[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Automation critical for reforming NBR

No wonder the country's tax regulator, the National Board of Revenue (NBR), could not so far set an enviable track record of performance. The reasons include red tape and graft. To this end, automation is being strongly suggested as a way of dealing with the issues. Understandably, as reporte

thefinancialexpress.com.bd

Automation critical for reforming NBR

No wonder the country's tax regulator, the National Board of Revenue (NBR), could not so far set an enviable track record of performance. The reasons include red tape and graft. To this end, automation is being strongly suggested as a way of dealing with the issues. Understandably, as reported, the parliamentary committee on the Ministry of Finance has rightly called for expediting the process of NBR automation to help curb corruption, reduce harassment and raise government revenue. The observation that merely identifying or punishing corrupt officials would not be enough is particularly important. In fact, corruption is sustained by opaque procedures, discretionary powers, endless movement of files and the helpless dependence of taxpayers on individual officers. So long as the process creates opportunities for bargaining over assessments, refunds, clearances and audits, replacing one dishonest official with another will hardly clean up the system. What is necessary is to remove the source of the malpractice by redesigning the procedure itself.

The urgency becomes clearer when the state of domestic revenue mobilisation is considered. Bangladesh's tax-to-GDP ratio is reportedly around 6.8 per cent, one of the lowest among comparable economies, while the government has to finance growing commitments involving health, education, infrastructure, social protection and debt servicing. Notably, the NBR collected about Tk 4.15 trillion against a target of Tk 5.03 trillion in FY26. Yet the revenue target for the current fiscal year has been set at Tk 6.04 trillion. Also, continued dependence on indirect taxes falls disproportionately on ordinary consumers and leaves the government without adequate fiscal space during major economic or natural emergencies. So, any ambitious revenue target cannot be achieved by exerting more pressure on the limited number of compliant taxpayers. The tax net has to be widened and leakages in this regard duly plugged. In this connection, the NBR's plans for integrated taxpayer profiles, third-party data matching, electronic audit selection, automated refunds and faceless assessments are steps in the right direction.

Automation, however, should not mean simply transferring an old, cumbersome paper procedure to a computer. The entire chain from registration and return submission to payment, assessment, appeal, refund and clearance needs end-to-end integration across the income tax, VAT and customs wings. Every decision should leave a time-stamped digital trail. Cases should be allocated through transparent risk criteria and any manual override should be recorded and independently reviewed. That would reduce the physical encounters in which bribes are demanded, speed up services and save businesses from repeated visits to tax offices. At the same time, taxpayers must have access to clear notices, online tracking, help desks and an effective grievance mechanism. Otherwise, an unresponsive portal may become another form of red-tapism. Data protection, cybersecurity and limits on officials' access are equally essential, since a vast tax database without adequate safeguards could expose citizens to new kinds of abuse.

But technology by itself cannot reform an organisation, the structure, incentives and working culture of which remain unchanged. The proposed organisational restructuring of tax administration should, therefore, clearly separate tax policymaking from revenue management, remove overlapping authority and make officers accountable for service quality as well as collection. The NBR will also require trained personnel in information technology, data analytics, forensic accounting and risk-based auditing, backed by a strong internal integrity framework. Implementation should follow a public, time-bound roadmap, with measurable targets for online services, reduced disposal time, fewer physical visits, automated refunds and expansion of the active taxpayer base. Independent audits and periodic disclosure of performance would help ensure that automation does not become another expensive project captured by vested interests. Therefore, the government must treat end-to-end NBR automation not as another information-technology project, but as a structural reform to remove the very processes through which corruption, harassment and revenue leakage thrive. Given the fiscal pressures confronting the country, completing that reform can no longer wait.​

 

[Saif]

Bangladesh growth strategy at bay

With increase in gross domestic product (GDP), also known as gross development product, as the goal of macroeconomic policy, investment becomes the essential instrument to achieve the goal. In popular parlance, investment is the engine of growth. A lay person with a curious bent of mind m

thefinancialexpress.com.bd

Bangladesh growth strategy at bay

With increase in gross domestic product (GDP), also known as gross development product, as the goal of macroeconomic policy, investment becomes the essential instrument to achieve the goal. In popular parlance, investment is the engine of growth. A lay person with a curious bent of mind may want to know how much of investment will increase GDP by 1 (one) per cent? Economists have a way of finding this by looking at investment as a percentage of GDP, known as investment-GDP ratio, and incremental capital output ratio (ICOR) at a particular time. ICOR is the number of capital units required to produce one unit of output. More intensive is the use of labour as against capital or more inefficient is the use of capital, higher is ICOR. By this metric, industrially developed countries are using more capital intensive production methods with efficiency has lower ICOR than a labour intensive country using capital less efficiently. ICOR = Change in Capital / Change in Output. In other words, ICOR = Investment (% of GDP) / Growth Rate of GDP. Thus, if the investment-GDP ratio is 24 per cent and GDP growth rate 6 per cent, then according to the formula, ICOR will be 6 per cent.

This has roughly been the relationship historically used used for Bangladesh. Let us suppose Bangladesh’s investment- GDP ratio rises from 24 to 25 per cent. That is a 1 percentage -point increase in investment, not a 1 per cent increase in investment. With an ICOR of 4 ( four), 1 ( one) percentage-point increase in investment divided by 4 unit of ICOR will yield 0.25 increase in GDP. Bangladesh’s GDP growth has been estimated by the World Bank at 1 percentage-point increase in private investment/GDP yielding 0.28 percentage point higher GDP growth, with a one year lag. Its estimate for public investment was about 0.33 percentage point GDP increase. Using an ICOR of 4 the following estimate can be arrived at for GDP growth associated with investment/GDP ratio: (1) 20 per cent investment/ GDP = 5 per cent GDP growth; (2) 24 per cent investment/ GDP = 6 per cent GDP; (3) 28 per cent investment / GDP = 7 per cent GDP; (4) 32 per cent investment/ GDP = 8 per cent GDP; (5) 36 per cent investment/ GDP = 9 per cent GDP growth. This is not a forecast, it merely shows the mechanical ICOR relationship. Bangladesh’s Eighth Five Year Plan (8FYP) assumed that raising investment from 32 per cent of GDP to about 37 per cent would help achieve its 8.51 per cent growth target, recognising that the ICOR would rise as Bangladesh became more capital intensive. ICOR would also rise if investment is of poor quality and productivity is poor, reducing the growth obtained from each additional unit of investment.

The crucial questions are: (a) How much Bangladesh is investing as percentage of GDP? (b) How much additional GDP is Bangladesh getting from each taka of investment? If investment is rising but the ICOR is also rising, more investment can produce little additional growth. There is enough evidence that Bangladesh’s capital efficiency has deteriorated over time. For FY 2025, gross investment was about 28.2 per cent of GDP, while real GDP growth was only 3.7 per cent. From this, the ICOR can be calculated as follows: Investment/GDP of 28.2 per cent divided by GDP growth rate of 3.7 per cent yields an ICOR of 7.6.

Bangladesh’s total investment is currently around 28-29 per cent of GDP, with private investment about 23 per cent and public investment around 5-5.5 per cent. With ICOR of 4, the investment-GDP of 28 per cent would yield 7 per cent increase in GDP. But the ICOR estimated for FY2025 being 7.7, increase in GDP will be less than 4 per cent.

So, the growth strategy of Bangladesh has to focus both on increasing investment-GDP ratio and a lower ICOR achieved through efficient use of resources. Regarding the first, there is a policy choice between public and private sector investments or a mix of the two. In either case there are implications for sources of investment and sectors of investment with variation of ICOR in operation between the two.

Bangladesh started with a public sector-led growth strategy with almost all industries and businesses brought under the public sector in a centrally planned economy. After the regime change in 1975, there was a gradual shift towards market economy that allowed a private sector to grow. But investment by private sector grew at a slow pace as can be seen from the figures for investment-GDP ratio at different years since the regime change: (1) 1975: 5.5 per cent; (2) 1976: 8.7 per cent; (3) 1978: 11.0 per cent; (4) 1981: 14 per cent. The breakthrough in private sector investment came after 2000 when it reached 23 per cent of GDP. Economic liberalisation, denationalisation, privatisation and promotion of private sector both by the government and multilateral and bilateral institutions (proselytisers of Washington Consensus) led to a private sector-led development strategy that has continued to date. But the growth of private sector has not been linear and steady. During 2000-2022 period there has been a remarkable plateau in private sector investment. The investment-GDP ratio hovered between 22 to 24 per cent during the period under review. For reasons to be discussed below, private sector investment has not crossed above 24 per cent of GDP since 2022. Meanwhile, public investment increased substantially. The World Bank has shown public investment rising from 4.7 per cent of GDP in 2010 to 6.9 per cent in 2015. Later estimates put the figure around 7-8 per cent of GDP. The IMF’s data shows that private investment was 24.5 per cent of GDP in 2019 but only 22.4 per cent by 2024, while public sector investment was around 7-8 per cent of GDP.

If expansion of public sector investment was financed by public revenue earnings the expansion would not impinge on the growth of private sector investment. But government has resorted to borrowing, particularly from commercial banks, year to year, to meet its revenue shortfalls. This has crowded out private sector borrowing. On top of shortages of loan-able funds from banks, private sector borrowings have been hamstrung by high rates of interests. According to Bangladesh Bank statistics, private sector credit growth in November 2025 was 6.5 per cent which came down to 4.75 per cent in April, 2026, an all time record low. As a result of this lacklustre performance, the new monetary policy of Bangladesh Bank has reduced the target of private sector credit growth to 6.8.per cent in the current fiscal year. The central bank has also revised the estimate for private sector investment to 21.2 per cent of GDP. This is close to the provision made in the current budget for private sector investment at 21.04 per cent. In contrast, public sector investment has been increased to 13 per cent, an increase over past year. Applying a realistic ICOR these investment figures for the two sectors of the economy give less than expected increase in GDP.

These monetary obstacles have been compounded by disruptions and shortages of gas and power supply and policy uncertainty. An example of the latter has been the cancellation of payment guarantee by the interim government to financiers, local and foreign, for supply of solar energy equipments which not only deprived private sector of investment with borrowed money but also blocked augmentation of power supply through renewable energy. The Interim government’s failure to protect many running industries after 5 August 2024 not only stopped production of import substituting industries but also undermined confidence of private sector entrepreneurs.

During Awami League rule (2008-2024) though the government’s own planning documents (Perspective Plan) recognised that private investment was indispensable for accelerated growth, the government’s implementation increasingly concentrated political and financial attention on large (mega) public projects. With inadequate revenue income earnings government relied increasingly on bank borrowing, leaving little monetary space for the private sector. The government did not rescind its commitment to private sector-led growth strategy but its policy decisions on public sector projects one after another served to squeeze the private sector. The IMF reported that in FY23 credit to government grew 15.7 per cent while the same to private sector grew only 9.1 per cent. This was in stark contrast to an average private-credit growth of 15.4 per cent during FY14-FY19. IMF’s more recent data make the shift even clearer. According to its findings, net credit to government increased rapidly, while private sector credit expanded much more slowly. According to its 2025 Article IV data, government credit growth reached 48.5 per cent in one year, followed by growth above 20 per cent in subsequent years, whereas private-sector credit growth was generally only 6-12 per cent. This finding is consistent with a progressive displacement of private borrowers by the public sector in the banking system. In fact, private investment was already stuck around 23-25 per cent of GDP for many years starting from 2014. The IMF figures in this respect show private investment at 24.0 per cent of GDP in 2014, 23.7 per cent in 2015, 24.5 per cent in 2016, 23.6 per cent in 2017, 23.3 per cent in 2018, and 24.0 per cent in 2019.

The mismatch of strategy produced a rather paradoxical situation. The explicit strategy was intended to work like this: public investment in mega projects (Padma bridge, highways, ports, power, metro-rail and economic zones) would lower infrastructure costs leading to greater private investment and finally end up with higher total investment and GDP. But the financing strategy increasingly produced another effect: large public projects, large government borrowing, increasing share of bank credit sequestered by public sector, low private sector credit, failure of private sector to grow as expected in formal strategy adopted in five-year plans. The tension within the strategy made itself manifest in unbalanced development of the two sectors. The next question is even more revealing: how much of the government’s bank borrowing went into productive capital formation; and how much was spent on salaries, subsidies, interest payments and other recurrent non- development expenditures? To the extent this took place, investment in public sector contributed lesser to GDP than suggested by the size of investment. If corruption is factored in, public sector expenditures for development projects contributed even less to GDP. Corruption can also be added to capital expenditures to show a high ICOR, more units of capital invested for lesser amount of output. This is the strongest argument against hijacking of private sector-led growth strategy by predatory public sector.

Of course, there are other factors inhibiting growth of private sector investments other than the financing side. Among these the major ones are: high and uncertain cost of finance, unreliable gas and power supply, foreign-exchange uncertainty, bureaucratic and regulatory obstacles, weak rule of law and contract enforcement, high cost of industrial land, poor transport and logistics, lack of skilled labour, weak competition, policy instability, tax and customs complexity, political uncertainty etc. These are structural problems which far outweigh the lack of entrepreneurial spirit and private sector confidence. The World Bank’s latest assessment describes the problem faced by private sector as a combination of weak finance, regulatory costs, unreliable infrastructures, uncertain utilities, inadequate competition and weak governance.

The present government formed by BNP in February, 2026 has inherited an economy that was almost gasping for breath. The interim government that preceded it for over a year did little to try to keep the collapsing economy on an even keel. Rather it made the future of the economy hostage to America’s trade hegemony by signing an unfair trade agreement. Besides, the undisclosed clauses in the bilateral agreement may have compromised the security interests of Bangladesh which may spill over into economic concerns. To be more specific on the state of the economy before the present government took over some salient facts can be mentioned which apart from highlighting the present predicament facing policy makers point to the setbacks suffered by the private sector growth strategy. The GDP growth rate which was 4.22 per cent in FY24 came down to 3.49 per cent in FY25. The investment-GDP ratio that was 30.70 per cent fell to 28.54 per cent during the same period. Industrial growth shrank to.3.71 per cent while agriculture slowed to 2.42 per cent and services to 4.35 per cent. Total investment fell from 30.70 per cent of GDP to 28.54 per cent in FY25. More importantly, private investment fell from 23.96 per cent to 22.48 per cent, its lowest level in five years. More significant is the deterioration in unemployment situation brought about by the political upheaval. Bangladesh Bureau of Statistics (BBS) puts unemployment rate at 4.48 per cent, compared with 4.15 per cent in 2023, with about 2.61 million people unemployed at the end of 2024. As regards, closing down of industries, a broad government survey found that nearly 245 factories closed between August 2024 and July 2025, affecting about 100,000 workers.

The BNP government, after coming to power, has taken vigorous measures for economic recovery, particularly to promote private sector growth. At its advice, the Bangladesh Bank has opened a Tk 40 billion refinance scheme for closed or struggling factories. Under this scheme commercial banks will lend to closed and struggling industries and Bangladesh Bank will provide refinance support to the banks. So the present government has opted to a policy of providing support to private sector rather than becoming investor or producer itself.

The BNP government’s commitment to private sector has also become clear from its policy towards the state owned enterprises. It has declared its intention to re-open the closed sugar, jute and silk industries to restore productive capacity and employment. But more importantly, the government has decided to sell or lease out 44 closed or loss-making or partly operational state-owned factories to private sector. The government is also considering several models in this respect : joint ventures with private sector, PPP (public-private partnership) and outright sale. Domestic and foreign investors have been invited to submit their proposals.

In the budget for 2026-27, the BNP government has explicitly targeted an ‘investment- led’ economy with 6.5 per cent growth target and employment creation as major objectives. The FY27 budget contains tax incentives and duty concessions intended to reduce the cost of investment. The budget has also proposed greater participation of private sector in infrastructure sectors.

The policy direction of the BNP government is clearly pro-private- sector but the actual evidence that private investment has already recovered is still limited because the government has been in office only since February, 2026. The real test will be whether the BNP government can push private investment-GDP ratio back above 24 per cent and eventually toward 28-30 per cent in the near future. If it can do that without simultaneously expanding government borrowing and crowding out private credit, Bangladesh could genuinely move toward a private-sector-led growth strategy. The BNP government’s success will ultimately be judged not by the size of its budget or number of government projects, but by whether private investment rises, private-sector credit expands, industrial increases and employment grows.​

 

[Saif]

Economy shows signs of gradual stabilisation

Bangladesh’s economy showed signs of gradual stabilisation during the April-June quarter of FY26, although overall economic activity remained subdued, said the Metropolitan Chamber of Commerce and Industry (MCCI) in its review.

www.thedailystar.net

Economy shows signs of gradual stabilisation

MCCI says, warns of persisting structural challenges

Star Business Report

Bangladesh’s economy showed signs of gradual stabilisation during the April-June quarter of FY26, although overall economic activity remained subdued, said the Metropolitan Chamber of Commerce and Industry (MCCI) in its review.

“Inflation remained the major concern,” the MCCI said in the review released yesterday.

The leading trade body said the country’s economic growth for FY26 was provisionally estimated at 4.14 percent, up from 3.49 percent in FY25. Inflation, however, remained elevated, continuing to put pressure on household purchasing power and the cost of living.

The external sector performed relatively well, supported by strong remittance inflows and improved foreign exchange reserves.

Remittances remained robust during the quarter, while reserves strengthened significantly by the end of June, providing greater stability for the balance of payments and the foreign exchange market, the MCCI said.

Yet, there were some challenges.

“Export growth remained weak despite a rebound in June, while private investment, credit growth and domestic demand were constrained by high interest rates and economic uncertainty. The banking sector also remained under pressure, alongside fiscal constraints and elevated inflation,” it said.

“Overall, the quarter reflected a transition from macroeconomic adjustment towards gradual recovery, with improved external sector resilience being a key positive development,” said the MCCI.

The trade body said data on the sectoral performance of the economy was yet to be available.

Third-quarter (January-March) data for FY26 released by the Bangladesh Bureau of Statistics (BBS) showed that the industrial sector suffered a 0.28 percent contraction during the period as businesses remained cautious about fresh investment amid tight liquidity, elevated borrowing costs and persistent macroeconomic uncertainties.

Within the sector, the manufacturing sub-sector registered negative growth of 0.34 percent in the same period, against 1.13 percent in the previous quarter, according to the BBS.

The MCCI said merchandise export earnings rebounded strongly in June 2026, the last month of the fiscal year, rising by 25 percent year-on-year to $4.19 billion from $3.35 billion.

However, total export earnings for FY26 stood at $48.38 billion, a marginal increase of 0.17 percent from $48.30 billion in FY25, falling short of the government’s target of $55 billion by 12 percent, largely due to weak global demand, high energy costs and inflationary pressures.

The inflow of remittances in FY26 reached a record $35.59 billion, a 17 percent rise over the previous fiscal year.

The trade body, citing experts, said Bangladeshi expatriate workers sent increased amounts of money home through official channels, while the banking regulator’s steps to ease money transfers and monitor informal channels also helped.

On the investment climate, the MCCI, citing Balance of Payments data from Bangladesh Bank, said net inflows of foreign direct investment (FDI) in FY26 decreased by 15 percent year-on-year to $1.46 billion from $1.72 billion a year ago.

It said FDI inflows in Bangladesh is low compared with that in many other countries at a similar level of development, even though the low labour costs available here are generally believed to be attractive to foreign investors.

The MCCI said foreign investors hesitate to make fresh investments in the country because of underdeveloped infrastructure, a shortage of energy and weak transmission infrastructure, a lack of consistency in policy and regulatory frameworks, a scarcity of industrial land, corruption, and non-transparent and uneven application of rules and regulations.

“The government needs to address these impediments to attract more FDI to the country to ensure the country’s economic development.”

Outlook

For the current quarter, the chamber, representing large companies, said exports, imports and remittances may increase. Foreign exchange reserves may decrease between July and September due to import payments to Asian Clearing Union (ACU) member countries.

Inflation, however, is likely to go down in September of FY27 after a spike in August, it said, projecting an 8.65 percent increase in consumer prices on a point-to-point basis this month and an 8.45 percent increase in September.

“After the general election, the economy is trying to overcome the difficulties due to the present political uncertainty and conflicting world scenario. Therefore, the performance of the selected economic indicators is mixed,” it said.

Going forward, the MCCI said sustaining price stability, strengthening the financial sector, promoting private investment and exports, and maintaining external-sector stability will be critical for achieving stronger and more inclusive economic growth.

“The policy priority going forward is therefore to consolidate external sector stability while bringing inflation down and creating conditions for stronger private investment and sustainable growth.”​