High economic growth awaits Bangladesh

ADB chief economist stresses the need to reduce logistic costs for businesses
Suman Saha, back from the Philippines

The Asian Development Bank

predicts high economic growth
for Bangladesh because of the
country's continuing
improvements in political and
business environment, said its
chief economist Shang-Jin
Wei.We are expecting better
days for the Bangladesh
economy as the country's exports are increasing due to a rebound in the global economy, he
said.
Growth of exports is expected to rise to 13 percent, up from 12 percent in the previous year,
according to ADB's latest Outlook Update Report.
Improved overseas sales will obviously elevate the economy as Bangladesh is pursuing an
export-led growth strategy, he told The Daily Star at the ADB headquarters in the Philippines
recently.The US and European economies are gaining momentum in recent times, which will
help Bangladesh grab more export orders from those markets, he said.
The Manila-based development partner has already made an upward revision to its
economic growth forecast for Bangladesh to 6.4 percent from 6.2 percent for the current
fiscal year.
All major economic indicators of Bangladesh have been showing signs of improvement in the
past months, according to the ADB report.The report also projected a current account
surplus, and inflation will remain within the government's target.
Bangladesh witnessed a slowdown in economic activities for more than a year on account of
the national elections held in January this year.Even after the elections, businesses took time
to bounce back and regain confidence.Private sector credit growth went down to a 13-year
low of 10.4 percent in February. But things started taking a U-turn since then and the growth
rose to 12.3 percent in June.
As economic reforms took effect and despite political disruption prior to the national
elections, growth and exports beat projections, according to the report.Bangladesh's exports

rose 7.25 percent year-on-year to $2.15 billion in August, riding on the back of a rebound in
garment shipments.
Export earnings increased almost 2 percent year-on-year in the first two months of the fiscal
year to $5.14 billion, according to the Export Promotion Bureau.
The export target of $33.2 billion for fiscal 2014-15 is 10 percent higher than that of last
fiscal year's actual receipts.
Bangladeshthe second largest apparel exporter after Chinashould focus on reducing
logistic costs to increase overseas sales, said Wei, who took charge of the chief economist of
ADB in August.Labour costs are comparatively low in Bangladesh, but its logistic costs are
high, he said. So, the country should address the issue by increasing investment in
infrastructure.
The Chinese born US national has a long and distinguished career in academia and
international finance and trade.
Before joining ADB, he was the NT Wang chair and director of the Chazen Institute of
International Business at Columbia University.
Prior to that, he was an assistant director and chief of division at the International Monetary
Fund. He was also the IMF chief of mission to Myanmar in 2004.
Wei, who holds a PhD in economics and masters in finance from the University of California
in the US, said stability of macroeconomic indices is a key factor for higher economic growth.
The ADB said average inflation will come down to 6.5 percent this year from 7.4 percent in
the previous year, mainly due to easing supply constraints, a better crop outlook, large stock
of food grains and a supportive monetary policy.
It said low food prices in the international market and stable oil prices will contribute to a
fall in the inflation rate.Imports are also projected to be higher at 15 percent in 2014-15,
higher from 8.9 percent in the previous year.
The inflow of remittance, which declined 1.6 percent last fiscal year, is projected to increase 7
percent in the current year.
The country's investment has remained virtually stagnant between 25 and 26 percent of GDP
over several years in the past. Analysts said investment needs to be raised to at least 32
percent to achieve 7 percent or more economic growth.
Macroeconomic indicators are slightly better in Bangladesh, but still there is room for
improvement, the economist said.
Wei said ADB is ready to work with the Bangladesh government to bring reforms to the
economy.

State banks to cut deposit, lending

rates
The decision was taken to ease pressure of excess liquidity
Rejaul Karim Byron
State-owned commercial banks have decided to cut interest rates for both deposit and
lending by 0.5 to 1 percentage point to ease pressure of excess liquidity.
The decision was taken at a meeting of the chief executives of the banks on Tuesday.
The move will reduce the banks' cost of fund, Pradip Kumar Dutta, managing director of
Sonali Bank, told The Daily Star. The banks offer interest on deposit at between 4 percent
and 9.5 percent, which will now be capped at 9 percent.
The highest rate of interest for lending is now 16 percent, which will be cut to 15 percent.
State banks used to offer as high as 13 percent interest to attract deposits, but the rates were
gradually brought down to single digits over the past two years, another official of a state
bank said.The banks could afford expensive deposits earlier, but recuperating the expenses
has become a problem due to a dull investment climate now, Dutta said.Though the deposit
rates have been lowered, those are still above the inflation rate, he said.
State banks are also going to cut lending rates to match the lower reward for deposits, and to
allow businesses to access cheaper funds, he said."It will help boost investment."
The decision was taken by all state banks jointly to avoid unhealthy competition among
them, he said.The liquidity-burdened banks are also closing some high-cost deposit schemes
on various excuses to deal with the crisis.A state bank recently ordered its branches to close
their "double benefit" schemes if the clients did not have income tax certificates.
The total amount of excess liquidity in the banking system stood at Tk 151,244 crore by the
end of August, of which Tk 54,866 crore was parked with four state banks, according to
Bangladesh Bank data.
Deposit growth at state banks is 13 percent to 14 percent, against their average credit growth
of 3 percent to 4 percent. The overall credit growth of the banking sector is around 14
percent now.
The average lending rate was 12.84 percent in July, lower than 13.63 percent in the same
month last year. The deposit rate was 7.71 percent, against 8.61 percent a year ago, according
to BB data.

Tax collections gathering pace

Star Business Report
Tax receipts soared 15 percent year-on-year in the first two months of the fiscal year on the
back of increased collections from imports and income tax.
The National Board of Revenue logged in Tk 16,865 crore during the July-August period of
fiscal 2014-15.
The amount though still missed the collection target for the period owing to less-thanexpected receipts from the value-added tax and supplementary duty categories.
Taxmen however said the shortfall is low and expect the gap to be bridged in the coming
months.
Collections at the import level rose 17 percent year-on-year during the period to Tk 5,852
crore on the back of a recovery in imports in August.
Both the openings and settlements of letters of credit (LC) shot up in August in comparison
to a year ago: LC openings rose 21 percent and settlements 43 percent, Bangladesh Bank
data showed.
Income tax collection edged up 13 percent year-on-year to Tk 4,324 crore during the first two
months of the fiscal year.Md Bashir Uddin Ahmed, NBR member of income tax, linked the
rise in receipts to good monitoring.He said the annual income tax collection target can be
achieved if the financial sector performs well and the political situation remains conducive to
business.
We will be able to hit the target if the internal and external factors behave positively,
Ahmed said, adding that the effect of the measures taken in this year's budget would start
showing from October.
At the local level, VAT and supplementary duty collection, which grew slowly in July, rose 14
percent from a year ago to Tk 6,570 crore during the period.
The NBR has targeted to collect Tk 149,720 crore this fiscal year, which is 25 percent more
than the previous year's receipts of Tk 120,512 crore.

Power, infrastructure key to foreign

investment
Analysts speak at seminar
Star Business Report

Businesses yesterday urged the government to urgently address the gas, power and
infrastructure issues to attract more local and foreign direct investment.The call came at a
daylong seminar on investment opportunities at the capital's Sonargaon Hotel, organised by
the Board of Investment and inaugurated by Prime Minister Sheikh Hasina.The seminar was
attended by investors from home and abroad.
Asif Ibrahim, chairman of BUILD, a public-private initiative for policy formation, said the
private sector is the country's engine for growth. We have to encourage the private sector for
more investment.Regarding the overseas trade benefit, Shubhashish Bose, vice-chairman of
the Export Promotion Bureau, said the country enjoys zero-duty benefits to 38 countries
under the Generalised System of Preferences (GSP) scheme.So the foreign companies can
come here to invest and to take the benefit of international trade.Besides the zero-duty
benefit, Bangladesh also enjoys trade advantages for some specific products to India, China,
Korea, Malaysia and other countries, he said.
Atiur Rahman, governor of Bangladesh Bank, said major opportunities for foreign investors
in Bangladesh exist in infrastructure, including gas and electricity generation, roads,
highways and bridges, hotels and other tourism facilities.
Opportunities also exist in sectors such as tertiary health care, light engineering,
pharmaceuticals, ceramics, garment and textile, leather and leather goods and
tourism.Software and IT-enabled services are yet another promising area for foreign
investors in Bangladesh, he said, while emphasising the large domestic market with a
sizeable middle-class population segment.Rokia Afzal Rahman, president of the
Metropolitan Chamber of Commerce and Industry, said developing economic zones are very
important for attracting local and foreign investment.Bangladesh has a very good
investment prospect, she said, while asking the BoI for introducing a true one-stop service
for investors.
BoI Executive Chairman SA Samad said the agency tried to introduce the service but failed to
deliver due to non-cooperation from other agencies and departments.Rajiv Kumar Jain,
managing director of Ceat Bangladesh Ltd, a Bangladesh-India joint venture on tyre
manufacturer, said: Gas and power crises as well as political troubles should be addressed.
Regarding business in Bangladesh, I can say if documents are properly submitted,

registration is not a problem.Ceat completed acquisition of 28 acres of land in Bhaluka in

Mymensingh and construction of the plant will start in October.
Ceat tied up with the local AK Khan & Company to produce tyres for Bangladeshi vehicles at
the $52 million Bhaluka plant.

Govt to form fund to meet expenses

of big events
Rejaul Karim Byron
The government will form a permanent fund to meet expenses of organising big national and
international events -- a move to avoid criticism for 'extortion' by the state.
The initial fund will be of Tk 20 crore, left over from an amount raised early this year from
the private sector for the ICC T20 World Cup and an event where more than 2.5 lakh people
sang the national anthem together.
The decision to collect funds from corporate houses, including banks, had drawn huge
criticism.
Finance Minister AMA Muhith yesterday discussed the formation of the fund with Cultural
Affairs Minister Asaduzzaman Noor, State Minister for Youth and Sports Biren Sikder,
Cabinet Secretary Musharraf Hossain Bhuiyan and other government officials.
A nine-member board headed by the finance minister will operate the fund.
Government officials are often compelled to approach the wealthy section of the society for
taking financial assistance to hold big national and international events, Muhith told
reporters after the meeting.
"Instead of repeatedly embarrassing a person, one should be approached once a year to raise
the fund," he said. The meeting decided that the government will take grants from local and
international sources. Besides, different institutions may willingly contribute to the fund.
The money will be invested and the nine-member board will look into whether the fund is
being spent properly. Apart from representatives from different ministries, the private sector
including event management firms will be included in the board

Make FDI a top national priority

Economists advise govt
Star Business Report
Economists yesterday advised the government to find ways to bring in more foreign
investment and make it a top national priority.
If we can make it a national priority, we will be able to bring in whatever amount we desire,
Kamran Bakr, managing director of Unilever Bangladesh, said.
He spoke at a round-table, Stagnant Invest-ment: ways forward, organised by Prothom Alo
and Eastern Bank at the newspaper's office.
Bringing in FDI has not been made a national priority. I have sifted through various
government documents but haven't come across any specific target for FDI, said SA Samad,
executive chairman of the Board of Investment.
He said the country does not have the adequate infrastructure to meet the demands of
prospective foreign investors, who want everything right away.
Investors are hard-nosed people. They do not act like traders -- they always think longterm.
The high corporate tax, Samad said, is one of the major deterrents in bringing in FDI.
Besides, our tax structure is un-uniformed and unpredictable. As a result, they can't
estimate the long-term cost of a project.
Salehuddin Ahmed, a former governor of Bangladesh Bank, said the lack of policy continuity
is a major reason behind the slow flow of FDI to the country.
The lack of policy continuity is not only seen when governments change, it is also seen within
the tenure of a same government, he said.Some regulatory bodies give one decision in the
morning only to change it in the evening -- this is unfortunate because investors have longterm view.Debapriya Bhatta-charya, distinguished fellow of the Centre for Policy Dialogue,
said the stagnation in investment began in 2011-12 and is still continuing.
Many had thought that the investment situation would make a turnaround after the
elections but the situation has not improved in the last seven months, he said, adding that
investment has gone down on both the domestic and foreign fronts.
However, the real foreign investment scenario would have been in a worse state, if the
telecom operators, most of which are foreign-owned, had not invested millions of dollars to
get 3G licences, the economist said.Money also flowed into the country to help banks
maintain capital reserves in line with BASEL requirements, he said.

But the worrying thing is that money is going out of the country as companies are
repatriating their profits. So, the real situation is not in favour of Bangladesh.
Furthermore, the BoI, which is supposed to facilitate foreign investment into the country,
has now become an organisation that only provides work permits; they are unable to manage
gas and electricity service for investors.
The CPD distinguished fellow went on to state that money would be diverted to other
countries if there is no investment opportunity here.
While a number of organisations such as the Bangladesh Export Processing Zones, BoI and
Public Private Partnership Office are working to woo in investment, the efforts are not being
coordinated.
As a result, a problem has been created. Now is the time to bring in reforms. But the
government is failing in that respect.
Akbar Ali Khan, a former caretaker government adviser, said investors will go to any country
they find lucrative.But before talking about FDI, one should talk about domestic investment
as well: if the amount of local investment is low, foreign investment will also be low. So, the
emphasis should also be given on local investment, he said.
Ibrahim Khaled, a former deputy governor of Bangladesh Bank, called for setting up
economic zones as fast as possible to attract investors.
Another reason for the slowdown in investment is that a section of financiers who are not
aligned with either Awami League or BNP have not invested in the last five years and would
not do so in the near future, he said.Rashed Maqsood, country officer of Citibank, said
reforms on various fronts are needed to encourage existing companies to bring more FDI,
while calling for ways to get things done without speed money.
Ali Reza Iftekhar, managing director of EBL, said banks are interested to lend to good
clients. But the good clients are saying they can't do anything with the money. On the other
hand, the bad clients are running after bankers for loans.
Syed Mahbubur Rahman, managing director of BRAC Bank, a lender focused on small and
medium enterprises, said demand for loans is also going down among the SMEs. We will
not be able to bring foreign investors if we can't fix infrastructure bottlenecks, no matter how
hard we try.He also said banks should lend more in all regions in the country for the sake of
inclusive banking instead of restricting themselves to Dhaka and Chittagong.
Rokia Afzal Rahman, president of the Metropolitan Chamber of Commerce and Industry,
who chaired the discussion, called for turning negative factors into positive forces and
conveying the opportunities the country offers to international investors.
Mohammad Abdul Mannan, managing director of Islami Bank Bangladesh Ltd, said
investment aimed at major projects has stalled due to infrastructure bottlenecks.
Abdul Quayum, associate editor of the Prothom Alo, moderated the discussion.

Optimistic outlook for garment exports

despite slow start
Refayet Ullah Mirdha
Despite some unfavourable numbers in July, Bangladesh's outlook on garment exports is bright this
year too, with high demand from western customers due to competitive prices, industry insiders
said.Exports of woven garment declined by 4.14 percent to $1.21 billion in July, and knitwear export
grew only by 4.32 percent to $1.3 billion, according to the Export Promotion Bureau.

Also, garment exports grew a tepid 0.1 percent last month from a year earlier, the smallest
increase in 23 months, as foreign trade numbers indicate.
My prediction is that Bangladesh will perform very well in the current fiscal year as the demand for
the products is also still higher, said Mustafizur Rahman, executive director of the Centre for Policy
Dialogue (CPD), a research think-tank.
Bangladesh has targeted $26.9 billion in garment exports for fiscal 2014-15.
Despite some oddities in the sector, major international retailers still have been increasing the
volume of work orders to Bangladesh due to competitive prices of the products, he said.
After trending in step with total exports in past years, Bangladeshi shipments to the US
underperformed total Bangladeshi apparel exports in 18 of the last 22 months.
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In fact, exports to America may fade this year, owing perhaps to weakness in US apparel spending and
fallout from the Rana Plaza building collapse last year.
However, regardless of the stalled shipments to America, Bangladeshi garment manufacturers remain
on track to expand their exports this year, in turn boosting imports of cotton and textiles to records to
feed the domestic industry. At this rate, full-year shipments may approach $26 billion.

In effect, the outlook for Bangladeshi apparel exports this year continues to drive demand across the
global cotton and textile supply chain in 2014-15.
Bangladesh exported garment products worth $24.5 billion in fiscal 2013-14, which is 13.86 percent
higher than in the previous fiscal year, despite a prolonged political crisis and two major industrial
disasters including Tazreen Fashions fire and Rana Plaza building collapse.
The retailers are still with Bangladesh, but the country needs to complete the unfinished works like
relocation of the factories and following the compliances set by the retailers, CPD's Rahman said.
The government and garment makers also need to look to the small and medium factories, so that the
garment sector performs well, he said. Otherwise, the bigger groups will perform well as they have
bigger financial bases, he added.
The country will still be able to achieve the garment export target by the end of the year, said Atiqul
Islam, president of Bangladesh Garment Manufacturers and Exporters Association, the garment
makers' platform.
But export growth will remain lower up to September due to after-effects of last year's political crisis,
Islam said. We have to be very cautious as well, as the retailers are also looking for alternative
destinations.
Among other problems, the steep appreciation of the local currency against the greenback is another
woe for the garment sector now, he said.

1.44 lakh BO accounts closed in July

Sarwar A Chowdhury
Around 1.44 lakh BO accounts were closed in the first month of the fiscal year due mainly to
non-submission of renewal fees.
Investors are required to renew their BO (beneficiary owner's) account every June for a
certain fee.
The total number of BO accounts now stands at around 28 lakh, according to statistics
available from the Central Depository of Bangladesh Ltd, which preserves electronic data of
all individual and institutional investors. In fiscal 2013-14, some 2.20 lakh BO were closed.
If an investor does not renew or deposit the annual fee with the DP [depository participant],
the account is closed automatically, according to Md Moniruzzaman, managing director of
IDLC Investments, a merchant bank.
At present, an investor has to pay Tk 500 per annum to keep the account active. Of the Tk
500, the DP gets Tk 100, the CDBL Tk 150, the Bangladesh Securities and Exchange
Commission Tk 50 and the remaining Tk 200 goes to the government exchequer.
To trade in the stockmarket and apply for primary shares, an investor has to open a BO
account with the CDBL through a DP, which is usually a stockbroker or a merchant bank.
Moniruzzaman said there are many BO accounts that were opened only to participate in the
initial public offerings (IPO), but most remain empty or share-less after unsuccessful
applications.
Maybe the IPO applicants are not willing to continue their BO accounts amid the dull
situation in the market. It is logical that investors will not want to spend extra money to keep
their BO accounts operative, he added.

Price fluctuation of commodities

leads to a rise in default loans: BB
study
Rejaul Karim Byron
Price fluctuation of commodities in local and global markets was the reason why loan against
trust receipt (LTR) was turning defaulted in Chittagong, according to 48 percent
respondents of a Bangladesh Bank study.
The findings came when BB interviewed LTR clients and officials of different bank branches
in May-June 2012 and April this year.
The loan against a trust receipt is provided to a client when the documents covering an
import shipment are given without payment. Under this system, the client will hold their
sales proceeds in trust for the bank, until the loan allowed against the trust receipt is fully
paid.
According to the study report, the total LTR was Tk 48,312 crore until September 2013,
which was 32.82 percent of the total outstanding trade financing. Of the amount, Tk 9,352
crore turned into term loans or default loans as those were not paid timely.
Bank officials said a major portion of the LTR was from Chittagong where commodity
traders took the loans from different banks for a short period. But later they failed to pay the
loans in time.
In the study, 8.7 percent respondents blamed exchange rate fluctuation for the LTR turning
into default loans, while 4.8 percent mentioned transfer of fund, and 16.3 percent stocking
commodities for a long period as a reason. Besides, 22.1 percent cited various other reasons.
The study said the possibility of recovering these term loans is apparently very low due to a
lack of adequate mortgage, absence of goods in the banks' warehouses and fluctuation of
prices of unsold goods.
In many cases, importers/clients divert the fund to purchase lands, invest in the stockmarket
and set up new business, it said.
The study said interest rate for LTR loans and commissions for letters of credit (L/C) are
much higher -- interest rate 13 percent to 22 percent per annum and commission 0.25
percent to 0.50 percent per quarter.
"One kind of evil competition has been observed among different bank branches in case of
LC opening and providing LTR facilities against large groups in order to meet their profit
target at the branch level," the report said.

The study also found that bank branches often open LCs and provide LTR facility as
instructed by banks' head offices which creates a problem for branch managers to assess
their clients. As a result, the LTR is not adjusted and turns defaulted at one stage.
It was also observed that the same borrower or group is taking the LTR facility from different
banks due to the lenders' 'single borrower exposure limit'. As the banks have no information
on the clients' loan amounts from other banks, borrowers or importers are repaying loans to
one bank by taking loans from another.
The BB conducted the survey to gauge the extent of LTR given by the banks against LCs and
identify malpractices.
An official of a private bank said most of their LTR were generated in Chittagong region and
several banks have been facing serious problems due to such loans.
The managing director of a private bank said the LTR has been a recognised practice for long
in case of commodity loans.
However, the banks have taken a lesson from the recent default loan crisis in Chittagong
involving the LTR.
BB Deputy Governor SK Sur Chowdhury said the central bank has investigated the
irregularities regarding the LTR in Chittagong. On the basis of the probe, the loans
remaining unpaid for long have been classified and provision has been kept against the
loans, he said at a recent press conference.
Punitive measures were taken against those who were involved in such malpractices,
Chowdhury said, adding that the banks have been asked to form a taskforce to realise the
loans.

Potato exports treble

Sohel Parvez
Potato exports saw a quantum leap in the recently concluded fiscal year, buoyed by higher
shipments to Russia amid a tight supply from Pakistan and India to the global market,
exporters said yesterday.
Exports crossed the one-lakh-tonne mark for the first time in fiscal 2013-14, rising threefold
from only 28,416 tonnes in the previous year, according to the Department of Agricultural
Extension (DAE).
Earnings also trebled to $33.82 million in 2013-14 compared to the previous year, Export

Promotion Bureau data shows.

"This is a milestone. We want to perform better in the days to come. We are trying to
consolidate in Russia, which is a big market for potato," said Shaikh Abdul Quader, president
of Bangladesh Potato Exporters Association, which recorded the total exports at 116,000
tonnes in the last fiscal year.
Of the quantity, nearly 20,000 tonnes were exported to Russia, where Bangladeshi exporters
enjoyed wider market opportunities due to a ban on Pakistani potatoes over pest risks.
Exports to other traditional markets such as Malaysia, the Middle East and Sri Lanka also
rose owing to a slow supply from Pakistan and India where unfavourable weather took a toll
on production.
The surge in exports came on the back of low prices in the domestic market during JanuaryFebruary, when prices fell below the production cost of around Tk 6 a kilogram.
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An increased demand for exports and a build-up of stocks later caused the prices to swell,
helping many of the country's seven lakh farmers narrow down losses they had suffered
earlier due to a supply glut.
Prices that fell below Tk 2 a kilogram at the farmers' level in January are now Tk 22-25 in
Dhaka markets. On January 23, potato was selling at Tk 10-12 a kilogram in the capital,
according to Trading Corporation of Bangladesh.

Frustrated by sliding prices, farmers in many northern districts had staged protests and
dumped their produce on highways during the harvesting season, prompting the government
to explore opportunities for export. Currently exporters get 20 percent cash incentives.
"Low prices in the domestic market were one of the main factors behind the rising exports.
The government initiatives to create wider market opportunities have also helped," said Md
Ahsan Ullah, quarantine entomologist at the DAE's plant protection wing.
However, retaining the markets, especially Russia, depends largely on ensuring consistent
quality and export of disease-free vegetables.
In May, Russia denied entry of a potato shipment from Bangladesh after detecting brown rot
disease, according to Fresh Plaza, an online portal on global fresh produce.
"At the moment, we are working to eliminate the disease. We have taken huge programmes
to ensure smooth exports to Russia," said Quader of the exporters' association.
The government, too, has prepared an action plan to ensure production of disease-free
potato, he added.
Diseases apart, production of exportable potato varieties is low although the country
produces potato more than its annual demand.
Potato production rose to 89 lakh tonnes in fiscal 2013-14 from 86.03 lakh tonnes a year ago,
Bangladesh Bureau of Statistics data shows.
Of the total production, 10 lakh tonnes are used as seed and 60-65 lakh tonnes consumed,
according to Bangladesh Cold Storage Association.
Potato exports have started rising since fiscal 2009-10, mainly to cater to the demands from
Bangladeshi migrants in Malaysia, Singapore and the Middle East.

Banks return to profits

Rejaul Karim Byron
Operating profits for most banks rose in the first half of the year due to the return of
normalcy on the political front after a turbulent year.
Primary figures from 15 commercial banks yesterday showed that their profits between
January and June increased 10 percent year-on-year to Tk 3,731 crore.
By and large, bankers credited the stable political scenario for the rise in profits.
Although the profit has gone up, it was not up to our expectations, said Helal Ahmed

Chowdhury, managing director of Pubali Bank.

He said the import and export businesses went up and remittance flow also increased in
recent months, boosting the profit figures.
Imports rose 18.08 percent as of April of the just-concluded fiscal year. It went down by 5.60
percent during the same period of fiscal 2012-13.
In the month of April alone, imports shot up 23.47 percent, which was down by 3 percent in
the same month last year. We hope the situation will improve in the next six months. As a
result, the profits will also soar, Chowdhury told The Daily Star.Islami Bank Bangladesh,
the largest private commercial bank, made the highest profit of Tk 830 crore. The figure is a
decline of 14.78 percent from the previous year.
Our deposits went up. However, investment has not picked up at the same rate, causing the
profit to fall, said a senior official of the bank.He is however hopeful that profits would go
up in the next half of the year to make up for the shortfall.Most banks saw their profits
decline in 2013 due to political unrest and an increase in default loans. Lenders could not
disburse credit properly due to political instability and their import-export business also
suffered.

Incomes from all sources should be

taxed
An economist says NBR has to speed up reforms
Star Business Report
Analysts attend a discussion on budget organised by the Policy Research Institute in association with DFID in
Dhaka yesterday. Photo: Star

The government should make all personal incomes, irrespective of their sources, taxable to
collect more money from individual taxpayers in an effort to reach its ambitious revenue
target, an economist said yesterday.Sadiq Ahmed, vice chairman of Policy Research Institute
(PRI), said no sectors should be given a blanket tax exemption.
"If some concessions have to be made to motivate additional domestic and foreign
investment, the scope of those concessions should be limited in a way that does not
undermine tax collection."He said providing tax exemption to any high-earning sectors, such
as garments, is also not the right policy.
The former World Bank official also urged the government to introduce a proper wealth tax.
He said the modernisation plan of the National Board of Revenue has all the key ingredients
of making the agency modern, efficient and capable of meeting the challenging revenue
targets."But its implementation is slow and needs to be substantially speeded up."
Ahmed spoke at a discussion on the budget for the new fiscal year. PRI, a think-tank,
organised the event in its office in the city in association with the UK Department for
International Development (DFID).
At 11 percent, Bangladesh has one of the lowest tax-GDP ratios in the region. In this
backdrop, the government has targeted to raise the ratio by 4 percent of GDP in the next five
years."The revenue potential of personal income tax alone is huge," Ahmed said in a
presentation.At present, the top 10 percent of the population owns 35 percent of the national
income while personal income taxes are a meagre 1.5 percent of GDP.
Ahmed said, this year's budget also aims to modernise the tax structure by increasing
reliance on a progressive income tax system."This is a positive note but there is a long way to
go. The income tax measures have to be broadened substantially with well articulated
income and property tax reform."
Ahmed said the tax base needs to be broadened through stronger enforcement of tax laws,
along with efforts to further simplify tax filing and tax payments systems.
Siddiqur Rahman Chowdhury, a former finance secretary, said apart from the existing
taxpayers, there are many people who have taxable income, but they have not been brought
under the tax net."We even have not been able to bring the black money in the mainstream
economy. We give some incentives and wait for voluntary actions from the black money

holders. Stringent measures should be taken about the issue."

"We also talk about decentralisation. But all decisions are taken by the head of a department
in a highly centralised system."He also criticised the government for its failure to use the
huge amount of foreign aid lying in the pipeline.
At present, about $19.4 billion in concessional aid commitment has been in the pipeline, said
Zahid Hussain, lead economist of the World Bank in Dhaka.
Hussain also said Bangladesh needs to explain how the growth in a turbulent year was higher
relative to the growth in a normal year.
"This storyline has to be clarified. Otherwise, the World Bank will face this challenge in
September-October when their Global Economic Prospects come out. They are going to ask
us about the estimate for fiscal 2013-14."
"If we tell them that the FY2014 growth rate is 6.12 percent compared to 6.01 percent in
FY2013, the next question naturally would be 'how do you explain?'"
"Because we have also told the public that because of the 45 days of strikes and turbulence,
the GDP loss was at least $1.4 billion. This estimate has been accepted in the budget speech
of the finance minister."
Hussain said, this time the World Bank has disagreed not only on the magnitude but also on
the direction of the growth estimate.
He said the credibility of the macroeconomic statistics is at stake. "If you don't have credible
macroeconomic statistics, the macro-polices and macro-debates can't move forward
constructively."Hussain said he is really worried as too many unapproved projects have been
included in the annual development programme (ADP).
He said, if the country can use 20 percent of the aid money in the pipeline then a large
fraction of the external financial target will be achieved in the current fiscal year.
The WB economist also agreed with PRI's Sadiq Ahmed that decentralisation is the number
one structural reform agenda. "Through decentralisation, we can signal the political will for
change, build capacity and solve the problem of aligning incentives with development
performance."
The government will have to do something credible about decentralisation, Hussain said.
Binayak Sen, research director of Bangladesh Institute of Development Studies, said the
Implementation Monitoring and Evaluation Division should be empowered to improve the
scenario of project implementation in terms of quantity and quality.
He said the finance minister seems to be keen about giving more power to the upazila
parishads, but the political authority might not want it.
Zakir Ahmed Khan, another former finance secretary, criticised the huge allocation made
under the headline of the miscellaneous expenditure.
"It is huge. How could the miscellaneous expenditure be 9 percent of the budget?" he said.

Put a curb on state banks' lending

An economist advises these banks to focus on deposits
Star Business Report

From left, Anis A Khan, CEO of Mutual Trust Bank; M Abdul Mannan, state minister for finance; Rokia Afzal
Rahman, president of MCCI; Zaidi Sattar, chairman of PRI; and Ahsan H Mansur, executive director of PRI,
attend a discussion on budget yesterday. Photo: Star

The government should curtail lending operations of state-owned banks and ask them to
focus only on deposit collection to save the troubled lenders, an economist said yesterday.
"The banks should concentrate on deposit collection and invest the money in inter-bank
lending business," said Ahsan H Mansur, executive director of Policy Research Institute
(PRI).
"Bailing out the bottomless basket will not work," he said at a discussion on budget, at the
office of Metropolitan Chamber of Commerce and Industry in the capital.
Later, he told The Daily Star that the state-run banks have not learnt how, where and when
to lend. "If you don't learn in 40 years how to lend, you will never learn. Limiting banks'
operations to deposit collection can be seen in many countries."
Allocating an additional Tk 5,000 crore for capitalising the banks without any efforts to
improve their governance is certainly questionable, the former economist of the
International Monetary Fund said at the seminar co-organised by the PRI and MCCI.
Mansur also said the revenue target for the next fiscal year would not be achieved unless the
National Board of Revenue goes through fundamental reforms. "Attaining the revenue target

will be difficult given the slower than targeted GDP growth and weak tax administration."
He said the budget has made an effort to catalyse investment through higher spending on
infrastructure projects such as highways and bridges, setting up special economic zones and
power generation.
However, weaknesses in the financial sector due to major governance problem in the staterun banks and the growing loan loss provision across the banking sector have not got much
attention.
Mansur said the government should intensify efforts to accelerate disbursement of foreign
aid to contain pressure on domestic financing. The targeted borrowing from the domestic
sources is quite high and can create tensions in the money market as happened in 2011-12.
He also urged the finance minister to revise up the allocation for key social and development
sectors such as health, education, food and social security.
AB Mirza Azizul Islam, a former finance adviser to the caretaker government, said the
government would not be able to achieve its GDP growth target of 8 percent by 2015 and 10
percent by 2021 if it cannot raise investment-GDP ratio by attracting private investment.
"The budget has taken some positive steps in the areas of infrastructure and electricity to
revive private investment. But we will not get desired benefit if we can't address the delay in
project implementation, no matter what the allocation is."
The country needs efficient administration and less corruption, and political stability to
restore the confidence of the private investors, Islam said.
The expensive power and high interest rate are two other constraints that are putting private
investment at bay, he said.
M Anis Ud Dowla, a former president of MCCI, proposed closing the state-owned
enterprises, particularly the jute and textile mills, as the government does not have adequate
expertise and energy to run them.
He also said the turnover tax is unrealistic and against the basic principle of income tax.
"Through this, you are taxing revenue, not the income."
Adeeb H Khan, senior partner of Rahman Rahman Huq, an audit firm, criticised the plan to
impose 30 percent tax on the super-rich.
"This is controversial. Instead of expanding the tax net, imposing a new rate will put more
pressure on honest taxpayers."
He also said, although the proposal to reduce the minimum tax on companies and firms on
their gross receipts to 0.3 percent from 0.5 percent is a welcome move, the tax measure
actually goes against the normal practice of income tax.
"This is unfair and unjust."
M Abdul Mannan, state minister for finance and planning, said the proposed budget has
waded into areas that were not touched by the governments in the past.
"We have brought something for children, women, underprivileged groups, and even for

cancer patients. We will allocate more for them if we can mobilise more resources," he said.
The minister also backed suggestions of privatising the state-owned enterprises.
Mannan also said the government is looking into the changes in land tax proposed in the
budget.
Habibullah N Karim, an executive member of MCCI, said the registration fee of land should
be per katha-based fixed amount and area specific, instead of the percentage on the deed
value, as proposed in the budget.
"If we can do so, we will be able to reduce black money in the economy, as people will feel
encouraged to mention the real price of the land in the deed," he said.
Rokia Afzal Rahman, president of MCCI, said the upcoming budget reflects the government's
planning for the next five years, setting off a perception of stability and policy continuity.
"This was much needed for the business community in Bangladesh and foreign investors to
bring back the confidence."
She urged the government to cap its borrowing from the banking sector, as the projected
borrowing will be significantly higher compared to that in the outgoing fiscal year.
The MCCI president said the government also needs to remain open to suggestions from the
business community in resolving issues that might stem from the implementation of the new
VAT law from the upcoming fiscal year.
"We also urge the government to take appropriate measures for capacity building of the
administrative system to be able to implement the new budget."
Zaidi Sattar, chairman of PRI, said protections provided to some sectors such as tyres, tubes
and LPG cylinders should be made time-bound. "Otherwise, they will not become
competitive globally."
Salahuddin Kasem Khan, managing director of AK Khan and Company Ltd, called for finding
a solution to electricity crisis, particularly in Chittagong, as industries cannot remain
competitive with power producing from costly imported oil.

Exports accelerate 7pc in May

Star Business Report
Exports rose 7.22 percent year-on-year to $2.72 billion in May, riding on higher clothing
sales.
Buyers are regaining confidence in Bangladesh as the garment entrepreneurs have
undertaken many positive reforms in the sector after the Rana Plaza collapse last April, said
Abdus Salam Murshedy, former president of Bangladesh Garment Manufacturers and
Exporters Association.
The three inspection agencies -- Bangladesh

University of Engineering and Technology,

Accord and Alliance -- are working to improve workplace safety and compliance, which has
helped in regaining buyers' confidence on Bangladeshi clothing items, he added.
Garment exports between July and May stood at $22.18 billion, up 14.87 percent year-onyear, according to the Export Promotion Bureau.
Total export earnings in the first 11 months of the fiscal year stood at $27.37 billion, an
increase of 12.56 percent from a year ago.
Murshedy, also the president of the Exporters' Association of Bangladesh, said the overall
export target of $30.50 billion set by the government for fiscal 2013-14 is likely to be
achieved.
The export momentum though seems to have slowed somewhat last month: May's earnings
of $2.72 billion missed the monthly target by 5.45 percent.