Rajib
Malakar | Session: 2019-20 | Department of Management
Bangladesh, the second-biggest economy in South Asia, is
currently battling hundreds of issues and dreaming of following in its
footsteps with ‘Smart Bangladesh Vision 2041’. One of the main reasons for the
frugality of the economy comes from the mistreatment of its leading sectors.
Problems in Our Economy
Fragile Banking Sector
According to Bangladesh Bank, 9 banks (including 4
state-owned banks) are in the red zone. These banks are unable to pay the
customers depositing money and fail to make contributions in the trade as
businessmen are not getting the scope to make L/C. According to the most recent
data from Bangladesh Bank, default debts rose by 25% from Tk 145,633 crore in
the previous quarter to an all-time high of Tk 182,295 crore in January–March.
These incidents demotivate people to not deposit their money in the banks as
well as foreign investors to not invest in our country, resulting in an overall
economic downfall as banking is the root of the growth of an economy.
Money Laundering
Bangladesh ranks 33rd among 135 developing countries in
terms of money laundered annually. According to Transparency International
Bangladesh (TIB), each year around BDT 26,400 crore is sent out of Bangladesh
illegally. In this way, billions of dollars depart our country annually,
lowering the reserve level, weakening the value of the currency, and raising
the cost of trade, all of which are detrimental to the country.
Improper Action for Expatriation
and Remittance
Bangladesh has retained its positions as a migrant origin
and remittance recipient country, ranking sixth and eighth, respectively,
according to the World Migration Report 2024. However, it has the opportunity
to expatriate around 8.7 million people to 31 different developed countries.
Because of the government’s carelessness and failure to make skilled workers,
it fails to capture the foreign market. Again, remittance holders prefer
unofficial channels like hundi for better exchange rates, fees, and faster
transactions, as they eliminate unnecessary paperwork and bureaucracy, which makes
it easier and considerably faster for them to send money to their families in
the villages than through banks.
For the fiscal year 2024 (July–May), Bangladesh received
$21.26 billion; according to reports, nearly 49% of all remittances are sent
via Hundi. By that calculation, Bangladesh lost a staggering $20.43 billion
this fiscal year alone. When remittances come through the hundi, the foreign
currency remains abroad, reducing the country’s foreign reserves. This weakens
the financial stability of Bangladesh and hampers the country’s ability to pay
for imports and manage its balance of payments.
Taking on Unexamined
Projects
Bangabandhu Satellite-1
The Bangabandhu Satellite-1, launched in 2018, did not
generate revenue until May 2022. However, it has been presented as profitable,
with an operational lifespan until 2033. The government's accounts show a
monthly net income of 90 million takas, resulting in an annual revenue of 1.08
billion takas. However, the total expenditure on the project was 2,765 billion
takas, including a debt of 1,358 billion takas from HSBC Bank, influenced by
China. At the end of the satellite's lifespan, Bangladesh will face a loss of
1,577 billion takas. Despite doubts about recovering 50% of the expenses,
Bangladesh has proposed a loan to Russia for launching a second satellite.
Rooppur Nuclear Power Plant
A $11.38 billion credit deal between Bangladesh and Russia
was completed in 2016, opening the door for the Rooppur Nuclear Power Project's
primary development. The Russian loan covers 90% of the project's cost, with an
interest rate of 1.75 percent plus the London Interbank Offered Rate (LIBOR).
Bangladesh has begun paying interest on the loan deal inked with Russia in 2013
for a 2,400 MW power plant in 2018, even though it hasn't yet begun to reap the
advantages of the project.
Challenges of Garments
Industries
Bangladesh has become the second-largest garment exporter
globally, but recently its export market has become narrow, which is an
alarming signal to the nation as the RMG sector is one of the leading
industries in Bangladesh. Its exports fell in April, the first decline in four
months, due to slowing garment and other major product shipments. According to
data released yesterday by the Export Promotion Bureau (EPB), April's receipts
were also the lowest in six months. However, shipments rose 3.93 percent year-on-year
to $47.47 billion in July–April of the current financial year. The country
shipped $3.91 billion worth of products in April, down 0.99% from a year ago.
Govt Loans
The government's debt is projected to gradually increase
over the next fiscal years, following the trend of the previous two years. The
projected debt will stand at 37.6 percent of the GDP in 2024–25, according to
an official document of the Ministry of Finance obtained by UNB. The debt
amount is estimated at Tk 21,180 billion for fiscal years 2024–25. Bangladesh
spent $2.03 billion on external debt servicing in FY24, paying off principal
and interest on foreign debt, with $805.9 million in interest payments and
$1.22 billion in principal payments. Again, the conditions of taking loans are
not always favorable for the economy. For example, the International Monetary
Fund (IMF) has recommended a flat 15% VAT on companies with annual turnovers
over Tk 30 million, lifting tax rebate facilities from garments, shoes,
liquefied petroleum gas (LPG), mobile phones, entertainment, and foods, and
even proposing imposing VAT on remittance.
Budgetary Issues
The draft budget for FY25 proposes to whiten black
money after payment of income tax at a rate of 15 percent and charging 30%
income tax on above income of people's TK 38.5 lakhs. Again, the proposed
budget does not include measures to reduce inflationary pressure, which would
have been beneficial for all, especially low-income households.
Lack of Proper Governance
According to newspaper sources, during the discussion with
the IMF review mission last month, the concerned NBR officials reportedly
mentioned that 30 to 40 percent of the Bangladeshi economy remains outside the
formal economy, accounting for Tk 136 to Tk 180 billion. Again, currently,
there are 1.04 crore TIN holders in the country, but a significant number of
them—about 67 lakhs—have not submitted tax returns as of May 31, according to
the National Board of Revenue (NBR) data. Because of the government's lack of
initiative, the circulation of black money is rising in the economy, and the
government is not able to collect taxes. As a result, the total reserve also
decreased, as the government lost a large amount of its revenue. Because of
poor governance, many businessmen, bankers, and government and non-government
professionals are making uncountable amounts of money in illegal ways. The
concerned, the Bangladesh Bank, and even the Finance Ministry were aware of the
matter. But everyone remained silent. No one performed their duty.
These are now the major problems in the progress of our
country. Solving these problems is crucial for ensuring the development of our
country.
Solution
1. The Bangladesh Bank should prioritize strengthening the
banking sector as a crucial part of the economy. The bank should list
defaulters and freeze their a/c if they fail to pay loans. The government
should also warn defaulters of potential bans if they refuse to pay, as those
with the capacity to repay loans become defaulters. The bank should also
formulate strict policies for listed banks regarding loan payments, as many
individuals take crores of TK loans without proper mortgages. The government
and BB should also take initiatives to make it easier for expatriates to send
money to the country. Proper implementation of rules and initiatives will
encourage people to save in banks and encourage expatriates to send money into
the country, freeing the banking sector from liquidity crises and regaining
strength. This will lead to easier transactions for businesses, benefiting the
overall economy.
2. The government should stop taking on unnecessary projects
because, to complete these projects, it has to borrow money from foreign
countries, and the conditions for taking out the loans are often not easy for
BD. If taking on new projects becomes crucial for the economy, then the
government can go to public-private partnerships (PPP) for infrastructure
projects to share risks and leverage private sector expertise.
3. The government should enforce stricter regulations and
improve cooperation with international agencies to track and prevent illegal
financial activities. If the government can make a list of the money launderers,
then it can take effective action against these persons along with returning
the money to the country, which will discourage others from doing this crime
and play a positive role in the economy as the country's money is retained in
the country and makes the country’s currency more valuable.
4. The government should take efficient initiatives to
increase tax collection as well as the number of registered taxpayers. If it
does that, then the total foreign reserve will increase as government a revenue
increase, which makes the country's currency valuable and makes foreign trade
cheaper. By ensuring these, the economy will be able to run in a
progressive direction.
