantage of the dynamics behind the expansion of the middle-class, Bangladesh should design policies that are consistent with the needs of the heterogeneous middle-class households and increase their resilience.

Growth dynamics and middle-class

Analysts identify at least three channels through which the size of the middle-class determines the growth experience of an emerging economy. The first is that the middle-class is where entrepreneurs that foster innovation and growth emerge from. The second highlights middle-class "values" that encourage accumulation of human capital and savings. The third channel emphasises the consumption power of the middle-class that leads to diversification and expansion of markets, which allow for the exploitation of economies of scale in production. In addition, the middle-class may play a key role in better governance. In comparison with the poor, the middle-class may have the ability and power to demand better public service delivery and greater accountability from public officials, and support growth-oriented policies. This suggests that the presence of a strong middle-class in a country should have a significant positive influence on economic growth.

Overall, the expansion of the middle-class is often regarded as a sign of development in a country, resulting in economic prosperity as well as a potential for more social security. Rapid growth of the middle-class clearly has economic consequences; it also has social ones. The middle-class is important for growth as income elasticities of demand of these people are usually greater, especially for durables. Their preference for product differentiation leads to value added in branding. They promote "middle class values" such as hard work, meritocracy, savings, and education. Their impetus to growth is more sustainable than export-led growth. And there is less risk of falling into the "middle income trap". Cross-country empirical evidence shows that a larger middle-class influences consumption growth primarily through higher levels of human capital accumulation.

Empirical analysis shows that a ‘wealthier’ middle-class is what positively impacts economic growth the most. VISUAL: STAR

In Bangladesh, the importance of the middle-class in growth dynamics is likely to occur primarily through its contribution to factor inputs, chiefly human capital. The relationship between the middle-class and the levels of human capital is likely to be robust, positive, and highly significant.

A large middle-class is also likely to be associated with higher levels of savings in the country. The middle-class thus matters for growth in Bangladesh on account of its investments in human capital that is facilitated by steady employment which seems to be a key characteristic of what it means to be middle-class. Thus, a strong middle-class is likely to lead to long-term development of the country by positively affecting the proximate causes of growth. In the process, robust positive impact on consumption growth through schooling will also support increased demand for human capital during the country's industrialisation process.

Specifically targeting the middle-class may help in the fight against poverty, compared with policies that solely aim to help the poor and impoverished. To the extent that the policy-makers would like to nurture the middle-class, the key question is: how should they do so? No doubt, there are many deeply embedded institutional and cultural characteristics that can present difficulties when trying to foster the middle-class. Specifically, existence of strong democratic culture, fair legal traditions, functioning institutions, and good governance can create a rapidly emerging middle-class. In addition, policies to spur the private sector are likely to lead to faster growth of the middle-class. Similarly, policies that promote urbanisation will boost the size of the middle-class. As such, strong evidence exists that a rising middle-class will boost consumption and investment, and be an important driver of economic growth.

Given the low share of ‘wealthier’ middle-class in Bangladesh, upward mobility between subcategories of the middle-class seems rather difficult. VISUAL: COLLECTED

The middle-class has growing expectations regarding quality healthcare, good education, social protection, affordable living, and other social services. They no longer remain satisfied with simply having access to public services; they are increasingly concerned with their quality. The middle-class would demand greater access to high-quality, inexpensive education and healthcare. Providing quality services that the middle-class demands is far more complicated than providing access and this can be a source of friction and conflicts. With rapid growth of the middle-class, the demand for public services soars, the capacity of the government to respond to them also expands, but at a slower rate. This, in turn, may have implications on poverty, assuming that the government is able to meet public demands—it is well-known that the causes of poverty include insufficient access to public services such as education and healthcare, especially for rural inhabitants.

Bangladesh's emerging middle-class can thus be a critical factor because of its potential as an engine of growth. History tells us that those belonging to the middle-class vigorously accumulate capital, both physical and human. So, a stable middle-class can provide a solid foundation for economic progress by driving consumption and domestic demand.

The experience of Brazil and South Korea illustrates major differences in the role of the middle-class. In the 1960s, both these countries had similar levels of income and economic growth rates; but by the 1980s, the middle-class made up only 29 percent of the population in Brazil due to high income inequality. In contrast, South Korea's share of middle-class was 53 percent. The high share of the middle-class enabled South Korea to shift away from export driven growth towards domestic consumption, a transition that did not happen in Brazil. And South Korea progressed rapidly afterwards, whereas Brazil stagnated.

The expansion of the middle-class is often regarded as a sign of development in a country, resulting in economic prosperity as well as a potential for more social security. VISUAL: REHNUMA PROSHOON

Harnessing investment opportunities

Investing in the middle-class in Bangladesh can be an exciting and potentially rewarding venture for investors. The economic opportunities emerge from high growth potential fuelled by various factors, including rapidly rising consumption, infrastructural development, and technological advancements. Investing early in these areas can lead to substantial returns as they mature. Moreover, investing in different lucrative markets provides an opportunity to diversify the investment range which can act as a hedge against potential risks in the investors' overall portfolio.

Moreover, Bangladesh's economy is still in its early stage of development. As the economy progresses, it presents opportunities for investors to expand and reach new, underserved markets. Above all, favourable demographics offer a young and growing population. This demographic trend can translate into increased demand for goods and services, driving further economic expansion and creating investment opportunities in various sectors.

One must also realise that, in the aftermath of the Covid-19 pandemic and adverse global and national developments that have followed afterwards, Bangladesh economy has suffered serious macroeconomic instability which has resulted in high inflation and financial and external volatility over the last two years. This, in combination with other factors, has slowed down economic growth and unemployment is more likely to have risen in the country. The ensuing slow recovery in investment has also cut the pace of structural transformation (from agriculture to higher productivity sectors) in Bangladesh.

Anecdotal evidence shows that productive structural transformation—the shift in employment out of lower productivity sectors into higher productivity ones—has slowed, weakening a key driver of job quality growth that is associated with poverty reduction, falling shares of vulnerable employment and growth of the emerging middle-class in the country. This shows a clear need for improvements in productivity, sustainable structural transformation and expansion of the social protection system to ensure a basic social floor for the poor and vulnerable middle-class of the country.

No doubt, investing in the emerging middle-class dominated Bangladesh economy offers enticing opportunities for growth, but it comes with its fair share of challenges as well. By understanding the potential rewards and risks, conducting thorough research, and maintaining a long-term mindset, investors can harness the growth potential of this dynamic economy. The key will be to invest with caution, along with a well-thought-out strategy to make the most of the emerging opportunities.

Middle-class and social transformation

The middle-class is not only a driver of consumption and domestic demand, its social role is equally important. The middle-class is usually progressive, supports democracy and moderate political platforms. A strong middle-class can, therefore, influence inclusive development through more active participation in the political process, expressing support for inclusive political programmes and electoral platforms.

Although a larger middle-class may imply a happier population—especially for the new entrants—this may also create pressures for better delivery of public services or for more democratic governance as middle-class citizens recognise their potential to bring about positive changes.

However, despite having incomes above the poverty line, some middle-class segments are quite vulnerable. Many of them work in the informal sector, their education and skill levels do not permit them to move up to better occupations, and social protection systems fail to reach these vulnerable groups. Their susceptibility to economic shocks is striking. This vulnerability is especially worrying, since if they have vulnerable incomes and unstable employment, their consumption levels may not support sustainable development and stable social progress.

Usually, the middle-class possesses rising expectations, which follow Hirschman's "tunnel effect". The tunnel effect highlights initial tolerance of increased inequality resulting from uneven economic growth processes on the part of relatively disadvantaged members of society, who, expecting to catch up and benefit in the near future, draw satisfaction from the improved income situation of others. If the moment of catching up does not arrive, initial tolerance may switch, giving way to feelings of falling behind, resulting in social upheaval.

The government's role is to put policies in place to fight the vulnerabilities of the middle-class and benefit from middle-class support. These policies should promote upward social mobility such as quality education, and provide safety nets that protect the vulnerable segments when facing life risks. If high quality of publicly provided services can be ensured, a constituency for comprehensive contribution-based social protection system can be built with support from the middle-class. However, if publicly-provided services are of low quality, the middle-class will perceive themselves as losers in the fiscal bargain and may not be willing to finance the public system.

Inclusive development and middle-class

While the middle-class is highly heterogeneous, its improved economic status could translate into greater ability for the middle-class to engage in public life, exercise their voice, and influence decision-making. However, the key issue is whether this middle-class, if truly empowered, will push for a policy agenda that is well-aligned with the interests of the poor and the vulnerable, disadvantaged and socially excluded communities in Bangladesh.

A larger middle-class is more likely to be associated with more robust democratic institutions, control of corruption, as well as higher public expenditure on education and health. In Bangladesh, the middle-class is promoting increased aggregate demand for higher quality domestic products, in particular processed and diversified food products, thus progressively transforming the economy from a global manufacturing centre (e.g., readymade garments) to a "consumption powerhouse".

A look at the characteristics of the middle-class by measures such as number of children, level of education and incidence of informal employment shows that the middle-class is considerably closer to the poor and near-poor households than to affluent ones in Bangladesh. This resemblance between middle-class and low-income groups could result in support from the former for a range of policies that would also benefit poorer segments of society. Investments in primary and secondary education, universal health coverage and the extension of social protection to the poor and informal workers are all policy areas where the interests of both the middle-class and those belonging to the bottom of the income distribution seem to converge. The question of social protection extension is particularly important, as low level of coverage in Bangladesh threatens large segments of the middle-class to fall back into poverty due to recurrent economic and social volatility.

There are, however, differences between the middle-class and poorer groups in several areas. In particular, participation of the poor households in agriculture is significantly higher than among the middle-class households. Related to this, the difference in urbanisation rates is also high: middle-class individuals are more urban than poorer households. These differences suggest that a number of pro-poor policies, such as investments in rural infrastructure and agriculture and support for small-scale farmers and local food systems, may not get strong support from the middle-class and affluent households. Thus, although a positive association between the growth of the middle-class and a series of positive institutional outcomes is often expected, it is not enough to address rising inequalities to address the specific needs of poorer communities.

People also cite evidence for representatives of the middle-class who are more likely to guard their relative privileges against the incursions of poorer classes than champion alternatives that would help to reduce poverty. The middle-class is often branded as being more concerned with retaining its privileges and remaining loyal to the government that made its social advancement possible than in greater social justice and equality. In fact, the middle-class often helps a regime to maintain the status quo.

Despite these structural limitations of the middle-class, the rising expectations of the expanding middle-class in Bangladesh signal its awakening. The key question is: will this middle-class be the country's agent of change for inclusive development?​

 

[Saif]

On the road to the trillionaire’s club

Today, Bangladesh boasts an impressive GDP size of $455.2 billion, estimated to be the 33rd biggest economy in the world in nominal terms, and is ranked 25th in the world in terms of purchasing power parity (PPP).

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On the road to the trillionaire’s club​

Today, Bangladesh boasts an impressive GDP size of $455.2 billion. VISUAL: TEENI AND TUNI

Today, Bangladesh boasts an impressive GDP size of $455.2 billion, estimated to be the 33rd biggest economy in the world in nominal terms, and is ranked 25th in the world in terms of purchasing power parity (PPP). According to HSBC and others, Bangladesh looks to be on track to become the biggest mover in the economic rankings in the near future—to become the 28th largest economy by 2030 and the 25th in 2035.

In 2019, right before Covid-19 hit, the Asian Development Bank said that Bangladesh had achieved the fastest economic growth in the Asia-Pacific—comprised of 45 countries—in FY2018-19 at 7.9 percent, and could have possibly achieved a growth of 8 percent had the pandemic not hit.

Mastercard recently predicted that Bangladesh will be the second fastest growing economy in the year 2024 among 46 countries—from different regions—that are all fighting hard to recover post-pandemic. I can go on and on about the many impressive economic achievements we have made in recent years, or are on the cusp of making. However, one in particular may stand out from the others. And that is, Bangladesh's dream of joining the trillionaire's club.

As of 2023, the "trillion-dollar club" included only 19 countries of the world. In late 2022, a study released by the American consulting firm Boston Consulting Group (BCG) revealed that Bangladesh was on course to emerge as a $1 trillion economy by 2040 if the country grew at an average rate of 5 percent—powered by a surge in middle and affluent consumers, which could drive the domestic consumer market to become the ninth-largest consumer market in the world, as predicted by HSBC also. With an average annual economic growth of 6.4 percent between 2016 and 2021, achieving an average growth rate of 5 percent sounds more than doable for Bangladesh. And what sounds even more enticing—although perhaps somewhat unrealistic without significant reforms and even luck going our way—is the fact that Bangladesh could realise this impressive milestone by 2030 if it manages to achieve an average GDP growth of 10 percent.

Mastercard recently predicted that Bangladesh will be the second fastest growing economy in the year 2024 among 46 countries. DESIGN: FATIMA JAHAN ENA

Just prior to the 15th Brics Summit, Prime Minister Sheikh Hasina said (in August 2023): "I have a dream; the 170 million people of Bangladesh have a dream. And that is, to become a trillion-dollar economy and a fully developed smart nation by 2041." And that dream, surely, is shared by all Bangladeshis, as the prime minister rightly said. According to the Federation of Bangladesh Chambers of Commerce & Industries (FBCCI) president, Bangladesh can achieve that dream much before 2040 because of infrastructural developments, economic growth momentum and confidence and indomitable spirit of local entrepreneurs. And the word confidence is key here.


BCG in its previously mentioned report said that, "consumer optimism in Bangladesh is high. This vital optimism kicked off the virtuous cycle of high growth which Bangladesh has experienced over the last decade." And, similarly, this optimism will be crucial in continuing to turn the wheel of economic growth.

As with all stories, Bangladesh's economic story has not been without its ups and downs. The recent economic climate—both globally and domestically—has created a number of uncertainties. The liquidity challenges facing many of our banks and businesses, the ongoing foreign exchange risks and the tremendous inflationary pressures on ordinary people in particular are, no doubt, driving down confidence. And that is something that only good governance can rectify.

The liquidity challenges facing our banks is a direct result of bad governance. VISUAL: STAR

The liquidity challenges facing our banks, for example, is a direct result of bad governance. When the Awami League came to power in 2009, the amount of defaulted loans stood at Tk 22,481 crore. During its tenure in the government, that amount increased to a mammoth Tk 156,039 crore as of June 2023. This happened despite the government repeatedly providing scope for defaulters to reschedule their loans and allowing for the real amount of defaulted loans to be understated through accounting manipulation which, if calculated properly, might amount to more than Tk 2 lakh crore, according to Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem).


Banks have repeatedly given scope and financing to wilful defaulters—directly under the noses of our regulators—many of whom, even a child could correctly guess, had no intentions of repaying their loans. As a result, the banking sector has not only failed miserably to optimise resource allocation—which, under ideal conditions, is a key function of the banking sector of any economy—but it has done quite the opposite by diverting resources towards the most unproductive and unrewarding (for the majority of people) ventures.

Bangladesh is now home to a younger population relative to most peer economies with a median age of 28 years. PHOTO: COLLECTED

Parallel to this, the immense capital flight that has happened from Bangladesh highlights that much of the funds have directly been siphoned out of the banking sector and straight out of the country, which is the worst thing that could have happened to the economy. The downgrading of Bangladesh's banking sector by Moody's as a spillover effect of this means financing for Bangladeshi businesses and investment becomes all the more difficult.

In 2022-23, private investment-to-gross domestic product (GDP) ratio stood at 23.64 percent. If the private sector is to deliver us into the trillion-dollar club, then private investment has to be considerably higher than that. However, the issues with our business environment such as too many government red-tapes, extremely high level of corruption, etc. along with the ease of doing business in the country due to a lack of infrastructure or shortage of energy, etc. are hindering the process of increasing private investment. And the fact that private investment has hovered around the same percentage for years suggest that the government has shown little to no interest in fixing most of the issues, except for improving some of our infrastructure.

Similarly, if we take a close look at the rising inflation, we see that the government has not been too keen in doing what is required to bring it down. Even though the initial inflationary pressure may have been driven by global factors, it has become clear now that the current inflation at the very least is down to domestic factors. Therefore, at a time when global prices are going down, prices in Bangladesh have continued to rise beyond control. Yet, officials of the government have continued to scapegoat external factors instead of taking responsibility for their failed policies that have allowed commodity prices to skyrocket. This is putting more and more pressure on not only lower income groups in Bangladesh, but also the middle-class—which accounts for around 22 percent of the country's total population, creating huge opportunities for investors. Should the middle-class continue to struggle and even shrink in terms of the total percentage of the population, investment would most certainly get discouraged.

Aside from existing businesses, to attract new generation businesses, the government must improve the regulatory environment, make policies consistent and modernise many business-related services. And this is particularly important given Bangladesh's demographic dividend—with a growing young population of earners and consumers. Given this growing population and the difficulty providing them with enough quality jobs, surely, we would prefer these young people and their innovativeness to give rise to new and pioneering businesses in Bangladesh.

PHOTO: REUTERS

A huge young workforce is ready to contribute to the high growth of Bangladesh. It is now home to a younger population relative to most peer economies with a median age of 28 years, and more than two-thirds of the total population or 68.4 percent is of working age, meaning around 114 million Bangladeshis are ready to create value through employment. How well we use this massive workforce which is at our disposal will be the most important factor determining our economic future. Hence, the focus of our policymakers will require a big shift.

The government has rightly focused on introducing much greater digitisation in the recent past. However, how that can be best utilised alongside our demographic dividend is yet to be seen. Startups have emerged in Bangladesh significantly over the last decade, with over 1,200 active startups currently providing services focusing on a wide range of industries, including financial technology (FinTech), logistics and mobility, and e-commerce. The government's active role to promote start-ups through the Information and Communication Technology (ICT) Division's flagship venture capital fund Startup Bangladesh is commendable in this regard.

In many ways, over the last decades, Bangladesh's economy has managed to mature quite a bit. One example of this is the industrial sector's share in GDP rising from 22 percent in 2010 to 37 percent in 2022. However, in terms of maturity, the economy still has a long way to go. In that regard, it cannot be forgotten how broadly the economy is actually related to other factors such as politics and institution building.

Despite the many progresses we have made, political maturity has undoubtedly lagged behind. The lack of political maturity in the country had led to democratic backsliding. We have also failed miserably at developing institutional capacity and independence, leading to poor governance. The economy often goes hand-in-hand with these elements, hence, if Bangladesh is to fast-track its journey into the exclusive and coveted trillionaire club, then these issues cannot continue to be ignored.

The lack of political maturity, institutional independence and good governance have led to a group of oligarchs to rise up. Naturally, oligarchical power leads to a rise in monopolies or oligopolies which act as barriers to entry for others and kill innovation and creativity. However, at this point in time, creativity and innovation are exactly what the country needs to go forward and prosper. Therefore, our leaders (whether they be political, business, or thought leaders) need to broaden their vision and realise the need of making (and accepting) changes that will not only benefit individuals at large, but society and the country in general.​

 

[Saif]

The rapid growth of Bangladesh’s economy, and what comes after

Growth has been the constant in the journey of the Bangladesh economy over the last two decades. Starting from 2004, excluding the outlier year of 2020 when the world economy was severely affected by the Covid-19 pandemic, Bangladesh has maintained a growth rate of over five percent or more.

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The rapid growth of Bangladesh’s economy, and what comes after​

The story of economic growth in Bangladesh has two main characters—ready-made garments (RMG) and remittance. Photo: Star

Growth has been the constant in the journey of the Bangladesh economy over the last two decades. Starting from 2004, excluding the outlier year of 2020 when the world economy was severely affected by the Covid-19 pandemic, Bangladesh has maintained a growth rate of over five percent or more. Since 2011, this rate has stayed above six percent as well (excluding 2020), indicating rapid growth that puts Bangladesh in the category of one of the fastest growing economies in the world.

So, what has primarily driven this growth?​

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The story of economic growth in Bangladesh has two main characters—ready-made garments (RMG) and remittance. Their contribution to the GDP in fiscal year 2023—10.35 percent by the RMG sector and 4.76 percent by remittance—shows that these sectors are vital cogs for the economy. But the picture of their pivotal role is better painted when these sectors' contribution as foreign exchange earners is considered. RMG makes up an overwhelming 84.58 percent of Bangladesh's total exports in FY23. Remittances made up 41.29 percent of export earnings and also contributed to 31.10 percent of import payments, indicating a net gain.

In the background is the steady contribution of the agricultural sector, which has made up 11.20 percent of the GDP in the most recently concluded fiscal year. Historically, especially in the last 20 years when Bangladesh has seen sustained growth, this contribution has slowly declined. This indicates a growth pattern in the economy that has slowly shifted towards industries over agriculture, and the data supports it as well, with contribution of industry (including construction) to GDP rising steadily during this time.

Bangladesh's sustained economic growth makes it one of the fastest growing economies in the region. The Asian Development Bank, in its Asian Development Outlook for 2019, said that Bangladesh achieved the fastest growth among economies in the Asia-Pacific during that fiscal year. In late 2023, according to the annual economic outlook of Mastercard Economics Institute (MEI), Bangladesh was predicted to be the second fastest growing economy among 46 countries, second only behind neighbouring India.

Growth has been the constant in the journey of the Bangladesh economy over the last two decades. VISUAL: STAR

But growth is only part of the picture. The fact that the Bangladesh economy has shown notable prowess in achieving sustained, rapid growth is beyond doubt, but what is its impact on the lives of people? Is this growth going to be enough to face the challenges in the near and distant future?

Dr Selim Raihan, Professor at the Department of Economics at Dhaka University, spoke to The Daily Star about what this economic growth has meant to Bangladesh in real terms.
​

"Growth is necessary, because without growth people's incomes won't grow, overall economic activity won't expand. But the more important question is how this growth is happening, what the sources of growth are. An even deeper question is how inclusive this growth is," he said.

"The sources of growth are heavily driven by export of RMG, remittance, and infrastructural development in recent decades. Agriculture sector development has also helped sustain this growth. But the base of this growth still isn't that strong. In export, we depend on a single commodity, the dependence on remittance is also an issue as the earnings fluctuate from year to year. The economic growth we have experienced in the last two decades will be quite challenging to sustain in the same way going forward. There has been little success in economic or export diversification, large scale foreign direct investment has not been attracted either. We have to find ways to make our economic growth broader based and find new sources of growth," he added.

Bangladesh’s sustained economic growth makes it one of the fastest growing economies in the region. PHOTO: COLLECTED

On the topic of making growth more inclusive, he said, "The story of job creation in Bangladesh is not as strong as the story of economic growth. While poverty alleviation has mostly been successful in our country, the speed at which it should have happened at this time of rapid growth in Bangladesh was never achieved. A big concern is that along with growth, income inequality has also become a bigger problem."

When asked about the future growth prospect of the Bangladesh economy on the back of the last few decades, Dr Rashed Al Mahmud Titumir, Chairman and Professor of Economics at the Department of Development Studies at Dhaka University, said that his models estimate that the Bangladesh economy would reach a trillion dollars in 2033, but only under certain conditions. He referred to the chapter titled, "Towards a Trillion-Dollar Economy: Reflections on and Prospects for Bangladesh at Fifty", from the hitherto unpublished book "Fifty Years of Nation Building: Political Economy of Bangladesh's Development" by the University Press Limited.

The chapter, authored by Dr Titumir and Wahid Haider, a PhD student at Southern Illinois University, Carbondale, "models the growth trajectory of the economy, suggesting Bangladesh would reach the trillion-dollar mark in the year 2033" using the ARIMA (Autoregressive integrated moving average) model. It discusses the conditions and the challenges that Bangladesh will face in making this shift, studying the cases of development in several East Asian and Southeast Asian countries whose economies have developed ahead of Bangladesh in the last few decades.

To achieve development in the mould similar to that of other Asian economies, investment in productive capacity expansion is another factor that needs greater focus. VISUAL: STAR

According to the paper, "...the conditions required for the country to move to the next stage of development remain a challenge. Both necessary and sufficient conditions are precursors for the transformation. Necessary conditions include productive capacity, capabilities, and entitlement, as well as social security. These conditions directly influence an economy's structural transformation. Productive capacity is achieved through industrialisation, diversification, competitiveness, and technological catch-up. Structural transformation is also affected by the capabilities of the labour force. Universal healthcare and education enhance the capability of the labour force. Social security is another factor that denotes structural formation as it is an indicator of healthy living conditions in a country."

The paper mentions the sufficient conditions for achieving the next stage of development as well, which are political settlement and sustainability. It reads, "Political settlement forms citizenship and augments the social contract in the society. Sustainability in the framework incorporates the issue of environment and biodiversity, as climate change threatens the future development of Bangladesh."

To achieve development in the mould similar to that of other Asian economies, investment in productive capacity expansion is another factor stressed upon in Dr Titumir's paper.

"Initial higher investment is required for technological catch-up, since most developing countries do not possess the technologies for the industrialisation. Capital is costlier in developing countries and private investment may fall short. Private investment may also slow down when the return is not high enough or there are certain risks in the economy, lowering the chance of getting the desired return. Hence, initial high public investment can offset much of the cost to private sectors. In Bangladesh, the ratio of private investment to GDP has been on the sluggish side," the paper reads.

Photo: Reuters

In their writing, Dr Titumir and Wahid Haider also focus on public expenditure for capabilities and entitlements.

In terms of where Bangladesh's education sector should be headed, they suggest, "Bangladesh has so far done well in primary education in terms of achieving its objective. It is now time to shift policies to secondary education, which remains below par compared to the countries mentioned here. Enrolment in secondary education in Bangladesh in 2018 was 61 percent whereas in South Korea the rate is 96 percent, and 80 percent in Thailand. The gap between enrolment in primary and secondary education or the drop-out rate currently is 36 percent in Bangladesh, meaning the country is correspondingly losing a skilled workforce. There has also been less focus on technical and vocational education in Bangladesh, evident from a low enrolment rate. The rate of enrolment in TVET (Technical and Vocational Education and Training) programmes in Bangladesh is just 3 percent, whereas the number crosses 15 percent for South Korea. The rate is double in Thailand and Malaysia."

Regarding universal social security, the research observes, "Economic progress becomes sustainable only when it can lift the living standard of the citizens. This has been particularly true for the East Asian countries. While the country was on its path to development, the government in each country simultaneously devised social security plans that would eradicate poverty. A lifecycle based universal social security programme that covers all the vulnerable population will lift the standard of living of the population."

Taking advantage of the growth achieved so far to put Bangladesh on the path of becoming a trillion-dollar economy will require active involvement on the part of the government, according to the paper. "The role of government and its partnership [with intermediaries] is instrumental in defining the development path for Bangladesh. However, that must be a moving process rather than a static one, where the groups that hold onto the power resist change," it reads.

Planning for an expansive economy with long-ranging foresight will be a challenge, and it is a challenge Bangladesh must overcome to sustain the growth it has become famous for, and in the process improving the lives of its huge population.

But at the same time, policymakers will need to ensure necessities are met on a sector-by-sector basis, and every industry with potential and promise needs to be nurtured to become productive. Dr Selim Raihan shared his view of a picture of economic growth that may work for Bangladesh in the future, one where specific industries, initiatives and infrastructural programmes are given proper treatment.

"We have to support products outside RMG so they might create export opportunities. The export zones that are being planned need to be implemented quickly, large scale foreign direct investment needs to be attracted so that it can be put towards diversified manufacturing and different types of services sectors. These things will change the face of the economy in my opinion," he said.

"Of course, the infrastructural development programmes we take on need to be looked at in a holistic fashion. Our tendency still is to go for big infrastructural programmes, but we need to look at some small-scale infrastructure for specific sectors. Many industries have their own problems that need to be fixed. Like the leather industry, and how the CETP (central effluent-treatment plant) in Hemayetpur, Savar is not properly functional.

Without the CETP, the leather sector in this country can't flourish. The agro-processing industry has many issues, with difficulty in acquiring investment, financial assistance from banks, and land acquisition for establishing processing plants, getting utility connections as well. In all of this, skilled manpower is a big issue as well."

"If these things can be addressed, then the face of growth in this country will change, it will become broader based, more inclusive, and more likely to create jobs, and reduce poverty and inequality," he added.

Economic growth is a metric that divulges information about the overall size of an economy, but many important details are left unsaid if the minute details are not studied. Bangladesh's rapid economic growth is a positive, yet relying solely on this metric and pushing for ever-improving numbers here may take attention away from more pressing concerns. Nurturing an inclusive economy, smart investment in necessary infrastructure as well as human capital, finding a political settlement that leads to enhanced productivity, prioritising education with the needs of the economy in mind—these are things that need to be done to grow our economy and for Bangladesh to have a brighter future.​

 

[Saif]

GDP grows 6.07% in July-September quarter

Bangladesh’s economy grew at 6.07 percent in July-September of the current fiscal year, the first time the government has published the quarterly growth figure of gross domestic product (GDP).

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GDP grows 6.07% in July-September quarter​

Govt published the quarterly data for the first time

Bangladesh's economy grew at 6.07 percent in July-September of the current fiscal year, the first time the government has published the quarterly growth figure of gross domestic product (GDP).

The Bangladesh Bureau of Statistics (BBS), the national statistical agency, released the quarterly GDP data in line with the condition of the International Monetary Fund's $4.7 billion loan programme.

The first quarter's expansion was, in fact, a decline by 2.69 percentage points from the 8.76 percent growth recorded in July-September of 2022-23. It was 5.16 percent in the first quarter of 2021-22.

The agriculture sector witnessed a growth of 0.84 percent in July-September while it was 2.07 percent in the same period of FY23.

The service sector's growth fell to 3.96 percent from 12.87 percent while the industrial sector grew 9.67 percent from 7.17 percent.

"The growth slowdown is the reflection of the country's macroeconomic situation," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

"The country has been persistently facing the dollar crisis and an elevated inflationary pressure for a long time."

About the agricultural sector's slowdown, the economist said the seasonal factor has contributed to this situation as agricultural production has been hampered severely.

He pointed out lower production of Aman paddy, potatoes, onion and other vegetables.
"As a result, there is a shortage of supply."

When asked about the performance of the industrial sector, Mansur said exports did not increase as expected. Other manufacturing sectors also saw the same situation.

The economy grew 6.03 percent in the last financial year.​

 

[Saif]

Inflation shoots up to 9.86pc in Jan

Inflation in Bangladesh climbed 45 basis points to 9.86 percent in January, official figures showed yesterday, defying measures undertaken by the central bank recently to bring consumer prices under control.

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Inflation shoots up to 9.86pc in Jan​

Design: Kazi Akib Bin Asad

Inflation in Bangladesh climbed 45 basis points to 9.86 percent in January, official figures showed yesterday, defying measures undertaken by the central bank recently to bring consumer prices under control.

The Consumer Price Index rose 9.41 percent in December, according to the Bangladesh Bureau of Statistics (BBS).

Non-food inflation pushed up inflation last month: it surged 90 basis points to 9.42 percent.

Food inflation fell slightly to 9.56 percent from 9.58 percent.

The higher inflation highlights the continuing cost-of-living crisis facing the poor and low-income groups.

Inflation has stayed over 9 percent since March and at an elevated level since May 2022, owing to the lingering impacts of the coronavirus pandemic and the Russia-Ukraine war.

Globally, central banks pushed their interest rates speedily and sufficiently – many to record highs -- to make loans expensive, thus bringing inflation largely under control. But the BB acted in a cautious manner and insufficiently.

The central bank visibly got down to work in June last year when it raised the policy rate to a record high, scrapped the lending rate cap of 9 percent, and put in place a new interest rate-setting mechanism.

Since inflation showed no signs of cooling, the central bank announced an array of measures in the middle of January.

The central bank raised the benchmark policy rate by 25 basis points to 8 percent to raise the cost of funds. This was the eighth straight spike since the tightening cycle began in May 2022.

It also lowered the private sector credit growth target.

All these measures are aimed at bringing down inflation to 7.5 percent by the end of the current fiscal year.

Analysts described the measures as inadequate.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the supply situation has not improved and the prices of basic items have remained at an elevated level.

"The items that have been seen import duty cuts have also witnessed a spike in prices. There is supply shortage and imports are also lower."

Mansur thinks the central bank's measures are yet to have an impact. "It will take time."​

 

[Saif]

Govt to promote value-added products for post-LDC era

The government is considering further incentives while emphasising ICT and advanced technology in order to increase the production of value-added products as part of preparations for graduation from least developed country (LDC) status, Chairman of the National Board of Revenue (NBR) Abu Hena Md...

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Govt to promote value-added products for post-LDC era​

NBR chairman says

The government suspends an assistant commissioner of taxes (ACT) for allegedly helping taxpayers evade tax through forgery. Photo: NBR website.

The government is considering further incentives while emphasising ICT and advanced technology in order to increase the production of value-added products as part of preparations for graduation from least developed country (LDC) status, Chairman of the National Board of Revenue (NBR) Abu Hena Md Rahmatul Muneem said yesterday.

"The IT sector and car manufacturing sector benefited last year and more opportunities will be given in the future. The work of the government is to create the environment, but you have to implement it," he said.​

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Muneem made the comments while addressing as chief guest a pre-budget meeting, organised by the Chittagong Chamber of Commerce and Industry (CCCI) at the Bangabandhu Conference Hall of the World Trade Centre in Chattogram's Agrabad area.

He also said that the industries of the country must become self-sufficient and proficient in order to confront the obstacles that come with transitioning from LDC status to the developing country status.

To this end, he emphasised the need for industries to become capable of not only confronting tax and VAT challenges, but also various other obstacles in order to compete in the global market.

He added that the nation would be unable to overcome these challenges if industries which require assistance through tax and value added tax (VAT) rebates were not adequately supported.

He also urged to move into more advanced sectors, saying: "Now is the time to turn our attention to the shipbuilding sector instead of the shipbreaking industry. Bangladesh cannot be the destination of foreign waste."

The CCCI earlier submitted around 12 proposals for the NBR for consideration in the next national budget.

CCCI President Omar Hazzaz, who chaired the meeting, proposed to raise the tax-free income limit for individual taxpayers from Tk 3.5 lakh to Tk 4 lakh considering the current global situation and persistent inflation.

He also proposed to reduce VAT on different goods from 15 percent to 8 percent since businesses and the general public are suffering due to the dollar crisis and inflation.

Managing Director of BSRM Group Aameir Alihussain mentioned that businesses face long delays in getting refunds after paying advance tax and VAT, underlining that businesses urgently need such refunds since they are currently facing a liquidity crisis.

In his speech, Muneem said they were working to solve these problems.

NBR member Md Masud Sadik said some traders were misusing government benefits.

"The government has given duty exemption of Tk 750 crore on various food products in the past year but the benefits have not reached the people. They (traders) have kept the price high, showing various reasons," he said.

Leaders of different business bodies, including the Bangladesh Garment Manufacturers and Exporters Association, Real Estate and Housing Association of Bangladesh, Bangladesh Frozen Food Exporters Association, Shop Owners Association, Clearing and Forwarding Agents Association, Rubber Garden Owners Association, and others also spoke.​

 

[Saif]

Walmart to source more from Bangladesh

Walmart's Executive Vice-President Andrea Albright says in meeting with Salman F Rahman

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Walmart to source more from Bangladesh​

Walmart's Executive Vice-President Andrea Albright says in meeting with Salman F Rahman

Walmart today expressed its interest to work more closely with Bangladesh and procure more items as the US retail giant believes the country is a lucrative destination for sourcing, said Andrea Albright, executive vice-president for sourcing of the company.

Albright made the comment at a meeting with Salman F Rahman, the prime minister's adviser on private industries and investment, at the latter's office in Dhaka.​

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The executive vice-president added that Walmart has been sourcing garment items from Bangladesh for many years although the volume reduced a bit during the Covid-19 pandemic.

However, the quantity of garment items sourced from Bangladesh will increase soon, she said, hoping that some other products would be added to the existing basket of goods.

Paul Dyck, vice-president of Walmart on global government affairs and business diplomacy, and other senior officials of the company were also present at the meeting, according to a statement from the adviser's office.

During the meeting, Rahman urged Walmart's top officials to source more from Bangladesh and include electronic products, agri products, packaged spices, jute goods, and also garment items made from man-made fibre.

Currently, Walmart is Bangladesh's second-largest international garment buyer after Swedish retail giant H&M. Walmart sources nearly $4 billion worth of garment items from Bangladesh annually while H&M sources more than $4 billion annually.

Rahman also said garment factories in the nation have been maintaining global standards of compliance and that workplace safety has been strengthened.

"Many of Bangladesh's garment factories have passed the world's highest standards of testing," he said.

The adviser briefed them as Bangladesh's economy has been rebounding from the severe fallouts of the Covid-19 pandemic and the Russia-Ukraine war.​

 

[Saif]

Turkish beverage giant Coca-Cola Icecek acquires Coca-Cola Bangladesh for $130m

In a strategic move to strengthen its presence in the South Asian market, Coca-Cola İçecek, the Turkish beverage giant...

www.newagebd.net

Turkish beverage giant Coca-Cola Icecek acquires Coca-Cola Bangladesh for $130m​

United News of Bangladesh . Dhaka | Published: 13:00, Feb 16,2024 | Updated: 22:05, Feb 16,2024

In a strategic move to strengthen its presence in the South Asian market, Coca-Cola İçecek, the Turkish beverage giant, has inked a deal to acquire Coca-Cola Bangladesh Beverages Limited for a whopping $130 million.

The share purchase agreement was signed between CCI, its wholly-owned subsidiary CCI International Holland BV and a subsidiary of The Coca-Cola Company.

The agreement outlines the acquisition of the entire 100 per cent shares in CCBB, with CCIHBV emerging as the primary direct shareholder.

CCBB holds a pivotal role in Bangladesh as one of the key players in the production, sale and distribution of both sparkling and still brands under The Coca-Cola Company umbrella.

As per the terms of the agreement, CCI is set to acquire the complete shareholding of CCBB at an equity value determined by subtracting CCBB’s estimated net financial debt as of the closing date from an enterprise value of $130 million. A post-closing price adjustment mechanism will come into play after a comprehensive closing audit to ascertain the precise net financial debt amount of CCBB as of the closing date.

The acquisition is anticipated to be funded through CCIHBV’s existing cash resources, and it is expected to have a modest impact on CCI’s net leverage. This strategic move not only expands CCI’s global footprint but also underscores its commitment to capitalising on growth opportunities in emerging markets. The acquisition is subject to regulatory approvals and customary closing conditions and is expected to further solidify CCI’s position as a major player in the beverage industry on the Indian subcontinent.
— UNB​

 

[Saif]

Bangladesh seeks DFQF in Swiss market until 2029

Foreign Minister Dr Hasan Mahmud has urged Switzerland to follow suit of the European Union (EU) in extending duty-free and Duty-Free Quota-Free (DFQF) trade preferences until 2029. The minister also invited Swiss investment in IT and agro-processing sectors in Bangladesh, reports UNB. He stresse

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Bangladesh seeks DFQF in Swiss market until 2029​

FM also seeks Swiss investment in IT, agro-processing sectors​

FE ONLINE DESK
Published :
Feb 13, 2024 13:06
Updated :
Feb 13, 2024 13:06

Foreign Minister Dr Hasan Mahmud has urged Switzerland to follow suit of the European Union (EU) in extending duty-free and Duty-Free Quota-Free (DFQF) trade preferences until 2029.

The minister also invited Swiss investment in IT and agro-processing sectors in Bangladesh, reports UNB.
He stressed on the protracted Rohingya crisis and sought Swiss assistance and support in expediting the Rohingyas’ safe, dignified, and swift repatriation to Myanmar.

Ambassador of Switzerland to Bangladesh Reto Renggli met the Foreign Minister at his office on Monday and praised Bangladesh’s impressive value chain development journey from the 70’s to this day and flagged the scope of supply chain development where the Swiss side could chip in through their food processing machinery industry.

The ambassador reassured continued Swiss humanitarian support to the Rohingyas, recognising the recent border security issues as well.

The foreign minister and the Swiss ambassador shared their views on wars and conflicts in different parts of the world, including in Ukraine, Gaza and the Red Sea and their resultant negative impacts on the economies of the two countries.

Mr. Renggli congratulated Foreign Minister Dr Hasan on his appointment as the foreign minister.

The foreign minister termed the relations between the two nations as historic and strong.

The Swiss ambassador lauded the spectacular socio-economic development of Bangladesh over the last decade.
Mentioning Swiss President’s visit to Bangladesh in 2018 and Prime Minister’s visit to Switzerland in 2023, the envoy termed Bangladesh-Switzerland ties as ‘solid’.

He expressed hope for signing bilateral Air Services Agreement in March and holding the next Foreign Office Consultations in April to advance bilateral relations further.

Switzerland is a steady partner of Bangladesh in promoting key values - good business practices, multilateral cooperation and a vibrant civil society.​

 

[Saif]

Banking reform for whom?

In his speech at the launching ceremony of the fifth edition of the Banking Almanac held at the National Press Club on Saturday, eminent economist Wahiduddin Mahmud made quite a few critical observations on the much hyped banking reform and the recipes the multilateral lenders such as the World Ban

thefinancialexpress.com.bd

Banking reform for whom?​

FE

Published :​

Feb 12, 2024 21:41

Updated :​

Feb 13, 2024 21:45

In his speech at the launching ceremony of the fifth edition of the Banking Almanac held at the National Press Club on Saturday, eminent economist Wahiduddin Mahmud made quite a few critical observations on the much hyped banking reform and the recipes the multilateral lenders such as the World Bank (WB) and the International Monetary Fund (IMF) suggest for Bangladesh. By banking reform he was referring to the roadmap of banking reform the Bangladesh Bank (BB) unveiled last week. Although the roadmap has as many as 17 key issues for the authorities to decide action plans, they can broadly be encapsulated to five. These are reduction of defaulted loans, prevention of anonymous loans and fraudulent activities, developing mechanism for appointment of competent directors, appointment of qualified independent directors and merger of weaker banks with stronger ones.


Referring to his involvement with two bank reform commissions earlier, Dr Mahmud made it amply clear that banking rules and regulations of international order were formulated and had those been included in the Banking Company (amendment) Act, there would be no need for the roadmap. The action plans are mere words instead of strong measures. As for the guidelines put forward now cannot control the damage but may stem future rot. An analysis of the fault lines responsible for rendering the tougher rules and regulations inoperative is essential. Dr Mahmud's example of removal of 70 directors from bank boards, compelling some to repay loans and others opt for voluntary resignation in 2003 due to action by the BB and judiciary serves as a pointer. The question is why such tough measures were not followed up subsequently; rather banking regulations were rendered inoperative or made further relaxed to the advantage of motivated loan defaulters. Their undue influence not only stalled the inclusion of those rules and regulations in the Banking Company Act, but also helped establish their family monopoly in banking business by just purchase of shares of several banks.

How the rules and regulations were systematically tinkered with in the interest of certain coteries is clear from former BB governor Saleh Uddin Ahmed's reference to the advantageous manoeuvring by those involved and the authorities' submission to it. During his time, there was no provision for more than two family members on the board of a bank and their tenure was for three years. The number of family members was raised to four and the tenure to six years and lately nine years. Monopoly at its outrageous! The rescheduling policy that went from 10 per cent of the outstanding loans to 20 per cent and then to 30 per cent has now been slashed to just 2.0 per cent. Similarly, the scheduled time for writing off bad loans has been brought to two years from three years. All these are done purposefully to allow defaulters a leeway and give the balance sheet a fresh and clean look. But in the process loans amounting to billions of taka is gobbled up by the loan sharks.

Clearly, the banking conundrum is there for all to see but the areas requiring urgent attention have been ignored. The roadmap has bypassed the reconstructive surgery in favour of a cosmetic one. Dr. Mahmud stressed the need for inclusion of the written off bad loans in the Banking Almanac in the interest of receiving an authentic picture of the banking sector. His doubt that the merger theory will fall flat seems to be well founded. Why should healthy private banks accept liabilities of a sick one? Incorporation may be the right word in case the sick one is taken over on its asset value. If the national interests are given preference to coterie interests, the problem, however daunting it may look, can be solved.​

 

[Saif]

Saudi investors keen to set up SEZ in Payra

Saudi investors have expressed their interest in setting up a special economic zone (SEZ) at the Payra area in Kalapara upazila of Patuakhali district of Bangladesh. Salman F Rahman, private industry and investment adviser to the prime minister, said this on Tuesday in a press conference at Bangla

thefinancialexpress.com.bd

Saudi investors keen to set up SEZ in Payra​

FE ONINE REPORT

Published :​

Feb 07, 2024 18:13

Updated :​

Feb 07, 2024 18:13

Saudi investors have expressed their interest in setting up a special economic zone (SEZ) at the Payra area in Kalapara upazila of Patuakhali district of Bangladesh.


Salman F Rahman, private industry and investment adviser to the prime minister, said this on Tuesday in a press conference at Bangladesh Investment Development Authority (BIDA) premises in Dhaka after his three-day visit to Saudi Arabia (SA).

The government wants to offer the investment opportunity to the SA for establishing an Economic Zone in Bangladesh, he told the conference.

Their investment minister has also expressed willingness to set up the SEZ in Payra, he said.

Also, Bangladesh is willing to establish a urea fertiliser factory in SA under the ownership of both countries to ensure an uninterrupted supply of the major agricultural input, he said.

“A joint venture fertiliser factory is under consideration which Bangladesh would import entirely after production,” he said.

The Saudi government is interested in moving forward with the proposal and its feasibility study would be completed by March 2024, he added.

There is a scope for private sector investors to join the initiative too, he added.

Bangladesh has sought the cooperation of SA to resolve the ongoing dollar crisis in the country.

“We have requested to allow Bangladesh one year time span, instead of the existing 45 days, to foot the energy import bills due to the dollar crisis. The counterpart assured to consider the request,” he said.

In the IMTC meeting, both countries came to a consensus on several issues including curbing terrorism in the name of Islam, strengthening cooperation between the Islamic countries, condemning of attack in Gaza, and cooperating to resolve Rohingya issues in Bangladesh.

The SA is also keen to invest in food security issues such as the production of vegetables, fish and other food products and import those to their country.

The advisor also discussed on joint research by Bangladesh and SA Rice Research Institute to produce long-grade rice.

Mr Rahman joined the Islamic Military Counter Terrorism Coalition (IMCTC) on behalf of the PM and defence minister.​

 

[Saif]

Roadmap for banking reforms: Implementation is key

Although the roadmap drawn up to reform the banking industry of Bangladesh may seem attractive on the surface, there are questions regarding its efficacy in ensuring good governance in the scam-hit sector.

www.thedailystar.net

Roadmap for banking reforms: Implementation is key​

Although the roadmap drawn up to reform the banking industry of Bangladesh may seem attractive on the surface, there are questions regarding its efficacy in ensuring good governance in the scam-hit sector.

The Bangladesh Bank outlined 17 action plans under the roadmap released on February 4.

The initiative mainly aims to bring down the ratio of non-performing loans (NPLs) to below 8 percent and ensure good governance in the sector by June 2026.

The overall NPL ratio was 9 percent by the end of last year.

The state-run banks accounted for the bulk of the bad loans as 20.99 percent of their disbursed funds had soured by the end of 2023.

As such, the BB has included measures to reduce the NPL ratio of public banks to less than 10 percent within the deadline.

Although most of the action plans and policy reforms already exist while others were added in the Bank Company (Amendment) Act 2023, the governance in the sector is getting worse.

For example, the roadmap shows that the banking regulator will provide necessary instructions to prevent lenders from exceeding the single-borrower exposure limit.

However, the provision is not new as it has existed in the Bank Company Act for more than a decade. Still, exceeding the single-borrower exposure limit has become a regular practice in the banking industry.

Around 89 borrowers of four state-run banks, namely Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank, had exceeded the limit as of June last year, as per a central bank report.

Under the current single-borrower exposure limit, banks are allowed to disburse loans equal to 25 percent of their total capital to an individual client.

Against this backdrop, economists and financial experts said that implementing the existing policies is more important than introducing new ones.

Salehuddin Ahmed, a former central bank governor, recently said regulatory bodies are failing to adequately punish those who do not follow banking laws.

As per the first policy change included in the roadmap, banks are allowed to write off loans that remain in the "bad and loss" category for two years while it was three years previously.

The central bank expects that NPLs will be reduced by Tk 43,300 crore because of the policy change.

However, the fact is that when banks write off bad loans, the figure is hidden from the balance sheet but the liabilities still remain.

Usually, loans are written off only when they are 100 percent provisioned and there are no realistic prospects of recovery. These loans are transferred to the off-balance sheet records.

And although the practice of writing off loans is accepted worldwide, some analysts call it a "window dressing".

He criticised the policy change, saying it would not help reduce the volume of defaulted loans.

The banking sector's defaulted loans climbed 20.7 percent to Tk 145,633 crore in 2023.

A provision in the roadmap allowing weak banks to merge with financially sound ones was welcomed by experts. They, however, focused on visible actions to this effect.

"The central bank should restructure the board and management of the weak banks and conduct a comprehensive audit before allowing mergers," said Ahsan H Mansur, executive director of the Policy Research Institute.

Under the roadmap, the central bank toughened the rules for appointing both shareholder directors and independent directors by fixing age and educational requirements. The regulator also raised the allowance of independent directors.

Former central bank governor Ahmed said the central bank must have enough strength to tackle political interference and pressure from influential groups to implement the roadmap.

In a press briefing in January, BB Governor Abdur Rouf Talukder said the central bank's activities have never been influenced by outside forces.​

 

[Saif]

Lack of trust in financial sector adversely impacting economy

There is a lack of trust in the financial sector of Bangladesh, which is adversely impacting the country’s overall economy, according to economists at discussion.

www.thedailystar.net

Lack of trust in financial sector adversely impacting economy​

Economists say

There is a lack of trust in the financial sector of Bangladesh, which is adversely impacting the country's overall economy, according to economists at discussion.

Against this backdrop, they urged the government and related regulatory bodies to ensure good governance and take punitive measures on all who disobey the guidelines.

These recommendations came during a panel discussion, styled "Transformation of the financial sector: Adapting to constraints", at the Muzaffar Ahmed Chowdhury Auditorium of Dhaka University yesterday.

The discussion was organised by the Economics Study Center in collaboration with the International Labour Organisation as a part of its three-day 5th Bangladesh Economics Summit 2024.

Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the domestic financial sector comprising banks, the stock market, bond market, and insurance sector has seen less development compared to that of neighbouring countries.

"The financial sector cannot support the real economy due to a lack of good governance," he added.

The economist also said people have lost trust in the financial sector, and that is adversely affecting the overall economy.

"There is a lot of talk about reforms in the banking sector," said Mansur, adding that it is expected that mergers will take place and non-performing loans will reduce but no steps have been taken to this end.

He informed that the actual amount of bad loans accounts for around 24-25 percent of the total loans disbursed. This includes loan repayments that are being held up until the dismissal of related court cases and loan write-offs.

The liabilities of the bad loans are ultimately borne by depositors and good borrowers, Mansur said.

The economist suggested ensuring institutional governance, saying that plans for the banking sector will have to be introduced with political willingness.

Salehuddin Ahmed, former governor of Bangladesh Bank, said everything is now going backwards as the laws and regulations are not being followed but there is no one to punish the offenders.

Firstly, borrowers had to pay 10 percent of their loan to reschedule it but now, they have to pay only 2 percent. If this continues, then influential borrowers will not repay their loans, Ahmed added.

He criticised the latest banking sector reform roadmap, saying it would allow banks to write off bad loans in two years whereas it was three years previously.

Ahmed also urged to bring good governance and accountability to the financial sector.

Lila Rashid, financial inclusion specialist at the Centre for Research and Development, said the financial technology sector lacks a level playing field.

For example, licenses for forming digital banks have been awarded to a particular group, she added.

Kanti Kumar Saha, CEO of Alliance Finance PLC, said there are several laws and regulations in the financial sector, but implementation remains absent.

In response to a query, the PRI's Mansur said the practice of mergers is accepted worldwide and although it is possible in Bangladesh, it could be difficult given the country's political environment.

He said that before any merger, the central bank should restructure the board and management of some weak banks and it will have to conduct a comprehensive audit of the merging firms.

The discussion was chaired by Selim Raihan, a professor of economics at the University of Dhaka.​

 

[Saif]

BB introduces currency swap with banks

The Bangladesh Bank has introduced currency swaps with banks for the first time, a move that will enable the country to meet the net reserve condition set by the International Monetary Fund (IMF) with its $4.7 billion loan programme.

www.thedailystar.net

BB introduces currency swap with banks​

The move is designed to temporarily raise forex reserves

Photo: Star/File

The Bangladesh Bank has introduced currency swaps with banks for the first time, a move that will enable the country to meet the net reserve condition set by the International Monetary Fund (IMF) with its $4.7 billion loan programme.

Usually, the central bank has to buy the greenback if it needs to raise the reserve to meet the condition. Now, it may get foreign currencies from banks for a certain period in exchange for only interest.

A currency swap involves the exchange of interest -- and sometimes of principal -- in one currency for the same in another currency. Companies doing business abroad often use currency swaps to get more favourable loan rates in the local currency than if they borrowed money from a local bank.

A forex swap has two legs or stages: a near leg date and a far leg date.

On the near leg date, one swaps a currency for another at an agreed spot foreign exchange rate and agrees to swap the same currency back again on a future date (far leg date) at a forward foreign exchange rate.

For conventional commercial banks, the central bank said, the taka will be sold in exchange for approved foreign currencies at the spot rate at the near-leg.

At the far-leg, the deal will be settled by applying the same exchange rate with a swap point based on the interest rate differential considering the prevailing benchmark rate of foreign currencies. Here, the three-month term SOFR for US dollars and the policy rate of the BB for the taka will be applicable.


The secured overnight financing rate (SOFR) is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the Libor (London Inter-Bank Offered Rate).

The SOFR rate presently stands at 5.38 percent while the policy rate in Bangladesh is 8 percent, figures from the Federal Reserve of the US and the BB showed.

The treasury head of a private commercial bank said while the interest rate is flexible in currency swaps with other commercial banks, it is almost fixed in the case of the central bank.

"So, banks will analyse which one is more profitable."

For Shariah-based banks, at the near-leg, the taka will be sold in exchange for foreign currencies at the spot rate. At the far-leg, the deal will be settled by applying the same exchange rate, the BB said.

The swap deal will be executed within the counterparty limit to be set by the Forex Reserve and Treasury Management Department of the central bank.

Each deal will be in multiples of one million of foreign currency, starting from a minimum value of five million and equivalent taka with a tenure of seven days to 90 days.

The rollover may be allowed by applying the prevailing rates, the notice said.

"It seems that the central bank opened an alternative window to raise the foreign exchange reserve without buying dollars from commercial banks," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

According to the IMF's conditions, the central bank was supposed to keep a net forex reserve of $17.78 billion in December.

However, there was a $58 million shortfall despite the central bank buying over $300 million from several commercial banks.

The reserve must stand at $19.27 billion by next March and $20.11 billion by June as part of the loan programme. However, the net reserve is still below the targets.

Hussain says if a bank had excess or idle dollars, there was previously no provision to keep it in the central bank. So, they had no interest income from it.

"Now, an option has been created to keep those idle dollars with the central bank in exchange for interest if the banks do not need it."

On the other hand, if a bank has excess dollars but a shortage of the taka, it can raise its liquidity in the form of the local currency through a currency swap.

At present, many banks have no excess dollars. On top of that, the demand for the currency is high.

However, there are questions about whether banks will be interested in engaging in currency swaps with the central bank as they can only avail the official rate exchange rate, which is much lower than the actual market rate, according to Hussain.

Banks also have the option to go for currency swaps between themselves and the rate is market-driven.​

 

[Saif]

Govt to promote value-added products for post-LDC era

The government is considering further incentives while emphasising ICT and advanced technology in order to increase the production of value-added products as part of preparations for graduation from least developed country (LDC) status, Chairman of the National Board of Revenue (NBR) Abu Hena Md...

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Govt to promote value-added products for post-LDC era​

NBR chairman says

The government suspends an assistant commissioner of taxes (ACT) for allegedly helping taxpayers evade tax through forgery. Photo: NBR website.

The government is considering further incentives while emphasising ICT and advanced technology in order to increase the production of value-added products as part of preparations for graduation from least developed country (LDC) status, Chairman of the National Board of Revenue (NBR) Abu Hena Md Rahmatul Muneem said yesterday.

"The IT sector and car manufacturing sector benefited last year and more opportunities will be given in the future. The work of the government is to create the environment, but you have to implement it," he said.

Muneem made the comments while addressing as chief guest a pre-budget meeting, organised by the Chittagong Chamber of Commerce and Industry (CCCI) at the Bangabandhu Conference Hall of the World Trade Centre in Chattogram's Agrabad area.
He also said that the industries of the country must become self-sufficient and proficient in order to confront the obstacles that come with transitioning from LDC status to the developing country status.

To this end, he emphasised the need for industries to become capable of not only confronting tax and VAT challenges, but also various other obstacles in order to compete in the global market.

He added that the nation would be unable to overcome these challenges if industries which require assistance through tax and value added tax (VAT) rebates were not adequately supported.

He also urged to move into more advanced sectors, saying: "Now is the time to turn our attention to the shipbuilding sector instead of the shipbreaking industry. Bangladesh cannot be the destination of foreign waste."

The CCCI earlier submitted around 12 proposals for the NBR for consideration in the next national budget.

CCCI President Omar Hazzaz, who chaired the meeting, proposed to raise the tax-free income limit for individual taxpayers from Tk 3.5 lakh to Tk 4 lakh considering the current global situation and persistent inflation.

He also proposed to reduce VAT on different goods from 15 percent to 8 percent since businesses and the general public are suffering due to the dollar crisis and inflation.

Managing Director of BSRM Group Aameir Alihussain mentioned that businesses face long delays in getting refunds after paying advance tax and VAT, underlining that businesses urgently need such refunds since they are currently facing a liquidity crisis.

In his speech, Muneem said they were working to solve these problems.

NBR member Md Masud Sadik said some traders were misusing government benefits.

"The government has given duty exemption of Tk 750 crore on various food products in the past year but the benefits have not reached the people. They (traders) have kept the price high, showing various reasons," he said.

Leaders of different business bodies, including the Bangladesh Garment Manufacturers and Exporters Association, Real Estate and Housing Association of Bangladesh, Bangladesh Frozen Food Exporters Association, Shop Owners Association, Clearing and Forwarding Agents Association, Rubber Garden Owners Association, and others also spoke.​

 

[Saif]

Dollar, energy crises, NPL hold back growth

Businesspeople and economists said on Sunday that extortion, non-performing loans, the gas crisis, and dollar shortages were holding back the country’s private sector growth. They...

www.newagebd.net

Dollar, energy crises, NPL hold back growth​

Staff Correspondent | Published: 00:12, Feb 19,2024

Businesspeople and economists said on Sunday that extortion, non-performing loans, the gas crisis, and dollar shortages were holding back the country’s private sector growth.

They also urged the government for sustainable policy reforms and a long-term roadmap for achieving the country’s target of a trillion-dollar economy.

The Dhaka Chamber of Commerce and Industry organised the seminar on ‘Bi-annual economic state and future outlook of Bangladesh’s economy: private sector perspective’ at its auditorium in the capital.

DCCI former president Shams Mahmud, also Shasha Denims Limited managing director, said that the government had to ensure energy at an affordable price and uninterrupted gas supply to the industries to boost private sector investment in the country.

‘After LDC graduation, we must look into establishing import substitute industries to be self-sufficient,’ he said, proposing a rationalised taxation system and continued special support for cottage, micro, small, and medium enterprises.

He said that the dollar crisis had created an adverse impact on the country’s private sector for doing business.

Policy Research Institute senior economist Ashikur Rahman said that macroeconomic instability was not good for the private sector.

‘NPL always has a negative impact on businesses. So it is time to take a serious decision against NPL,’ he said, adding that the country’s tax-to-GDP ratio, which is hovering around 10 per cent, is not up to the expected level.

He also said that the government should take the initiative to check the decline of the country’s foreign currency reserve and ensure that inflation comes down.

Bangladesh Institute of Development Studies research director Mohammad Yunus said that sometimes extortion at the retail market becomes one of the main reasons behind rising inflation.

He asked why the business had to pay extra money to do business in the market.

DCCI president Ashraf Ahmed requested that the government lower corporate tax, complete the automation of the taxation system, increase the tax net, and reform supplementary duty and value-added tax to promote private sector growth.

‘As NPL has an impact on increasing some intermediary costs for the private sector, I suggest reducing NPL. Reducing the cost of doing business, uninterrupted energy supply at an affordable price, and logistic sector development will help the private sector re-investments,’ he added.

He also urged the government to reduce the cost of doing business, ease doing business, improve regulatory efficiency, install appropriate infrastructure, ensure energy security, improve logistics, and ensure access to finance for the private sector for the long-term growth target of achieving a trillion-dollar smart economy.

He noted that the private sector investment target was 27.4 per cent of GDP in FY2024, while it was 21.8 per cent in FY2023.

‘Required policies considering the LDC graduation will expedite private sector investment,’ the DCCI president added.

Speaking as chief guest, the economic affairs adviser to the prime minister, Mashiur Rahman, said that the country’s economy had experienced fundamental changes during the past decade, and the private sector had also flourished remarkably.

‘Policies should be formed considering the problems and prospects of the private sector,’ he added.

He stressed export diversification and value addition to export products and acknowledged that reforms were needed in the taxation system as there are still some problems and challenges.

‘We should also tap into the huge potential of the blue economy,’ Mashiur added.

Bangladesh Bank chief economist Md Habibur Rahman said that due to global geopolitical instability, the price of essentials had increased, and the central bank had already taken the necessary measures to tackle the situation.

‘Bangladesh Bank will introduce a Clawing Peg system to keep the exchange rate under control. The central bank has underscored a roadmap to bring NPL in the industrial sector down to 8 per cent within the next 2 years,’ he said.

He also said that the Bangladesh Bank would maintain contractionary monetary policy until inflation came down to 6 per cent.​

 

[Saif]

Foreign Loan: Repayment crosses $4b for first time

Foreign loan repayment, which was hovering around $3 billion since fiscal 2012-13, crossed the $4 billion-mark for the first time last fiscal year on the back of high interest payments and short-term loans in the power and energy sector.

www.thedailystar.net

Foreign Loan: Repayment crosses $4b for first time​

Amount expected to soar in coming years

Foreign loan repayment, which was hovering around $3 billion since fiscal 2012-13, crossed the $4 billion-mark for the first time last fiscal year on the back of high interest payments and short-term loans in the power and energy sector.

In fiscal 2022-23, foreign loan repayment stood at $4.78 billion, up 32.8 percent year-on-year, according to the Economic Relations Division.

The repayment increased $1.18 billion from fiscal 2021-22. In previous years, the repayments increased between $100-$400 million.

Going forward, the repayments are expected to increase further because of exchange rate volatility and the possibility of LIBOR/SOFR and EURIBOR rates ticking up, the ERD said in its latest report.

Of the repayment amount last fiscal year, $2.67 billion was thanks to the government's loans and $2.11 billion was for the state-owned enterprises' borrowing.

Both the segment's loans increased by 32 percent, but the state-owned enterprises' increase is substantial as its total outstanding debt is only $8 billion. The government's total outstanding foreign loan is $62.4 billion.

As of June last year, the total public sector outstanding debt is $70.8 billion.

The state-owned enterprises took short-term loans in this fiscal year, whose interest rate is more than long-term loans, said finance ministry officials. As a result, the repayment amount went up.

"Even two years ago, the interest rate was below 1 percent on such loans. Now, it is more than 8 percent," they said.

Of the repayment amount, the interest payment was $1.3 billion, up 99.23 percent year-on-year, the ERD report showed.

The highest loan was repaid against short-term loans taken to import crude oil: $1.12 billion, which is an increase of 40 percent from the previous fiscal year.

The power sector's loan repayment increased by 27 percent to $679 million.

The government has paid $85 million for loans taken to purchase aircraft earlier, up 49 percent year-on-year increase.

However, the ratio of the government's external debt stock is 15.59 percent of the GDP while the threshold is 40 percent, indicating the foreign loan position is in the safe territory, the ERD report said.

The ratio of debt service to revenue and grant will cross 100 percent this fiscal year, said Zahid Hussain, former lead economist of the World Bank's Dhaka office, citing a recent report of the International Monetary Fund.

"It does not mean that there is no concern."

There are two main concerns now in the current context of historically low revenue collection and ongoing dollar crisis.

"The loan repayment pressure is still heavy and we can't see the pathway to get rid of the situation," he said, while calling for increasing the revenue collection and the foreign currency reserves.

Besides, the government should try to get low-cost foreign loans in the future, Hussain added.

The ERD report -- titled "Flow of External Resources" -- said few loans have recently been mobilised at variable interest rates.

"The interest rate risk is high when the variable interest rate-dominated debt portfolio exists," it added.

Though the report acknowledged the interest-related risks, it said all the other indicators are below the level of threshold.

"According to the present classification by the World Bank, Bangladesh is categorised as a 'less indebted' country."

Though the Bangladesh Bank has taken several initiatives, the foreign currency reserve has been declining in the last one and a half years.

As of February 14, foreign currency reserves stood at $19.9 billion.​

 

[Saif]

PM for doing business with India using taka, rupee

Prime Minister Sheikh Hasina today stressed the need for expanding business between Bangladesh and India using their own currencies

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PM for doing business with India using taka, rupee​

Photo: BSS

Prime Minister Sheikh Hasina today stressed the need for expanding business between Bangladesh and India using their own currencies.

"We can do our business through exchanges of Bangladeshi Taka and Indian Rupee. It has already started, but we have to expand it further so that we can increase our businesses," she said while Indian External Affairs Minister S Jaishankar paid a courtesy call on her.​

​

The meeting was held on the sidelines of the Munich Security Conference (MSC) 2024 at Hotel Bayerischer Hof this morning.
Foreign Minister Hasan Mahmud briefed journalists about the outcome of the meeting upon its completion.

Hasan said the prime minister and Jaishankar attached importance to doing business between the two friendly countries through their own currencies to reduce dependency on other currencies like the US dollar.

He said Bangladesh and India have excellent bilateral relations and it has elevated to another height under the leadership of the prime ministers of the two countries.

"The relations between the countries are getting stronger day by day," he said, adding that the two leaders discussed the issues during the meeting.

Quoting Jaishankar, Hasan said, "Our relations will further be closer in the days ahead."

Bangladesh Ambassador to Germany Md Mosharraf Hossain Bhuiyan and PM's Deputy Press Secretary Md Noorelahi Mina were present during the briefing.

Hasina arrived in Munich on February 15 on a three-day official visit to join the Munich Security Conference 2024.

Upon completion of the tour, she will leave tomorrow night and is scheduled to reach Dhaka on February 19.​

 

[Saif]

Titu seeks Japan’s cooperation to make ‘One Village, One Product’ successful

State Minister for Commerce Ahasanul Islam Titu has sought Japan’s cooperation to make the “One Village, One Product” programme a success. “The prime minister has declared ‘Handicrafts’ as the product of the year. The government is working to increase employment

thefinancialexpress.com.bd

Titu seeks Japan’s cooperation to make ‘One Village, One Product’ successful
UNB
Published :
Feb 19, 2024 21:00
Updated :
Feb 19, 2024 21:14

State Minister for Commerce Ahasanul Islam Titu has sought Japan’s cooperation to make the “One Village, One Product” programme a success.

“The prime minister has declared ‘Handicrafts’ as the product of the year. The government is working to increase employment and export goods through the ‘One Village, One Product’ programme. We look forward to Japan’s cooperation and experience to make this programme a success,” he said, according to a press release.

The state minister said this when Japanese Ambassador to Bangladesh Iwama Kiminori paid a courtesy call on him at the former’s office on Monday.

At the time, the Japanese ambassador appreciated the programme, assured cooperation, and said Japan wants to strengthen relations with Bangladesh.

“Japan is keen to work as a partner in Bangladesh’s development journey. We hope that Bangladesh will participate in the ‘World Expo 2025’ to be held in Japan next year,” he said.

Titu mentioned the friendly relations between Bangladesh and Japan and said, “We hope to extend all cooperation to expand trade and commerce between the two countries.”​

 

[Lulldapull]

I meet Bangladeshi here in Japan every now n then and they pretty shy and keep to themselves. They talk to the Nepali community here a lot more than they talk to us the handful of Turkish/ Irani/ Pakistani here.

 

[Saif]

I meet Bangladeshi here in Japan every now n then and they pretty shy and keep to themselves. They talk to the Nepali community here a lot more than they talk to us the handful of Turkish/ Irani/ Pakistani here.

In that case, they are Awami supporters. When I was in America, I used to feel comfortable with mixing Muslims from all over the world(including Indian Muslims).

 

[Lulldapull]

W

In that case, they are Awami supporters. When I was in America, I used to feel comfortable with mixing Muslims from all over the world(including Indian Muslims).

Whats Awami?

 

[Saif]

W

Whats Awami?

Awami means Awami League.

 

[Saif]

Dhaka trade fair logs Tk 392 crore in export orders

The month-long Dhaka International Trade Fair ends today

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Dhaka trade fair logs Tk 392 crore in export orders​

The month-long Dhaka International Trade Fair ends today

The 28th edition of the Dhaka International Trade Fair (DITF) has fetched export orders worth Tk 392 crore, up 17 percent from the previous year, according to the commerce ministry.

Additionally, it was found that customers spent around Tk 400 crore at the month-long event, indicating that sales have risen by roughly 15 percent year-on-year.

Organised by the Export Promotion Bureau, the DITF came to a close at the Bangladesh-China Friendship Exhibition Centre in the Purbachal area of Dhaka today.

Of the 304 stalls and pavilions set up at this year's fair, around nine were operated by foreign companies from five countries, namely India, Singapore, Hong Kong, Indonesia and Turkey.

Speaking as chief guest, State Minister for Commerce Ahsanul Islam Titu said the DITF will be diversified from next year to increase the country's exports.

"Seminars and symposiums will be organised next year to attract more foreign buyers," he added.

Titu also said they will ensure all necessary arrangements for foreign and local business representatives to increase their participation in the event.

"If we do everything right, the country's target of reaching $100 billion in export earnings by 2030 can be achieved faster," he added.

A total of 41 stalls were honoured with crests in different categories for their exemplary performance at this year's DITF.

Tapan Kanti Ghosh, secretary of the commerce ministry, chaired the closing ceremony.

Among others, Mahbubul Alam, president of the Federation of Bangladesh Chambers of Commerce and Industry, and AHM Ahsan, vice-chairman of the Export Promotion Bureau, also spoke.​

 

[Saif]

Forex reserves go above $20 billion

Bangladesh's foreign currency reserves have gone past the $20-billion mark again, central bank data showed.

www.thedailystar.net

Forex reserves go above $20 billion​

Bangladesh's foreign currency reserves have gone past the $20-billion mark again, central bank data showed.

The reserves stood at $20.19 billion on February 20. It was $19.94 billion a week ago and $20.03 billion on January 24.

The slight increase in the reserves came a week after the Bangladesh Bank introduced currency swaps with banks for the first time in order to meet the net reserve condition set by the International Monetary Fund (IMF) with its $4.7 billion loan programme.

Usually, the central bank has to buy the greenback if it needs to raise the reserve to meet the condition. Now, it may get foreign currencies from banks for a certain period in exchange for only interest.

Recently, the reserves have also received a boost riding on loans from the development partners as well as a pick-up in exports and remittances and a fall in imports.

Merchandise exports rebounded strongly in January as manufacturers shipped goods worth $5.72 billion, the highest in a single month.

Similarly, the remittance flow rose to a seven-month high in the first month of the year. Imports fell 22.41 percent in November, the latest for which data from the central bank was available.

In December, the IMF and the Asian Development Bank provided $689 million and $400 million, respectively.

Amid higher import bills against moderate remittance and export receipts, the gross international reserves slipped to $24.3 billion in 2022-23 from $36 billion in 2019-20.

It stood at $46.4 billion in 2020-21, the highest on record.​

 

[Saif]

MFS transactions grow fourfold in five years

People made Tk 4,100 crore MFS transactions in 2023's December

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MFS transactions grow fourfold in five years​

People made Tk 4,100 crore MFS transactions in 2023's December

Bangladesh is registering a consistent growth in transactions through mobile financial services (MFS) and it grew four times to over Tk 4,100 crore in the last five years to December 2023.

In December 2018, the daily average transaction through the digital platform was Tk 1,070 crore, according to data from Bangladesh Bank (BB).

The popularity of MFS increased as it made available a number of activities in the palm of hand such as money transfer, talktime purchase, payment of utility bills and for online and offline purchases.

At the end of December 2023, overall transactions through MFS surged 30 percent year-on-year to Tk 124,548 crore, according to the BB data.

In that month, cash-in and cash-out grew by 29 percent and 31 percent year-on-year respectively.

Even, transaction through MFS rolled out in 2011 in Bangladesh posted a two-year high growth in the 12th month of last year.

"Due to convenience in digital transactions, the MFS industry has been experiencing a substantial growth in cashless spending by the customers for the last couple of years," said Shamsuddin Haider Dalim, head of corporate communications and public relations at bKash Ltd, the largest MFS provider in Bangladesh.

In general, he said, people spend more during festival seasons, special days, holidays and at the beginning and end of a year.

"The month of December falls within the holiday season when many people travel and spend."

Moreover, social gatherings, family reunions, weddings also take place during this time, he said.

The higher spending by people in such occasions fuel the overall growth in MFS transactions too, he said.
"Expatriates send more remittance at the yearend through MFS channel as well."

The central bank data showed that the government's distribution of money through MFS for social protection schemes skyrocketed in December 2023 from a year ago.

At the same time, people also showed increasing interest to shop and pay through MFS.

For example, merchant payment through the mobile financial services shot up 53 percent year-on-year to Tk 5,518 crore at the end of December 2023 when remittance sent through MFS grew 51 percent year-on-year to Tk 586 crore.

"MFS is not just a money transfer tool anymore, rather it has evolved into a platform of different financial services designed to meet people's day-to-day needs," said Muhammad Zahidul Islam, vice-president and head of media and communications at Nagad Ltd, one of the major MFS operators.

"From mobile recharge to utility bill payments to shopping, all now can be done on our MFS wallets."

"That is why people are now turning to more and more MFS services which are convenient, secure, and affordable," he added.

In December last year, MFS operators recorded a 49 percent year-on-year spike in payment of utility bills, which hit Tk 2,903 crore.

Money transfer from person-to-person soared 25 percent year-on-year to Tk 34,277 crore in that month.

Salary disbursement through MFS platforms increased too. But its growth was lowest among all the major services provided by the operators.

Islam said the way mobile money operators are now coming up with new and diversified financial services for customers, MFS transactions will continue to surge in the days to come.

In 2023's December, daily average transactions through Nagad stood at Tk 1,400 crore, mainly riding on government disbursements, various payments and mobile recharge, he added.

At present, the country has over 22 crore MFS accounts and more than half of them belong to people living in rural areas, according to BB data.

"The growth so far is positive. There is enough reason to be hopeful," said Md Nehal Ahmed, professor of Bangladesh Institute of Bank Management, adding that digital transaction will increase in near future.

"Convenience here is the main factor and the Covid-19 pandemic was a turning point for the spike in MFS-based transactions."

However, challenges are still there, he said.

The lack of awareness on the benefits of digital transaction, the fear of being defrauded and the popularity of paper documents of transactions are some of the many reasons which have slowed the growth of MFS transaction, he added.

The transaction cost is another reason, Ahmed said.

Many people want to avoid making big MFS transactions to keep service charges lower, he added.

At present, the users have pay up to Tk 20 to withdraw every Tk 1,000 from the MFS agents.

Ahmed said digital banks, for which the central bank has started giving permission, might throw a challenge to the MFS providers by offering lower transaction fees than the current rates.​

 

[Saif]

PM underscores maritime resources for country's progress

Prime Minister Sheikh Hasina on Thursday stressed extracting marine resources from Bangladesh’s vast maritime zones, and maintaining friendly relations with the neighbouring countries to tap the potential of the "Blue Economy" for the country's socio-economic advancement, reports BSS. "We ha

thefinancialexpress.com.bd

PM underscores maritime resources for country's progress​

​

Published :​

Feb 22, 2024 13:46

Updated :​

Feb 22, 2024 13:53

Photo: BSS

Prime Minister Sheikh Hasina on Thursday stressed extracting marine resources from Bangladesh’s vast maritime zones, and maintaining friendly relations with the neighbouring countries to tap the potential of the "Blue Economy" for the country's socio-economic advancement, reports BSS.


"We have to explore the marine resources from the maritime areas we achieved. I believe the announcement of the blue economy will be implemented. We have to use the vast marine resources for the socio-economic development of Bangladesh" she said.

The premier made the remarks at a function marking the golden jubilee of enacting the law titled "The Territorial Waters and Maritime Zones Act, 1974" at Bangabandhu International Conference Centre (BICC) here this morning.

She said: "We will have to be cautious in extracting our marine resources and in continuing business and trade using seaways maintaining our foreign policy "Friendship to all, malice to none."

She also urged the overseas companies to come up with investment to explore resources in Bangladesh's maritime zones.

Sheikh Hasina said conflicting situations are being seen in many areas across the globe. But there is no conflict in this region, she said.

"This zone is very safe as there is no mess with each other here," she added.

The prime minister said the Bay of Bengal is a part of the Indian Ocean and it is very important marine way as international business and trade have been continuing using this way since ancient times.

"All our countries have been doing trade and commerce equally using the seaway. International commerce is also going on. No conflict has ever been seen. I want such peaceful situation always," she said.

She expressed her hope that this zone will remain peaceful for trade and commerce in the days to come.

The prime minister reiterated that Bangladesh always believe in peace, adding, "We don't want war rather we want peace. Peace shows the path of development and progress and helps the nation march forward".

She said, "We will never engage in war. But, we have to have capability to protect our sovereignty."

She later visited different stalls of the maritime stakeholders at the BICC.

State Minister for Shipping Khalid Mahmud Chowdhury spoke at the function.

Secretary (Maritime Affairs Unit) at the Ministry of Foreign Affairs Rear Admiral (Retd) Md Khurshed Alam presented the keynote speech and Chief of Naval Staff Admiral M Nazmul Hassan gave the address of welcome.

An audio-visual documentary to mark the celebration of golden jubilee of adopting "The Territorial Waters and Maritime Zones Act, 1974" was screened at the function.

Sheikh Hasina said Awami League government always followed the foreign policy formulated by Father of the Nation Bangabandhu Sheikh Mujibur Rahman and at the same time, took initiative to establish rights on the marine resources in line with "The Territorial Waters and Maritime Zones Act, 1974."

The prime minister said Bangladesh had established its rights on the vast marine areas and its resources by winning legal battles with Myanmar and India in the international court in 2012 and 2014.

She said Bangabandhu had first taken the initiative to establish rights on marine areas by enacting the maritime law in 1974 which the United Nations adopted in 1982.

The Father of the Nation with his wisdom had opened the path of prosperity using the marine resources with enacting the laws for the country's overall socio-economic development, she said.

She also said the subsequent governments after 1975 plot did not take any initiative to establish the rights on the vast sea areas.

The premier said the AL government had again taken initiative upon assuming office in 1996 after a long 21 years, adding that the initiative did not attain success as the Awami League did not come to power in 2001.

No initiative was taken by the BNP government after assuming power in 2001, she said.

But, after coming to power for second time, the AL government had taken measures to this end and established rights on vast sea areas and its resources, she added.

The marine resources can contribute immensely to the advancement of national economy, the head of the government said.

"We have been attaching priority to ensuring maximum use of the marine resources alongside its protection," she said.

To this end, she also said her government has been working to make Bangladesh Navy and coast guard stronger to foster their ability to secure the vast marine areas.

"We are working to use the marine resources appropriately so we can utilize it for the socio-economic development of the people," she said.

She continued they have already established an institute to conduct research to ensure maximum use of the marine resources.

Sheikh Hasina said her government has established Bangabandhu Sheikh Mujibur Rahman Marine University and marine institute to develop skilled manpower which is required to boost the blue economy.

She said, "The Territorial Waters and Maritime Zones Act, 1974" has been acting as an important guidelines and hoped that it will also work in the same way in the future.

She, as well, reiterated her commitment to transform Bangladesh into a developed, prosperous and smart country free from poverty and hunger by 2041, saying. "We must implement the dream of the Father of the Nation."​

 

[Saif]

Revenue collection accelerates in January

The pace of revenue collections quickened in January, driven by increased receipts from income tax as the deadline for filing personal income and wealth statements for the current fiscal year ended last month.

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Revenue collection accelerates in January​

The pace of revenue collections quickened in January, driven by increased receipts from income tax as the deadline for filing personal income and wealth statements for the current fiscal year ended last month.

Provisional data from the National Board of Revenue (NBR) showed that all of its three wings -- customs, value-added tax (VAT), and income tax -- collected 15 percent higher tax year-on-year in the July-January period of the fiscal year 2023-24, amounting to Tk 197,839 crore.

Yet, the tax administration fell short of its target for the period by Tk 17,750 crore even after the government trimmed the collection target by 4.5 percent.

The NBR has a revised tax collection goal of Tk 410,000 crore for FY24. It managed to log 48 percent of the target in the seven months to January.

"It appears that the revised tax collection target for the whole year will not be achieved although there is a growing pressure on the side of public expenditure due to higher inflation and decelerating value of the taka against the US dollar and other foreign currencies," said Towfiqul Islam Khan, a senior research fellow of the Centre for Policy Dialogue.

A constrained revenue collection means the fiscal space will be limited for the government.

"The government should make judicious choices in having the right priorities in terms of public expenditure," he added.

"The budget will need to be revised in a realistic manner. Most importantly, the value for money needs to be ensured without exception. Indeed, good governance in both mobilising revenue and public money spending should be of utmost priority."

Income and travel tax registered an 18 percent growth to Tk 63,074 crore in July-January compared to the previous year, NBR data showed.

VAT collection – the biggest source of revenue for the government – climbed 16 percent to Tk 77,224 crore.

An official of the NBR said increased consumer prices, or inflation, boosted the receipts of VAT, the indirect tax paid by consumers, in the first seven months of the fiscal year.

However, the growth of revenue by customs from import and export was the lowest as foreign currency shortages continued to keep purchases from external markets down.

Overall imports slumped nearly 20 percent year-on-year to $30.5 billion in July-December of 2023-24, according to Bangladesh Bank data.

The customs wing recorded nearly 10 percent growth to Tk 57,540 crore in July-January, according to the NBR data.

Muhammad Shahadat Hossain Siddiquee, professor of economics at the University of Dhaka, said the revenue collection was lagging behind the target.

He said the deficit per month stood at more than Tk 2,500 crore on average, and it would total around Tk 30,000 crore at the end of FY24.

"Falling behind the target highlights the ineffectiveness of the authorities engaged in revenue collection."

However, Prof Siddiquee said, it is optimistic in a sense.

"Based on the current economic condition, especially in terms of imports and economic growth, revenue collection is satisfactory."

Bangladesh has been going through one of its worst economic crises in recent decades because of the lingering impacts of the coronavirus pandemic and the Russia-Ukraine war.

"To fulfill the target, the overall revenue collection needs to be increased by 30 percent, which seems unfeasible," Siddiquee said.

Siddiquee said the government had set an ambitious target as part of the International Monetary Fund's (IMF) loan condition, which is to increase the tax-to-GDP ratio by 0.5 percent in FY24.

He said the IMF had revised down the annual target for the government by Tk 20,000 crore.

"Still, it seems a major challenge to achieve the revised target, which will, in turn, definitely put an extra burden on the public."​

 

[Saif]

Forex reserves go above $20 billion

Bangladesh's foreign currency reserves have gone past the $20-billion mark again, central bank data showed.

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Forex reserves go above $20 billion​

Bangladesh's foreign currency reserves have gone past the $20-billion mark again, central bank data showed.

The reserves stood at $20.19 billion on February 20. It was $19.94 billion a week ago and $20.03 billion on January 24.

The slight increase in the reserves came a week after the Bangladesh Bank introduced currency swaps with banks for the first time in order to meet the net reserve condition set by the International Monetary Fund (IMF) with its $4.7 billion loan programme.

Usually, the central bank has to buy the greenback if it needs to raise the reserve to meet the condition. Now, it may get foreign currencies from banks for a certain period in exchange for only interest.

Recently, the reserves have also received a boost riding on loans from the development partners as well as a pick-up in exports and remittances and a fall in imports.

Merchandise exports rebounded strongly in January as manufacturers shipped goods worth $5.72 billion, the highest in a single month.

Similarly, the remittance flow rose to a seven-month high in the first month of the year. Imports fell 22.41 percent in November, the latest for which data from the central bank was available.

In December, the IMF and the Asian Development Bank provided $689 million and $400 million, respectively.

Amid higher import bills against moderate remittance and export receipts, the gross international reserves slipped to $24.3 billion in 2022-23 from $36 billion in 2019-20.

It stood at $46.4 billion in 2020-21, the highest on record.​

 

[Saif]

https://thefinancialexpress.com.bd/views/reaching-high-income-status

Reaching high-Income status​

M ROKONUZZAMAN

Published :​

Feb 23, 2024 21:47

Updated :​

Feb 23, 2024 21:47

Upon reaching the low middle-income status, a natural resource-poor populous country aspires to reach high-income status. As the low-cost labour advantage has already been exhausted, development professionals are of the opinion that the past path of labour export would not scale up to meet the aspiration. Hence, opinion has favoured an alternative--a knowledge economy. Therefore, advice has been to pursue service export out of knowledge. Upon citing India's large information technology (IT) and service export success, experts strongly believe in following India's footprint. However, how far is India's service export scalable, and how far can it empower an aspiring less developed country to reach high-income status? If not, what is the alternative left?

According to some popular indicators, per capita income should go above $12,000 to reach high-income status. Let's look at India's success in generating export income from IT service. One of the prominent sectors of service export in India has been microchip design services. Almost 100 multinational semiconductor companies have set up design centres to source design services from Indian graduates. So far, India has succeeded in creating a little more than 20,000 microchip designer jobs in serving these multinational companies. On average, each of the microchip designers earns around $14,000 per year.

Let's assume that each chip designer needs to support a family of four. Hence, the per capita income of a typical chip designer family reaches $3,500--far less than required for high-income status. Therefore, it is not unfair to state that if a naturally resource-poor populous country turns all of its students into high-end knowledge-based service exporters, it would not be able to reach high-income status. Besides, because of high-amenability of automation of knowledge, service export is not scalable either. Therefore, a plain vanilla suggestion of investing in education and creating an export-oriented service economy for getting high-income status runs short of merit.

The obvious question is about the alternative. In pursuit of finding an answer to this vital question, in 2006, the World Bank formed the Growth Commission-headed by a Nobel laureate economist. Upon hosting many seminars and dialogues at the expense of few million dollars, the commission came up with no clear pathway. Despite the common belief that innovation could be an answer, there has not been a well-articulated demonstration. However, Paul Romer got the Nobel Prize to increase the emphasis on exploiting ideas in driving economic growth. Unfortunately, his articulation of endogenous growth theory lacks clarity in finding implementable development solutions.

To compare service and idea export out of knowledge of science, technology, engineering, and mathematics (STEM) competence, let's draw an example from Taiwan's track record in microchip design. Compared to India's success in generating $14,000 per designer per year in revenue, Taiwan has generated $700,000 per designer per year in revenue. Such a per microchip designer revenue is sufficient to propel as many as 60 people to a $12,000 high-income status. Hence, for a country with a population of 170 million, the challenge is to empower as little as 3 million people to produce and export such a level of value to make such a country reach high-income status. The obvious question is how Taiwan has succeeded in doing so.

Instead of exporting microchip design services, Taiwanese home-grown firms like MediaTek turn microchip design expertise into ideas, implement them into finished microchips, and export them. But how does it make such a difference? Let's take an example of a hypothetical scenario. For example, ten microchip designers of MediaTek work a year to develop an idea to generate an additional $1 net profit from a microchip as a system-on-chip (SoC) for smartphones. Let's assume that if MediaTek succeeded in selling 10 million units of this SoC, net earnings from the work of those ten designers over a year would be $10 million. Yes, MediaTek has created such a success by capturing a 30 per cent market share of the smartphone SoC market in the second of 2023. In the first quarter of 2021, MediaTek exported 30.7 million smartphone SoC to the Chinese market alone. Taiwan's success shows enough logic to believe that STEM-based idea production and trading offers a prospect to a natural resource-poor populous country to reach high-income status.

The next question is how to reach such revenue from STEM-based idea production. Does it mean that upon getting inspired by Taiwan's success and Paul Romer's idea and object theory, should we ramp up STEM education and R&D-producing graduates, publications, and patents? Of course not. Unfortunately, there has been no natural correlation. For example, on the backdrop of the rising profit and hiring of engineers by Taiwan's MediaTek and TSMC, the USA's Intel recently reported loss and laid off high-caliber experienced engineers. It's worth noting that Intel has a history of filing more patents and recruiting graduates from more reputed institutions than TSMC. Besides, Intel has a track record of profiting from microchip design ideas. Despite the past success, high-quality engineers, and strong R&D investment and patent filing record, why Intel has been reporting such a reality is the subject of investigation to draw lessons from leveraging STEM ideas for growth.

The production of ideas alone creates little or no economic value for a firm or nation. At the outset, it costs money. The challenge is to predict, detect, and catch the new wave to generate revenue. The next challenge is to create a flow of ideas, forming a cumulative effect. For example, MediaTek's parent company, UMC, did not make money during the initial years.

Upon catching the smartphone wave and winning the competition of the idea race, MediaTek has succeeded in showing such an impressive financial performance from microchip design competence. However, this wave of profiting from ideas of advancing smartphone chips will not last for a never-ending period. For example, one of the reasons for Intel's poor performance has been the maturity of the personal computer market and its failure to catch up with the next wave.

The first challenge for crafting the path to reaching high-income status is understanding the wealth-creation dynamics of STEM ideas in a globally competitive market. It has been changing as waves unfold-creating new opportunities and destroying proven ones. Such an understanding must form the base of the education system for changing the beliefs, values, and culture of development of aspiring less developed countries. Along with it, unfolding waves of innovation should be kept monitoring. Upon detecting prospective waves offering the opportunity to create large-scale wealth from a flow of ideas, appropriate changes need to be made in economic policies, education, R&D, and investment to leverage them for driving economic growth. It's worth noting that a single idea like automobile or semiconductor has propelled few countries to high-income state. Yes, it is a long-term process. We must stay in course. Unfortunately, there has been no alternative--shortcut or leapfrogging.

Rokonuzzaman, Ph.D is academic and researcher on technology, innovation and policy.​

 

[Saif]

Rising debt burden threatens our future

Government must ensure that the rich duly pay their taxes

www.thedailystar.net

Rising debt burden threatens our future​

Government must ensure that the rich duly pay their taxes VISUAL: STAR

The continued increase in the government's debt burden amid insufficient revenue collection has emerged as a big concern. Despite public expenditure on development rising every year, the National Board of Revenue (NBR) has not been able to ramp up tax collection as much as the government had hoped for. Consequently, Bangladesh's tax-GDP ratio still stands below 10 percent, one of the worst in the world.

The ratio has not been good for the past two decades, which indicates how deeply rooted this problem is. Data from NBR and the finance ministry show that in the last 10 years, the amount of domestic and foreign loans has increased by 9 percentage points in proportion to the revenue collection of NBR. In other words, government borrowing has increased every year. In FY2013-14, the government reportedly had to borrow 44 percent of the amount that was the NBR's income. In FY2022-23, compared to the amount of money that NBR was able to collect, it was forced to borrow 53 percent more money to meet expenses. According to an IMF report, the amount of money Bangladesh has to spend on domestic and foreign debt interest payments is equal to 71.8 percent of revenue collection and grants. In the current fiscal year, that amount may increase to 101 percent, it said.

If a country has to spend the same amount (or more) that it earns as revenue to pay interest on debt, then it will have to borrow constantly to meet development and other expenses. Therefore, the government now finds itself in a tight spot. If it borrows from domestic sources, it will slow down investment (due to the crowding-out effect). But if it continues to borrow heavily from foreign sources, then it will lose foreign currency while paying interest. In FY2022-23, foreign loan repayment stood at $4.78 billion, up 32.8 percent year-on-year, according to the Economic Relations Division. And going forward, the repayments are expected to increase further.


So the only way out of this trap is to increase revenue collection. That should be more than possible if we can make the rich pay their taxes. Currently, an estimated 87 percent of rich and upper-middle-class people do not pay taxes, heavily contributing to the revenue and debt management problems. Therefore, it is high time the government reformed its tax collection system and ensured that the wealthy cannot continue avoiding taxes. Going forward, it should also think long-term about taking foreign debt.​

 

[Saif]

$7b pledged in foreign funds

When Bangladesh is facing a reserve squeeze, it has received fresh commitments for $7.2 billion in loans from global lenders in the first seven months of fiscal 2023-24, a fourfold increase from a year earlier.

www.thedailystar.net

$7b pledged in foreign funds​

24 projects to be implemented in health, education, transport, energy; fund commitment may cross $10b this fiscal year

When Bangladesh is facing a reserve squeeze, it has received fresh commitments for $7.2 billion in loans from global lenders in the first seven months of fiscal 2023-24, a fourfold increase from a year earlier.

That means the new commitments crossed the foreign loan target of $6 billion for this fiscal year.​

​

Finance ministry officials hoped that the fund commitments would exceed $10 billion this fiscal year and provide some cushion to the economy, subject to quick utilisation.

The utilisation of the funds remains a cause for concern as Bangladesh could use only $4.4 billion in seven months against a target of $11.24 billion for this fiscal year.

To achieve the target, the government would have to spend $6.84 billion over five months, which could be difficult,given its poor record of timely project implementation.

Unused foreign funds stood at $47 billion as of January this year. It was $43.76 billion on June 30 last year, according to the finance ministry documents.

Of the $7.2 billion committed, the highest $2.62 billion was committed by the Asian Development Bank (ADB), followed by Japan $2.02 billion and the World Bank $1.42 billion. The rest $1.14 billion fund commitment came from other lenders.

Between July and January of 2022-23, Bangladesh received commitments for just $1.76 billion in foreign loans.

FUND FOR PROJECTS

As per the fresh commitments, ADB will finance 10 projects in health, education, transport, and energy sectors and for the local government and the Chittagong Hill Tracts.

The ADB has offered to finance a $336.47 million project to establish an international standard laboratory for vaccine research and production of high-quality vaccines.

It will provide $300 million for implementing a project to improve sub-regional transport and trade and 190km of Dhaka-Northwest corridor.

The ADB will also provide $200 million for the "Smart Metering Energy Efficiency Improvement Project" to prevent the waste of natural gas at home.

It will give $100 million to three public universities and the University Grants Commission to create skilled manpower in the manufacturing sector and to create jobs in the industrial sector.

About $90 million will be given to the Local Government Division's project for safe water supply and waste management in Rangamati, Bandarban, and Lama municipalities.

The Local Government Division will also get $490 million for two projects to improve rural connectivity, urban governance, and infrastructure.

Japan's $2.02 billion will go to two ongoing projects. One is the 1,200-megawatt coal power plant at Matarbari. The other project is for building the third terminal of the Hazrat Shahjalal International Airport.

The World Bank will provide $300 million for the economic inclusion of the youth through support for skill development, employment, self-employment, and entrepreneurship.

SLOW IMPLEMENTATION

The authorities have utilised $4.4 billion of foreign funds between July and January this fiscal year.

Of the amount, the ADB disbursed $1.24 billion, Japan $884 million, the World Bank $763 million, Russia $588 million, China $361 million, and India $169 million. Other lenders disbursed the rest.

Shahriar Kader Siddiky, secretary to the Economic Relations Division, said disbursement of foreign funds depends on project implementation.

"We are working in a coordinated way with the relevant ministries, development partners and their headquarters to increase the utilisation of the committed funds. Disbursement is increasing gradually," he told reporters on Sunday after a meeting between Finance Minister Abul Hassan Mahmood Ali and visiting World Bank Managing Director Anna Bjerde.
An ERD official, seeking anonymity, said they have utilised more than $10 billion in foreign funds during each of the last two fiscal years. The official said they used to spend $7 billion a year before that.

Replying to a question, the official said they were expecting commitments for $3 billion to $4 billion more during the last five months of this fiscal year.

LOAN REPAYMENT TO RISE TOO

The government's foreign debt repayment saw a rise of 44.54 percent over the first seven months of this fiscal year.

The government repaid $1.85 billion, which was $1.28 billion during the same period in the last fiscal year.

The surge in disbursement of foreign loans and interest payments against them is pushing up the debt servicing requirement, the ERD official said.​

 

[Saif]

Inconsistent policies, rules barriers to export diversification

Inconsistent policies and regulations create uncertainty for exporters and make it difficult for them to plan and invest for the long term, standing in the way of export diversification for Bangladesh, according to experts.

www.thedailystar.net

Inconsistent policies, rules barriers to export diversification​

Inconsistent policies and regulations create uncertainty for exporters and make it difficult for them to plan and invest for the long term, standing in the way of export diversification for Bangladesh, according to experts.

"Bangladesh needs a broad base export policy, addressing all bottlenecks and high tariff issues for export diversification," said Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem).

He made the observation at a session on "Challenges of export diversification and structural transformation in Bangladesh" at the 7th edition of the Sanem Annual Economists' Conference (SAEC) at the BRAC Centre Inn in the capital on Sunday.

According to Raihan, the overall import tariff line in Bangladesh is 40 percent, which is much higher than in India, Malaysia, and Vietnam.

"Besides, volatile and artificially maintained exchange rates created a bottleneck for export diversification during the last few years."

Syed Akhtar Mahmood, a former lead private sector specialist at the World Bank Group, said in 1995 the economy and the export volume of Bangladesh and Vietnam were almost the same, and in some cases, Bangladesh was ahead of Vietnam.

"But, during the last 30 years, Vietnam has improved a lot while Bangladesh has remained almost the same."

Vietnam has performed well thanks to its policies and support conducive to foreign direct investments, he said, blaming a lack of necessary policy reforms for Bangladesh's failure to attract an expected level of FDIs.

According to him, around $100 billion of Vietnam's exports come from the electronics sector, which almost accounts for 70 percent of the country's total earnings from the external sector.

"Bangladesh had the same potential. But it did not happen due to a lack of timely policy support."

Bangladeshi exporters shipped goods worth $55.56 billion in the last fiscal year of 2022-23, which ended in June.

Mahmood also blamed a lack of timely rules and regulatory reforms for Bangladesh's failure to diversify exports, which are dominated by garments.

Syed Nasim Manzur, managing director of Apex Footwear Limited, said the leather and agriculture sectors have the same potential like the ready-made garments to increase the export volume if the former is granted an identical facility and importance.

He said export diversification is developed through relations, connectivity, and value-chain management.

"We need supply chain management and innovative ideas with proper implementation in order to increase product diversification for the export market. It will happen only if policy reforms are put in place."

Zaidi Sattar, chairman of the Policy Research Institute, alleged the anti-export policy and the high tariff on the import of raw materials are preventing the export sector from tapping its true potential.

There are about 1,500 non-garment products in Bangladesh that are not getting facilities like the garment sector despite having an immense potential to contribute to the export sector, he said.

Sattar said the government is keen to diversify exports but there is no particular policy support.

Zahid Hussain, a former lead economist of the World Bank's Dhaka Office, who chaired the session, said exporters face various trade barriers and protectionist measures in international markets, which limit their access to new markets and increase the cost of doing business.

"Export diversification is needed for poverty reduction and employment generation and the government can play the due role to this effect."​

 

[Saif]

LDC Graduation: Implications for Bangladesh beyond 2026

It is now more or less recognized that Bangladesh is one of the world’s fastest-growing and relatively more resilient economies.

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LDC Graduation: Implications for Bangladesh beyond 2026​

Photo: Prabir Das

It is now more or less recognized that Bangladesh is one of the world's fastest-growing and relatively more resilient economies. The country's macroeconomic performance during the pandemic-induced economic slowdown and the ongoing global supply chain disruptions caused by the Russo-Ukrainian war bear testimony to such an inference. Bangladesh's commendable successes in terms of reducing poverty, coupled with its consistent achievements in human development indicators such as the hunger index, average life span, and maternal and child mortality rates, also prove that gains from positive macroeconomic performances have been able to improve the 'quality of life' for those belonging to the bottom of the social pyramid. Yet, it must also be acknowledged that Bangladesh has faced unprecedented challenges related to the external economy and some internal structural issues. The new government faces critical challenges associated with managing persistent inflationary pressures, making the exchange rates market-friendly, managing the financial deficit, bolstering the forex reserve, creating further employment opportunities, improving the investment climate, and enhancing capacities to mobilize revenue.

Bangladeshi policymakers must make quick, potent, and prudent moves to address the above-mentioned macroeconomic challenges to further realize the country's economic potential (e.g., becoming the ninth largest consumer economy by 2030, a trillion-dollar economy by 2035 or 2040, etc.). It must also be remembered that these challenges, though critical, are only immediate ones. Policymakers must not lose focus on the bigger picture as Bangladesh is to become a 'developing country' within another couple of years (by November 2026). This graduation from the 'LDC category' will create an additional set of macroeconomic challenges for Bangladesh that must also be flagged now.

Given this context, analyzing the challenges likely to emerge due to LDC graduation and looking into the possible ways forward are very relevant. The UN General Assembly has rightly set Bangladesh to graduate from the LDC status and officially become a 'Developing Country' by the end of 2026. In 2021, when this decision was made, Bangladesh's GNI per capita stood at USD 1,827 (graduation threshold is USD 1,222). Bangladesh's scores in the other two indicators, i.e., the Economic Vulnerability Index (EVI) and the Human Assets Index (HAI), were also significantly above the graduation thresholds. The country's EVI score stood at 27 whereas the graduation threshold is 32 or below. Bangladesh's HAI score stood at 75 whereas the graduation threshold is 66 or above. These certainly proved that Bangladesh's journey of inclusive and sustainable development over the previous 10-12 years had yielded the desired results. However, this brought up burning questions about the challenges associated with this graduation.

What are these challenges? As an LDC, Bangladesh has enjoyed preferential access for its exports to many countries. This has particularly contributed to the rapid growth of the RMG exports (which have reached almost USD 50 billion annually by now). Graduating may result in Bangladesh losing such preferential treatment. Secondly, as an LDC, the country has remained flexible in implementing intellectual property rights (IPRs). This has significantly benefitted Bangladesh's pharmaceutical and software industries, which have significant growth potential as export-oriented sectors. However, after graduation, Bangladesh must be further stringent in implementing the IPRs. In other words, these industries will then face increased competition in the global marketplace. Finally, Bangladesh has leveraged long-term soft loans from international development partners as an emerging economy. After graduating from LDC status, Bangladesh will have to pay higher interest rates and deal with shorter grace periods for these International Support Measures (ISMs).

All these make it obvious that without revamping the policies and practices related to international trade, Bangladesh may lose its competitive edge to a significant extent once it becomes a 'developing country.' A UNCTAD projection from 2023 shows that the potential loss of export earnings due to losing Most Favored Nation (MFN) tariffs and withdrawal of the Duty-free Quota-free (DFQF) facilities may range from 7 to 14 percent. It must be noted that this will happen if Bangladesh follows a 'business as usual' course even after graduation from LDC status. Commentators and experts remain optimistic that Bangladesh will live up to its reputation as an ever-evolving and resilient economic engine and cope with this new set of challenges. Yet, the question remains: how to deal with these new challenges most effectively? The country, i.e., its policymakers, will have to combat these challenges in two frontiers: negotiations (mainly more brilliant economic diplomacy) at the international level and bolstering capacities at the domestic/internal levels.

Fortunately for Bangladesh and other economies in transition (e.g., Nepal and Lao PDR), the global bodies appear to be sensitized (at least to a significant extent) to these newly emerging economic challenges. The formal statement from the 12th Ministerial Conference of the WTO (publicized in June 2022) states, "We acknowledge the challenges that graduation presents … We recognize the role that certain measures in the WTO can play in facilitating the smooth and sustainable transition for these Members after graduation from the LDC category." Given this backdrop, now seems to be the high time for Bangladesh to go for a three-pronged approach to economic diplomacy in the international arena.

Firstly, Bangladesh needs to collaborate with other LDC countries to ensure that WTO's previously committed LDC-friendly initiatives (e.g., DFQF market access, LDC-friendly rules of origin, etc.) are materialized as soon as possible so that the country may enjoy the full benefits until it formally graduates.

Secondly, policymakers from Bangladesh should focus on forming and leading a coalition of soon-to-graduate LDCs to push for a new set of support measures to meet the demand for countries in transition (especially in the context of currently prevailing geopolitical turmoil).

Finally, looking beyond 2026, Bangladesh's economic diplomacy should focus on expediting negotiations with the WTO related to new/emerging sectors such as fisheries subsidies, e-commerce, investment facilitation, and promoting MSMEs.

Along with economic diplomacy, Bangladesh must prioritize domestic preparedness for smooth and sustainable graduation. The country needs to diversify its export basket (over 80 percent from one sector- RMG) and diversify its export destinations (an overwhelming share of exports going to 9 to 10 countries only). Structural transformation of the export sector will also be pivotal as 93 percent of Bangladesh's exporters are low-tech manufacturers (the ratio is 33 and 21 for Vietnam and India, respectively). While Bangladesh has made excellent strives to develop hard infrastructure, this trend needs further bolstering. A Bangladesh exporter still requires 28 days to complete an export process, whereas the average for Asia is 18 days. Private sector investment in infrastructure development must grow significantly (currently, private sector participation is only 1.1 percent of GDP). To reduce reliance on international development support/assistance, Bangladesh must also significantly improve its capacity to mobilize revenue domestically. Tax-GDP ratio for Bangladesh has been hovering below 10 percent for many years now, whereas an economy of such size and potential should have a ratio over 15 percent. This calls for fast digitization of resource mobilization and improving the governance of revenue management. Also, special attention is needed to ease the tax administration to attract more foreign direct investors.

In conclusion, it may be safely said that Bangladesh, with its extraordinary resilience and entrepreneurial zeal, has done very well in laying the foundation for a vibrant, developing country. However, the challenges remain, particularly in skilling and reskilling human resources to make the production process more efficient. In addition, the geopolitical challenges, including the latest tension in the Red Sea on the movement of ships and the threat of deglobalization or truncated trade cooperation, may constrain the potential gains from the graduation. The country may have to focus more on regional and subregional economic cooperation and greater emphasis on domestic production. The financial sector will have to reorient itself with more cooperation in the regional payment system to cope with the new landscape of trade cooperation in the new context.​

 

[Saif]

Utilization of marine resources for the benefit of Bangladesh

Oceans, covering 71% of the planet’s surface and containing 97% of its water, serve as a sanctuary for 2.2 million species.

www.thedailystar.net

Utilization of marine resources for the benefit of Bangladesh​

Photo: Prabir Das

Oceans, covering 71% of the planet's surface and containing 97% of its water, serve as a sanctuary for 2.2 million species. The utilization of marine resources, encompassed by the Blue Economy, aims to bolster economic growth by sustainably harnessing oceanic resources to foster social inclusion, enhance livelihoods, and meet increasing job demands while ensuring the environmental sustainability of ocean and coastal waters. This approach supports food security, the management and protection of marine environments, the creation of high-value employment opportunities, and diversification to exploit new resources such as energy, pharmaceuticals, protein sources, deep-sea minerals, security services for human welfare, and measures to combat climate change resilience. The estimated value-added output of the ocean-based Blue Economy exceeds 1.5 trillion USD, representing approximately 2.5% of the world's gross economic value.

Maritime boundary of Bangladesh

Overall, the marine fisheries sector contributes a substantial $230 billion to the global economy, directly or indirectly supporting the livelihoods of 9% of the world's population. Additionally, oceans serve as vital transportation routes, facilitating approximately 80% of global trade in goods. Coastal tourism plays a pivotal role in driving economic growth for numerous coastal and island nations, generating an annual revenue of about $161 billion globally. Furthermore, the emerging field of "ocean energy," including aquatic biofuels and renewable energies, holds promise as a significant future source to meet the world's energy demands. The ocean also harbors potential for various valuable industrial products such as pharmaceuticals, antibiotics, antifreeze, and antifouling paints. However, looking ahead to the mid-century, meeting the needs for food, jobs, energy, raw materials, and economic growth will be essential to sustain an anticipated population level of between 9 and 10 billion people.
​

Bangladesh's coastal areas boast unique attractions, including Cox's Bazar, the world's longest sea beach, and the Sundarbans, the largest mangrove forest globally. However, the potential of coastal and marine tourism remains largely untapped, as reflected in Bangladesh's tourism and recreation performance score, currently standing at only 8%.​

Bangladesh is endowed with a vast marine ecosystem. Following an international legal ruling, led by Prime Minister Sheikh Hasina, on disputed maritime areas with neighboring countries India and Myanmar, Bangladesh's maritime territory is estimated to cover 118,813 sq. km, including a continental shelf spanning approximately 37,000 sq. km with depths of up to 50m. Bangladesh boasts rich reserves of both living and non-living resources in its extended coastal and maritime areas, presenting significant opportunities for development. The United Nations Sustainable Development agenda prioritizes the conservation, sustainability, and utilization of oceans, seas, and marine resources, particularly for the benefit of least developed countries. This agenda emphasizes sustainable management practices for fisheries, aquaculture, and tourism, aiming to maximize economic benefits while preserving marine ecosystems for future generations.

Non-living resources in Bangladesh's coastal areas encompass oil, gas, sea salt, and freshwater. Renewable resources, vital for sustainable development, include wind, water current, and solar energy. These resources support various sectors such as maritime transport, tourism, industries, ports, shipyards, shipbreaking, agriculture, aquaculture, islands, coastal protection, carbon storage, and waste disposal. Among living coastal resources, mangroves stand out as the second most important in Bangladesh. The coastal region boasts an impressive 531,000 hectares of mangroves, with 99,000 hectares designated as 'the Sunderbans'. These ecosystems harbor 345 plant species of 245 genera, with significant economic value. Additionally, the mangrove habitat supports a diverse array of wildlife, including 53 species of pelagic fish, 124 species of demersal fish, 24 shrimp species, 58 wildlife species, and 270 bird species.

Saint Martin's Island, covering approximately 7.5 square kilometers, stands as Bangladesh's sole coral-bearing island. Researchers have identified four coral species belonging to the Acropora genus and documented 66 coral species in total. Furthermore, the island boasts a rich diversity of seaweeds, with around 20-22 species present, the most abundant being Hypnea.
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Establishing a robust set of mandatory environmental regulations to promote sustainable use of marine resources across all operational domains is imperative. Additionally, developing localized strategies to bolster a sustainable blue economy falls within the purview of ocean governance initiatives.

The nearshore and offshore regions along Bangladesh's coast hold potential reserves of oil, gas, and commercially important heavy minerals. Notably, 17 deposits containing valuable minerals such as Zircon, Rutile, Ilmenite, Leucoxene, Kyanite, Garnet, Magnetite, and Monazite have been discovered in beach sands stretching from Patenga to Teknaf. Sea salt production through solar evaporation techniques presents another economic opportunity, with approximately 67,757 hectares utilized for salt cultivation in coastal areas. Despite this, Bangladesh still imports salt, indicating the potential for further increasing domestic production to meet demand.​

Bangladesh's coastal areas boast unique attractions, including Cox's Bazar, the world's longest sea beach, and the Sundarbans, the largest mangrove forest globally. However, the potential of coastal and marine tourism remains largely untapped, as reflected in Bangladesh's tourism and recreation performance score, currently standing at only 8%. Additionally, the country's commercial use of marine waters is facilitated through four international ports: Chittagong, Payra, Matarbari, and Mongla.

Rear Admiral Md. Khurshed Alam (retd) is a Secretary, Maritime Affairs Unit, Bangladesh Foreign Ministry.

A comprehensive assessment of all marine resources in Bangladesh is hindered by data limitations. The total marine fish catch reached 564,687 tons during 2017-18, accounting for 16% of the total fish production. Both inland and marine fish catches have shown a long-term increase. Over 0.8 million individuals are directly and indirectly involved in the marine fisheries sector for their livelihoods. Presently, there are 225 industrial trawlers, including 24 mid-water trawlers, and approximately 38,000 mechanized and non-mechanized boats operating in marine waters. However, deep-sea and tuna fishing are nonexistent. Bangladesh boasts the world's largest shipbreaking industry, employing over 200,000 people. Currently, 10,000 inland and coastal ships, along with 102 foreign-going vessels, transport more than 90% of total oil products, 80% of cargo, and 35% of passengers domestically and internationally. The country also hosts over 10 shipyards constructing ships of international standards.

In Cox's Bazar, approximately 263 square kilometers of land and around 20 square kilometers in Chittagong are dedicated to sea salt production. This sector generates over 5 million jobs and contributes approximately $35,313,000 to $41,198,500 annually to the national economy. A target of producing 1.8 million tons of salt annually from a 247 square kilometer area in Cox's Bazar has been set, sufficient to meet domestic demand. Salinity in salt pans provides an ideal environment for artemia culture and cyst production, with a current market price ranging from $50 to $100 per kilogram.

In Bangladesh, it is projected that 40% of productive land in the southern region could be lost due to a 65cm sea-level rise by the 2080s, affecting approximately 20 million people already grappling with saline water intrusion impacting their drinking water supply. Moreover, approximately 1 million hectares of land in southern coastal areas are at risk from saline water intrusion.

Seaweed cultivation costs $2.4 per square meter, with cultivated seaweed selling at $7.8 per square meter, yielding a net profit of $5.4 per square meter. Hence, only 34 square meters of seaweed cultivable area would suffice to cover the monthly expenses of a typical family. Non-target marine fish species like goby fish can be utilized for poultry feed production, with approximately 11,185 metric tons of prawn grow-out feed producible from 3,699 metric tons of dried goby fish, selling at $0.24 to $0.25 per kilogram.

Photo: Rajib Raihan

Additionally, with a wind velocity of 7.34 meters per second, the extractable wind energy through windmills amounts to 0.0279 kilowatt-hours from a 1 square meter area. Thus, a family would require approximately 8,853 square meters to meet their monthly electricity demand of 247 kilowatt-hours. In Bangladesh's coastal areas, daily sunshine hours vary between 3 to 11 hours, with insolation ranging from 3.8 to 6.4 kilowatt-hours per square meter per day on average. Therefore, solar panels covering a 50 square meter area would suffice for a family's household electricity needs. Additionally, tidal and wave energy, with tidal ranges of 4 to 5 meters and wave heights of 0.5 to 2.4 meters respectively, present further renewable energy options in coastal areas.

The coastal region harbors islands with significant economic potential, offering opportunities for innovative management approaches. One such approach is the conversion of existing islands into "Model Islands." This concept involves optimizing economic returns by strategically utilizing multiple resources with available technological inputs while preserving the environmental integrity of the islands. Desalination of water emerges as a viable solution, particularly for remote and rural areas where small quantities of potable water are required. Solar stills, such as the single-effect basin-type, have traditionally been the most cost-effective method for producing drinkable water using solar energy. Although daily production is limited due to latent heat condensation rejection, typically yielding less than 4–5 liters per square meter with a specific energy consumption of around 7000 kJ/kg, the implementation of appropriate techniques can yield significant economic benefits in this sector.

Promoting the blue economy and advancing Sustainable Development Goals (SDGs), especially SDG 14, are closely intertwined objectives. Therefore, marine resources should be integrated into development planning at both local and national levels to foster the blue economy and achieve SDGs. The escalating pressures from population growth and the increasing demands for jobs and food underscore the urgency of aligning development efforts with SDGs.

Ocean governance entails managing and utilizing ocean resources in a manner that ensures the ocean's health, productivity, safety, security, and resilience. Adopting a holistic approach that addresses all marine and maritime issues is essential for effective ocean governance in Bangladesh. Establishing a robust set of mandatory environmental regulations to promote sustainable use of marine resources across all operational domains is imperative. Additionally, developing localized strategies to bolster a sustainable blue economy falls within the purview of ocean governance initiatives.

The Chittagong port annually handles over 4000 ships and 100 oil tankers, while the Mongla port manages about 1000 ships. Approximately 3000 power-driven trawlers and boats operate in fishing and shrimping activities within the Bay of Bengal. However, shipbreaking activities in Chittagong result in the discharge of significant quantities of heavy metals, waste oil, and other pollutants during washing and dismantling operations. Oil spills from ships have severe consequences on the biotic community, particularly mangroves, which are highly susceptible to oil exposure, leading to their deterioration and potential death within weeks to months.

Research activities play a crucial role in fostering the certainty and security of sustainable blue economy growth. Priorities include enhancing ocean literacy to improve understanding of marine information, spatial planning for efficient and sustainable management of sea-based activities, and maritime monitoring to gain insights into oceanic dynamics. To implement this framework effectively, integration of existing institutions is essential, and the establishment of a multidisciplinary maritime division, drawing from the experience of the Blue Economy Cell over the past decade, is recommended. Identifying bottlenecks will further facilitate cooperation, coordination, and exchange of best practices for sustainable blue economy management.

Coastal and maritime tourism, fueled by the extraordinary beauty and rich diversity of coastal areas, has emerged as a crucial sector attracting both domestic and international holidaymakers. Strengthening the blue economy serves as a long-term strategy for promoting sustainable economic development and ensuring livelihood security in Bangladesh. By harnessing proper strategies, the full potential of the blue economy can be realized, making the marine ecosystem a primary driver of the national economy. However, achieving a sustainable blue economy necessitates the development of a strategic planning and management framework, with a particular focus on sectors with high economic potential such as fisheries, shipping, shipbuilding, coastal and maritime tourism, marine biotechnology, ocean energy, mangrove forest preservation, and renewable resources. These efforts are integral to fostering smart, sustainable, and inclusive economic development in Bangladesh.​

 

[Saif]

Govt for offshore banking to tackle dollar shortage

The government on Wednesday approved the ‘Offshore Banking, Bill 2024’ aimed at increasing the inflow of foreign currency against the...

www.newagebd.net

Govt for offshore banking to tackle dollar shortage​

Shakhawat Hossain | Published: 00:14, Feb 29,2024

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The government on Wednesday approved the ‘Offshore Banking, Bill 2024’ aimed at increasing the inflow of foreign currency against the backdrop of the prolonged financial crises affecting the majority of people in the country.

The proposed law, approved by the weekly cabinet meeting, will allow offshore units of banks to open accounts for non-resident Bangladeshis and entities having investments in the country.

The accounts can be opened in five foreign currencies – US dollar, Euro, British Pound, Japanese Yen and Chinese Renminbi – cabinet secretary Mahbub Hossain said in a briefing at the secretariat following the meeting.
The cabinet meeting also decided not to hold any iftar parties by the government during the upcoming Ramadan to avert food waste, said the cabinet secretary.

Prime Minister Sheikh Hasina chaired the cabinet meeting at her Tejgaon office.

While approving the proposed ‘Offshore Banking Act 2024’ in principle, the cabinet noted that it would strengthen offshore banking activities in the country, said the cabinet secretary.

Former Bangladesh Bank governor Salehuddin Ahmed said enforcement of the act is more important than formulating it.

Offshore banking had been operating for a long time without giving any major benefit to the economy because of the monitoring weakness of the central bank, he said.

He noted that BB should record offshore banking transactions strictly.

The cabinet secretary said that any relative of a Bangladeshi living abroad could open an account and manage the account as a supporter.

Prepared by the Financial Institutions Division under the Ministry of Finance, the proposed act exempts income tax and other direct or indirect taxes on profits and interest earned from offshore banking businesses.

The cabinet secretary said that the passage of the act would help the government solve the dollar shortage while referring to the successful operation of offshore banking in many countries.

Answering a question, the cabinet secretary said the offshore banking units of the scheduled banks should offer attractive interest rates to attract deposits.

Former BB deputy governor SM Moniruzzaman said the proposed act would allow the central bank to increase its monitoring of offshore banking.

Since offshore banking activities were regulated by directives given from time to time in the past, it was always a difficult task for monitoring agencies to keep a tab on this and take action when needed.

The approval of the proposed law came amid a serious dollar crisis, which saw the country’s forex reserves come down to around $20 billion from $48 billion in August 2021.

BB has imposed restrictions on imports and is also taking loans from the International Monetary Fund to assist with the balance of payments under stress to meet the import bills for energy items.

An instrument under the Universal Pension Scheme was introduced in the past year to attract expatriate Bangladeshis to increase the inflow of foreign currency.

However, less than five per cent of the overall 19,158 subscribers subscribed to the particular instrument in the first six months.

The cabinet secretary said that the PM gave the directive to not hold any iftar parties at the government level to avert waste.

He also said that the government would discourage private groups from doing the same.

Answering a question, he said that the PM suggested the distribution of food to the poor by rich people instead of arranging iftar parties.

The government adopted a policy of maintaining austerity measures in FY23 to tackle the ongoing financial crisis that has pushed inflation close to double digits for the past two years.

As part of austerity measures, the government announced a suspension of funds for public housing.

The finance division announced to suspend the procurement of new vehicles, vessels, and aircraft under the operating budget with a provision for replacing 10-year-old vehicles with consent from the finance ministry.

The government has also suspended foreign tours by government officials, except for special requirements.​

 

[Saif]

Graduating LDCs having minimal extension of trade benefits

Little comes out of hard bargains so far about deals on major areas like agriculture, fisheries subsidies, e-commerce moratorium and reform in dispute-settlement mechanism as the WTO ministerial nears its close. The ongoing ministerial conference of the World Trade Organization (WTO) is getting in

thefinancialexpress.com.bd

Graduating LDCs having minimal extension of trade benefits​

Breakthrough in critical issues is yet to be reached as WTO meet nears close​

ASJADUL KIBRIA, FROM ABU DHABI
Published :​

Feb 29, 2024 00:21

Updated :​

Feb 29, 2024 00:21

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Little comes out of hard bargains so far about deals on major areas like agriculture, fisheries subsidies, e-commerce moratorium and reform in dispute-settlement mechanism as the WTO ministerial nears its close.

The ongoing ministerial conference of the World Trade Organization (WTO) is getting into the finale today (Thursday) in this Arab city.

There is also a move not to extend the four-day 13th Ministerial Conference (MC13) although extension is not unusual as is evident from some previous ministerial meets when member-countries failed to break the deadlock in final-day negotiations.

On Wednesday, the third-day of the conference, delegates and negotiators were busy doing hectic conversations and discussions to minimise their differences over global trade regime. There had been no visible progress until the filing of the report at 6:00pm in Abu Dhabi.

Though India and some other members are pushing for a permanent solution to public stockholding (PSH) for food security along with some other demands, indication is rife that MC13 may not reach any conclusion on the much-sought-after permanent solution.

In that eventuality, the so-called peace clause will continue, which means an interim arrangement giving flexibility to procurement of grains from farmers at minimum support prices, and building a stockpile will be there.

In the MC12, the first part of the fisheries-subsidy agreement banned the subsidisation of illegal fishing. In MC13, the second part intends to expand the ban on subsidies that contribute to overfishing and fishing-sector overcapacity at large.

Regarding the e-commerce moratorium, European Union (EU) officials reassert their position to continue the cessation on grounds that by imposing customs duties on electronic transmission, digital innovation and activities will be disrupted.

Meantime, hectic efforts of the Least Developed Countries (LDCs) to get extensions of various trade benefits and international-support measures for the graduating LDCs, including Bangladesh, have been subdued by now.

This is reflected in the revised draft 'ministerial decision on WTO smooth transition support measures in favour of countries graduated from the LDC category.' The revised communication was submitted by Djibouti on behalf of the LDC Group before the start of the 13th minister conference here on Monday.

The first message of the revised draft is that graduating LDCs will be eligible to get three years as an extra time after their graduation to adjust with the WTO rules and provisions regarding the dispute-resolution system.

"A Member that graduates from the LDC category shall continue to benefit from the application of the Special Procedures Involving LDCs set out in Article 24 of the Dispute Settlement Understanding for a period of three years after the date on which the decision of the UN General Assembly to graduate that Member from the LDC category becomes effective," reads the revised text.

In the first draft, six years of additional time was proposed.

The Article 24 requires WTO members to give special consideration to LDC members in deciding whether to invoke and pursue dispute-settlement procedures. Those members may request the WTO Director-General or Chairman of the DSB to provide good offices, conciliation, or mediation to help resolve disputes.

Similarly, graduating LDCs will also be eligible for LDC-specific technical assistance and capacity building provided by the WTO for three years after the graduation. In the first draft, the time was six years.

Moreover, graduating LDCs are unlikely to get even three years' flexibility regarding implementing the relevant obligations regarding Agreement on Subsidies and Countervailing Measures (ASCM).

The revised text, however, requests the Sub-Committee on LDCs to continue work on the matter and make recommendations, if any, by December 2024.

An insider says that the WTO members will follow 'due restraint' approach during the three-year period for the graduating LDCs who will not comply with various WTO rules applicable to non-LDCs. In other words, they will not bring any graduating LDC to the dispute-settlement mechanism seeking remedy.

Prof Musatfizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), told FE that the possible outcome of the conference is still unclear.

"It appears that multilateralism will prevail, multilateral trade measures and benefits will also be there," he added. "But, the implementation of these measures and realisations of these benefits will require more bilateral efforts."

In this connection, he mentions that Bangladesh has already taken some steps to move ahead securing its business interests.

State Minister for Commerce Ahasanul Islam Titu, who heads the Bangladesh delegation to the MC13, has already met with a number of trading partners bilaterally on the sidelines of the conference.

Regarding the extension of market access for graduating LDCs, Prof Mustafiz says it is likely that the ministerial decision will follow the stance taken by the European Union (EU) and the United Kingdom (UK).

The EU and the UK have already agreed to continue the existing market- access facilities for three years to any graduated LDC. It means, Bangladesh will enjoy the benefit up to 2029, after having graduated in 2026.​

 

[Saif]

https://www.thedailystar.net/business/economy/news/forex-reserves-rise-377m-week-3555716

Forex reserves rise $377m in a week​

Bangladesh's foreign currency reserves rose $377 million in a week to about $20.57 billion, central bank figures showed.

The Bangladesh Bank data was based on calculations made in line with the formula of the International Monetary Fund (IMF).

The forex reserve stood at $20.19 billion a week earlier.

The gross reserves have increased over the past two weeks after the central bank initiated currency swaps with commercial banks.

The move was designed to enable the BB to meet the net reserve condition set by the IMF as part of its $4.7 billion loan programme.

Under the currency swap deal, commercial banks can take local currency from the central bank in exchange for US dollars for a tenure ranging from seven days to 90 days.

The BB has secured over $400 million from nearly 12 banks under the currency swap mechanism since its introduction, said a senior official of the central bank seeking anonymity.

The central bank has sold US dollars from its reserves only to settle the import bills of state-run enterprises.

In the post-pandemic period in 2021, the country's import payments started to rise faster than remittance inflow and exports earnings, prompting a shortage of US dollars in banks.

The forex crisis intensified in the middle of 2022 due to the price hike of essential goods and commodities on the global market because of supply chain disruptions caused by the lingering impacts of the pandemic and the outbreak of the Russia-Ukraine war.

In order to help banks settle record import bills,the central bank pumped more than $28 billion into the banking sector from its reserves, which caused the reserves to halve in just two years.

Owing to the sharp fall in the reserves, Bangladesh failed to meet the IMF minimum net international reserve target of $17.78 billion as of December 31.

Industry people, however, think the forex crisis will ease soon as merchandise exports rebounded strongly in January after manufacturers shipped goods worth $5.72 billion, a single-month record. Similarly, remittance flow rose to a seven-month high in January.

Suppliers are also hoping to retain the momentum in the coming months.​

 

[Saif]

Govt wants upward trend of economic indicators: Finance Minister

Finance Minister Abul Hassan Mahmood Ali today (Thursday) said that the government wants to see the economic indicators of the country going upward despite various challenges alongside some discomforts owing to inflation. "Discomforts are there to some extent for inflation. But we want to see

thefinancialexpress.com.bd

Govt wants upward trend of economic indicators: Finance Minister​

BSS

Published :​

Feb 22, 2024 18:02

Updated :​

Feb 22, 2024 21:00

Finance Minister Abul Hassan Mahmood Ali today (Thursday) said that the government wants to see the economic indicators of the country going upward despite various challenges alongside some discomforts owing to inflation.

"Discomforts are there to some extent for inflation. But we want to see the overall economic indicators going upward," he said.

The finance minister was replying to a series of questions from reporters after Chief of Mission of IOM Bangladesh Abdusattar ESOEV met him at his ERD office in the capital's Sher-e-Bangla Nagar today.

He usually said it is not always possible to make good progress overnight; rather, it takes a certain time.

Ali said that it is also not always possible to make significant progress in all the major macroeconomic indicators within a single day, adding, "But, the important thing is that we'll have to carefully watch how the economy is moving."

Asked whether the growing foreign loans are putting pressure on the economy, he said pressure is there to some extent, but it is not massive. "We're dying for this... the situation is not like that."


Replying to a question on the outcome of his meeting with the relevant stakeholders, including ministers and state ministers of concerned ministries, to keep the prices of essentials under control and also to keep the major macroeconomic indicators within the desired range, Ali said progress is definitely there in some cases while others are awaiting progress. "It's not possible to pull something down by force."

He told another questioner that L/Cs' are being opened ahead of the holy month of Ramadan to keep the stock and supply of essential items normal, adding, "L/Cs are being opened. Please have some patience..."

About his participation in the 47th session of the Governing Council of IFAD held in Rome recently, the finance minister said that Bangladesh is the largest partner of IFAD and the development partner has so far invested $2 billion in Bangladesh.

"The high ups of IFAD are very optimistic that their partnership with Bangladesh is growing. As far now, they (IFAD) have provided support worth $2 billion to Bangladesh, and it will increase further," he added.

Ali said that the investment of IFAD, mainly in the agricultural sector of Bangladesh, has been yielding good results.

Citing an example of IFAD's support to Bangladesh in various sectors, the Finance Minister said IFAD is helping in breeding Rui Minnow fish on the River Halda in Chattogram by preventing pollution in that river through involving the local community, and it is also yielding good results.

About the outcome of his meeting with the IOM Mission Chief, Ali said the IOM has shared their current operations and thoughts.​

 

[Saif]

Bangladesh to get duty benefit for 3 years after LDC graduation

Bangladesh will continue to get duty benefit for three more years after the graduation to a developing nation from the least developed country (LDC) in 2026 thanks to the decision taken at the 13th Ministerial Conference of the World Trade Organisation (WTO).

www.thedailystar.net

Bangladesh to get duty benefit for 3 years after LDC graduation​

The WTO’s 13th Ministerial Conference ended with no decision on some major issues such as public food stockpiling, fisheries subsidies although the discussion was extended for one more day up to March 1.

Bangladesh will continue to get duty benefit for three more years after the graduation to a developing nation from the least developed country (LDC) in 2026 thanks to the decision taken at the 13th Ministerial Conference of the World Trade Organisation (WTO).

In the 13th WTO Ministerial Conference, held at Abu Dhabi, between February 26 and March 1, the ministers of member countries agreed to continue the trade benefits to a graduated LDC after its graduation.

So, Bangladesh as a graduating LDC will continue to enjoy the low or zero duty benefit for its export products to developing and developed economies until 2029, according to the draft declaration of the WTO conference that ended yesterday.

The declaration said a member that graduates from the LDC category shall continue to benefit from the application of the Special Procedures Involving LDCs set out in Article 24 of the Dispute Settlement Understanding for a period of three years after the date on which the decision of the UN General Assembly to graduate that member from the LDC category becomes effective.

A member that graduates from the LDC category shall continue to be eligible for LDC-specific technical assistance and capacity building provided under WTO's technical assistance and training plan for a period of three years after the date on which the decision of the UN General Assembly to graduate that member from the LDC category becomes effective.

"The participation of existing LDCs shall be prioritized in activities under this plan," said the declaration.

The WTO's committees will review this decision by December 2024 and the General Council shall report to the Fourteenth Ministerial Conference on progress, the WTO said.

The continuation of the duty benefit for the graduated LDCs under the proposed method of the WTO may not maintain the current duty structure but considering different perspectives like economic status and products of the eligible countries.

The WTO members also agreed to further extend the moratorium on import duties on e-commerce trade for two more years.

The WTO's 13th Ministerial Conference ended with no decision on some major issues such as public food stockpiling, fisheries subsidies although the discussion was extended for one more day up to March 1.​

 

[Saif]

Remittance hits eight-month high

In February, migrants sent home $2.16 billion, up 39% year-on-year

www.thedailystar.net

Remittance hits eight-month high​

In February, migrants sent home $2.16 billion, up 39% year-on-year

Migrant workers sent home $2.16 billion in February, posting a 39 percent year-on-year jump, according to Bangladesh Bank (BB) data.

February's figure was the highest in eight months since July last year.​

​

The country recorded $2.19 billion of remittance inflow in June last year, BB data showed.

A record number of Bangladeshi migrants -- 13.05 lakh, went abroad for jobs in 2023, up from 11.35 lakh of the previous year.

This year's February had 29 days due to leap year, which was another reason for the rise in the remittance inflow.
​

 

[Saif]

Inflation and not so SMART interest rates

The failure to tame inflation not only imposes a steep tax on the poor and the middle class, it also erodes economic competitiveness.

www.thedailystar.net

Inflation and not so SMART interest rates​

FILE VISUAL: REHNUMA PROSHOON

SMART refers to the Six-Month Moving Average Rate of Treasury Bill, the instrument Bangladesh Bank (BB) uses to make interest rates flexible within bounds. Unfortunately, it is not working as it has reduced neither inflation nor foreign exchange shortages.


But let us start with some good news on the economy. In January, remittance inflow was $2.1 billion, a marked increase, while export earnings amounted to $5.7 billion. Robust inflow of medium- and long-term loans (including from the IMF) led to an infusion of over $2.5 billion to gross reserves over the past two months. The current account deficit was drastically reduced to a small surplus, though with steep costs, while revenue collection increased by 14.74 percent in January.​

​

That said, the economy's immediate challenges remain concerning. Moreover, a key element of the government's response, its monetary policy, has not been able to stabilise the balance of payments and foreign exchange markets. Plus, the failure to tame inflation not only imposes a steep tax on the poor and the middle class, it also erodes economic competitiveness.


The challenges come from three directions. First, the balance of payments pressures and the dollar shortage continue due to the unanticipated emergence of financial account deficits. While Bangladesh has traditionally maintained a healthy surplus (inflow of funds) for its financial account—$15.5 billion in FY2022—it saw a deficit of $2.1 billion in FY2023. In the first six months of the current fiscal year, this deficit widened to nearly $5.4 billion, that is, about $7.5 billion less than the $2.1 billion surplus the IMF's programme projects for June 2024. This has happened mainly because foreign short-term lending and trade credit have dried up. The widening of the deficit also signals foreign banks' lack of confidence in Bangladesh's economy.

Second, although the trade deficit has declined sharply, this has resulted from cutting imports of intermediate goods, capital goods, and raw materials down by 20-25 percent in the first half of the current fiscal year. The reduction in imports has not been made to happen through exchange rate adjustment, but through the rationing of foreign exchange. Banks, not prices, have determined in an ad hoc manner who will receive credit and foreign currency.


Third, inflation rates have increased from six percent two years ago to 9.86 percent by the end of January 2024. Inflation has spiked in Bangladesh since 2022 for two reasons. First, international energy prices roughly doubled and edible oil prices markedly increased in 2022. Second, the 30 percent depreciation of the exchange rate for the US dollar over the past two years meant that taka import prices continued to rise even when dollar prices fell.

In recent months, international prices of LNG and oil have fallen between 40-70 percent. Also, according to Bangladesh Bank's Monetary Policy Statement (January-June 2024), depreciation tapered off to only 1.49 percent in July-December 2023. As such, external factors could not be driving the ongoing inflation.

So, what is causing inflation to worsen? Much is said about the role of syndicates and intermediaries in this regard. There is, however, little evidence about the active role of syndicates in fixing prices. Economics suggests that this is difficult to do unless a small, tightly knit group has highly centralised control over the supply of specific items such as edible oil. Still, the government should be vigilant indeed. However, blaming minor traders and stockkeepers for higher prices would be a travesty, not to mention economically risky. These small players play a vital role in the supply chain by bringing the harvest and supplies from the farms or factories to consumers. If their activities and supplies are disrupted through "police action" or vigilantism, we may see higher inflation.


The main culprit behind rising inflation is a tepid and conflicted monetary policy that has kept demand for goods and services high on one side and their supply low on the other. It has kept supply low by rationing artificially low-priced foreign currency which has suppressed imports of vital raw materials, intermediate, and capital goods.

It has kept demand high because despite increasing the main policy interest rate (that is, the repo rate at which banks borrow from BB) six times, the increases have been too little, too late. Thus, although inflation rose sharply in 2022, the central bank waited until June 2023 to remove the market cap on interest rates, which was also somewhat deceptive. Commercial banks' lending rates are still capped by its so-called SMART instrument which ties market interest rates to the past six-month average rate of treasury bills: the rate at which the government borrows, which has been kept artificially low by stopping bidding when the interest rate became high.


For these reasons, the main policy interest rate has been negative in real terms—less than inflation rates—since 2021, encouraging commercial banks to borrow and finance higher demand, discouraging savings, and raising the advance-deposit ratios. Thus, credit to commercial banks increased by nearly four times over FY2023, and even last November was nearly three times what it was a year ago.

The second problem is with money supply. On one hand, money supply growth, especially credit growth in the private sector, has been limited—likely negative in real terms—over the past year. On the other hand, the central bank has been indulging in the most inflationary of activities: financing government deficits. Since this lending requires new money—referred to as "printing money"—it is inherently inflationary. Bangladesh Bank nearly tripled its lending to the government to nearly Tk 98,000 crore in the 2022-23 fiscal year. While the government has repaid some of this money over the previous six months, the stock of lending to the government as of last December was over twice what it was in June 2022.

Overall, the sharp rise in borrowing by commercial banks and by the government has meant that the velocity of money—how fast money changes hands—has markedly increased alongside a decrease in output or GDP growth. That is the only way to understand why inflation is creeping up despite low money supply growth.


So, what now? There are good reasons to be cautious and well prepared in the face of a floating exchange rate. One does not want to cause exchange rate overshooting and an inflation-depreciation spiral. But the exchange rate has to be floated, even if as a crawling peg at first. And caution should not turn into paralysis that increases uncertainty and erodes confidence.

Firstly, to dampen demand, the repo rate—the central bank's policy interest rate—has to be increased to make it positive in real terms. Also, commercial banks' lending rates have to be made market-based. If Bangladesh Bank insists on keeping rates in a corridor anchored to the SMART, it must stop interfering with the bidding and let treasury bill rates increase where demand meets supply. BB must signal its determination to fight inflation. Otherwise, inflationary expectations could run away, making the problem vastly more acute.

Second, to reduce the monetary overhang, Bangladesh Bank needs to continue to recover its government loan; let the government borrow from the market to repay this loan and finance its deficits. This will also help to set interest rates appropriately. It may be that the fiscal deficit and government spending must be squeezed more, but in a prioritised manner. Not, for example, by pressing down the woefully under-budgeted expenditures on repairs and maintenance, which already saw only four percent of its budget being spent in the first three months. These measures will cause pain, much as vaccine shots cause pain.


Third, along with implementing the measures above, the government needs to implement its plans to introduce a crawling exchange rate system that allows the exchange rate to float, albeit in a managed manner initially. There is no other option to stabilise the external account. However, and this is critical, the only way to make a crawling peg effective will be to liberalise interest rates.

Finally, when the banking sector is already under stress in this time of uncertainty, it is essential to make a strong start on reforming the financial sector. As the central bank's recent Financial Stability Assessment Report stated, non-performing loans (NPLs) comprised nearly half the assets of five banks. Overall, NPLs amounted to Tk 156,000 crore in June last year, or over three percent of GDP. When loans are correctly classified, the situation will reveal itself to be far worse.

It will be difficult to finance Bangladesh's long-term growth without cleaning out the balance sheet of our financial sector. Left ignored, systemic risks may cause significant adverse shocks to the economy in the near term. On the other hand, thinking positively, banking reforms, as in the 1980s and 1990s, can pave the way to sustained future growth.

Dr Ahmad Ahsan is director at the Policy Research Institute of Bangladesh, a former World Bank economist, and a Dhaka University faculty member. ​

 

[Saif]

Send remittance through proper channel: foreign minister tells expats

Foreign Minister Dr Hasan Mahmud has urged Bangladeshi expatriates in Saudi Arabia to send remittances to the country through legal channels

www.thedailystar.net

Send remittance through proper channel: foreign minister tells expats​

Foreign Minister Hasan Mahmud. File photo

Foreign Minister Dr Hasan Mahmud has urged Bangladeshi expatriates in Saudi Arabia to send remittances to the country through legal channels.

Speaking at a reception in Jeddah, Saudi Arabia, this afternoon he said that about three million Bangladeshis are living in Saudi Arabia. Each expatriate is a representative of the country and the country is known by their behaviour.​

​

If everyone sends remittances through legal channels, it will play a big role in the country's economy, he said.

The minister said that Bangladesh's relationship with Saudi Arabia is very friendly and that the government of Prime Minister Sheikh Hasina has made it multidimensional.

He said the previous relationship with the kingdom was mainly based on manpower export.

"Now we have made this relationship multidimensional with cooperation in various fields including petroleum, agriculture, environment, infrastructure development, trade and investment, and technology," the foreign minister.

Hasan highlighted his participation in the recently concluded 19th Extraordinary Session of the OIC Foreign Ministers in Jeddah as well as his meetings with the Saudi Foreign Minister and the OIC Secretary General.

The minister also highlighted the discussions on the proposed visit of Saudi Crown Prince Mohammed bin Salman to Bangladesh, purchase of petroleum, and industrial cooperation in the meeting with Saudi Foreign Minister Faisal bin Farhan Al-Saud, which took place in a very cordial atmosphere.

He said that the Saudi foreign minister has spoken about giving priority to the interests of Bangladesh.

Bangladesh Ambassador to Saudi Arabia Dr Mohammad Javed Patwary, Consul General in Jeddah Muhammad Nazmul Haque, and others attended the reception.​

 

[Bilal9]

Send remittance through proper channel: foreign minister tells expats

Foreign Minister Dr Hasan Mahmud has urged Bangladeshi expatriates in Saudi Arabia to send remittances to the country through legal channels

www.thedailystar.net

Send remittance through proper channel: foreign minister tells expats​

View attachment 3790
Foreign Minister Hasan Mahmud. File photo

Foreign Minister Dr Hasan Mahmud has urged Bangladeshi expatriates in Saudi Arabia to send remittances to the country through legal channels.

Speaking at a reception in Jeddah, Saudi Arabia, this afternoon he said that about three million Bangladeshis are living in Saudi Arabia. Each expatriate is a representative of the country and the country is known by their behaviour.​

​

If everyone sends remittances through legal channels, it will play a big role in the country's economy, he said.

The minister said that Bangladesh's relationship with Saudi Arabia is very friendly and that the government of Prime Minister Sheikh Hasina has made it multidimensional.

He said the previous relationship with the kingdom was mainly based on manpower export.

"Now we have made this relationship multidimensional with cooperation in various fields including petroleum, agriculture, environment, infrastructure development, trade and investment, and technology," the foreign minister.

Hasan highlighted his participation in the recently concluded 19th Extraordinary Session of the OIC Foreign Ministers in Jeddah as well as his meetings with the Saudi Foreign Minister and the OIC Secretary General.

The minister also highlighted the discussions on the proposed visit of Saudi Crown Prince Mohammed bin Salman to Bangladesh, purchase of petroleum, and industrial cooperation in the meeting with Saudi Foreign Minister Faisal bin Farhan Al-Saud, which took place in a very cordial atmosphere.

He said that the Saudi foreign minister has spoken about giving priority to the interests of Bangladesh.

Bangladesh Ambassador to Saudi Arabia Dr Mohammad Javed Patwary, Consul General in Jeddah Muhammad Nazmul Haque, and others attended the reception.​

I'm dead set against this. Sending through proper channel will only enhance the chance for these govt. looters (and their industrialist cohorts) to loot the money and stash it overseas (so AL can use the money to come to power again). By all means, use Hundi, that way the money gets to your relatives safely. Don't give any chance to these looters.

 

[Saif]

Moody’s Report: Banking outlook revised to stable from negative

US rating agency Moody’s Investors Service yesterday changed its outlook for Bangladesh’s banking system to stable from negative, which will relieve the central bank boss of stress.

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Moody’s Report: Banking outlook revised to stable from negative​

US rating agency Moody's Investors Service yesterday changed its outlook for Bangladesh's banking system to stable from negative, which will relieve the central bank boss of stress.

It comes at a time when there is a negative perception at home and abroad about the country's banking sector.​

​

The changed outlook reflects "our expectation that profitability and liquidity stress has eased despite ongoing asset-quality difficulties", Moody's said in a report.

It said profitability would be stable due to steady net interest margins (a profitability indicator that measures the difference between interest income and interest paid out by financial institutions) and credit costs.

Capital will also be stable because internal capital generation will be in line with capital consumption, it said, adding that the lenders' funding and liquidity will be tight but stable.

"The stable outlook also reflects our expectation that the government will continue to support banks when needed to maintain systemic stability," it said.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said Moody's latest outlook is a positive sign for Bangladesh's banking sector.

"There has been an erosion in global confidence about Bangladesh's banking sector. The latest outlook will prevent this," he said.

The central bank has implemented several reform measures in the banking sector in line with the International Monetary Fund's $4.7 billion loan programme, a Bangladesh Bank official told The Daily Star yesterday.

It has been a year since the reforms were taken up and some improvements are already visible, he said, adding, they expect more progress ahead. Moody's latest outlook could be a reflection of the reforms, he said.

Moody's had downgraded the outlook to negative from stable in March last year when Bangladesh went for the IMF loan programme.

Moody's in its latest outlook mentioned that the economy's operating environment would deteriorate as economic growth slows and inflation remains elevated.

Bangladesh's real GDP growth, which historically has been about 6.5 percent, is expected to slow to 6 percent in the fiscal year ending June 2024 and 6.3 percent in the fiscal year 2025, Moody's said.
​

"There has been an erosion in global confidence about Bangladesh's banking sector. The latest outlook will prevent this."
— Zahid Hussain, former lead economist at the World Bank's Dhaka office​

It also said the moderation in economic growth will be due to a weakening of external demand and persistently high import prices and inflation. As a result, the country's trade deficit will moderately widen.
In the banking sector, Moody's said despite rising asset risks, loan-loss provisions would be broadly steady because of regulatory forbearance that allows banks to actively restructure or reschedule problem exposures and continue classifying those loans as performing.

It forecasts the bank's capitalisation to be stable.

"We expect banks' internal capital generation will keep pace with capital consumption. However, banks' current capital levels remain modest."

It, however, said relatively weak capitalisation will give Bangladeshi banks a limited buffer against large and unexpected loan losses. State-owned banks will remain undercapitalised because of their weak earnings capacity caused by high levels of nonperforming loans and the absence of government capital infusions.

Moody's said it expects the banks' funding and liquidity to stabilise as the central bank measures to restrict imports and the opening of letters of credit have helped reduce foreign-currency outflows.

Incentives offered by the government and banks for remittance will help foreign-currency inflow increase but their effectiveness will be limited.

While Bangladeshi banks are self-sufficient in foreign-currency liquidity, the country's declining foreign-currency reserves will pose a risk to them as their access to dollars via the central bank in times of need will be limited, it said.
It expects domestic currency liquidity to remain tight because of high interest rates and inflation.

Moody's expects the government to support banks, particularly the larger ones, through regulatory forbearance and liquidity measures when needed.

The repayment capacity of domestic companies -- to which banks have significant exposures -- will continue to deteriorate because of rising borrowing costs, high inflation and weakening exports caused by slowing economic growth in key export markets, Moody's said.

Structural weaknesses, such as lax regulations and poor corporate governance, will continue to pose asset risks. As a result, stressed loans, which include performing loans with modified payment terms in addition to nonperforming loans, are expected to remain elevated, it said.

Zahid Hussain said the central bank has undertaken some policy programmes including the introduction of a smart interest rate system. Besides, the dollar situation has also improved slightly. "This might have been instrumental in Moody's outlook change," he said.

He also said funding and lending costs in the banking sector have increased. As a result, Moody's assumes that profitability will remain stable.

In the case of liquidity, Moody's might have thought that liquidity would be stable, even though there are problems in distressed assets because of necessary liquidity support from the central bank, he further said.​

 

[Saif]

I'm dead set against this. Sending through proper channel will only enhance the chance for these govt. looters (and their industrialist cohorts) to loot the money and stash it overseas (so AL can use the money to come to power again). By all means, use Hundi, that way the money gets to your relatives safely. Don't give any chance to these looters.

.........but the problem is if our foreign exchange reserve is not enough to pay for 3 months import bills we will not get loans from international lending agencies.

 

[Bilal9]

.........but the problem is if our foreign exchange reserve is not enough to pay for 3 months import bills we will not get loans from international lending agencies.

That is true, but then you will not get the treasury looted as much in any case, there will hardly be enough for running the economy.

I see no issue if the govt. falls when AL runs it into the ground. The sooner the better we get rid of Hasina.

If you send money using official channels, it sits in the banks, and is prime target for looting by Hasina's cohorts.

This I bet will intensify follow the India out movement - which is a mechanism for getting rid of Hasina.

Too early to say however.

 

[Saif]

Reserves may fall below $21b after ACU payment

Bangladesh's foreign exchange reserves are likely to fall below $21 billion next week after the Bangladesh Bank clears import bills of around $1.35 billion with the Asian Clearing Union (ACU), said a senior central bank official.

www.thedailystar.net

Reserves may fall below $21b after ACU payment​

Bangladesh's foreign exchange reserves are likely to fall below $21 billion next week after the Bangladesh Bank clears import bills of around $1.35 billion with the Asian Clearing Union (ACU), said a senior central bank official.

The import payments are scheduled to be cleared on Thursday through ACU, an arrangement for settling payments for intra-regional transactions among eight countries, including India.

However, he said it would take an additional one or two days to adjust the forex reserves after the ACU payment.

The country's gross forex reserve stands at above $21 billion now as per calculations based on the International Monetary Fund's Balance of Payment Manual 6.

It is likely to fall to the $20 billion mark after the payment, as per the central bank official.

The gross reserve stood at $20.57 billion as of February 28.

The gross reserve has continued to rise in recent times due to a currency swap initiated by the central bank. The banking regulator mobilised more than $500 million from the banks in exchange for local currency till the end of February.

However, the currency swap is not helping raise net reserves because mobilising foreign currency through swap deals is a liability.

The forex reserves have continued to fall for the past two-and-a-half years as the nation has been contending with a US dollar crisis.

The central bank has also continued to sell US dollars from its reserves, but only to settle import bills of state-run enterprises.

In the post-pandemic period in 2021, the country's import payments started to rise faster than remittance earnings and exports, leading to a shortage of US dollars in banks.

The forex crisis intensified in the middle of 2022 due to the price increase of essential goods and other commodities in the global market, an impact of supply chain disruptions caused by lingering impacts of the pandemic and Russia-Ukraine war.

In order to help banks settle record import bills, the central bank pumped more than $28 billion into the banking sector from its reserves, a development that caused the reserves to halve in just two years.​

 

[Saif]

Hasan discusses manpower export with UAE minister

Bangladesh today requested the UAE to recruit skilled manpower such as qualified nurses and medical professionals from Bangladesh

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Hasan discusses manpower export with UAE minister​

Photo: Collected

Bangladesh today requested the UAE to recruit skilled manpower such as qualified nurses and medical professionals from Bangladesh.

Foreign Minister Hasan Mahmud conveyed the message at a bilateral meeting held with UAE Minister for Human Resources and Emiratization Dr Abdul Rahman Al Awar at the latter's office in Dubai.

The two ministers discussed bilateral issues of mutual interests including the recruitment of more Bangladeshi nationals in all sectors of the UAE job market as well as in all Emirates; specially recruitment of graduate nurses, healthcare technicians, caregivers, professionals, agro farmers.

The foreign minister requested to reopen visa in all trades in all Emirates and ease the visa procedure for Bangladeshi workers in all categories as well as transfer of work permit from one employer to another.

The UAE minister responded that there was no bar in place to the employment of Bangladeshi workers, adding that UAE government is focussing on recruiting skilled workforce based on the demand of the technology-driven job market.

He also apprised about the use of AI and related software to process the recruitment and management of the workforce in UAE and expressed concerns over the credentials of skills verification and certification of the job seekers.

In this context, the foreign minister apprised his counterpart on Bangladesh government's initiatives for enhancing the skills of UAE-bound workforce and expressed readiness to hire UAE language trainers to prepare our workforce to suit the demand of UAE job market.

During the meeting, Hasan, referring to the recruitment of nurses by the Kuwaiti government, requested the UAE side to recruit qualified nurses and medical professionals from Bangladesh.

The UAE minister welcomed the proposal and assured that they would examine the Kuwaiti recruitment model in the upcoming joint technical committee meeting in Dhaka. Both sides also discussed the welfare issues of the Bangladeshi community in the UAE.

Most importantly, the challenges facing the signing off seafarers to use UAE ports with CDC to return home was also discussed in the meeting. The UAE minister assured that his ministry would look into it with urgency.

During the meeting, Bangladesh Ambassador to UAE Md Abu Zafar, consul general to Dubai, and director general of West Asia wing of the Ministry of Foreign Affairs were present from the Bangladesh side.

Hasan Mahmud is scheduled to hold bilateral consultation with UAE Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan in the evening at Royal Palace in Al Ain city.

During the two-day visit the minister will also attend a community meeting with Bangladeshi expatriates living in the UAE in observance with the historic 7th March day and meet other dignitaries.

Religious Affairs Secretary of Bangladesh Awami League Central Committee Advocate Sirajul Mustafa is accompanying the minister.​