Lead story: Good Governance

The 2018 election cycle is currently on course towards general elections in December.The lead up to

this, along with a number of city corporation elections across Bangladesh, has brought various issues

currently concerning the public to the fore. The public’s valid concerns—some regarding the integrity

and fairness of the elections themselves, the ongoing quota agitation riddling higher educational

institutions nationwide, the ailing banking sector, and lack of due process—are rooted in systematic and

institutional shortcomings which can be rectifiedby improvingthe state of governance.

Good governance comprises of several interconnectedcomponents. Each and every component needs to

be addressed separately by their designated authorities in order to improve overall governance in

Bangladesh.

A healthy relationship between government, civil society,andthe private sector is essential in order to

foster good governance. Taking this into consideration, the UNDP has identified a country’s democracy,

its strategic plans for the future, public and private performance, attitude towards accountability, and

rule of lawas five broad components that influence the quality of its governance. If authorities are keen

to address the concerns being raised this election cycle, improvements must be made in each of these

five areas.

An Inclusive Democracy

Both the Economist Intelligence Unit’s (EIU) Democracy Index and the Germany-based Bertelsmann

Stiftung Index (BSI) have found the quality of democracy in Bangladesh to be on the decline in recent

years. Between 2010 and 2017, the EIU’s Democracy Index fell from 5.87 out of a possible 10 to 5.43

due to low scores pertaining to perceived political participation, civil liberties and functioning

government. The decline in the BSI was even more dramatic, falling from 5.8 in 2012 to 5.11 in 2018.

Democracy in neighboring India and Sri Lanka scored much higher than Bangladesh. India received

Democracy Index score of 7.23 and a BSI score of 6.48, and Sri Lanka received a Democracy Index score

of 6.96 and a BSI score of 6.61.

Figure 1. Bangladesh Democracy Index and Bertelsmann Stiftung Index, 2010-2018

Source: Economist Intelligence Unit (EIU), Bertelsmann Stiftung

The gradual decline in quality of democracy in Bangladesh is currently being reflected in two hot-button

issues, the first being the manner in which elections have been and will be conducted this election cycle.

Early in 2018, the High Court stayed the Dhaka North City Corporation and the Gazipur City Corporation

elections on grounds of technical irregularities. These delays were implementedwithout giving the

Election Commission due notice, throwing the integrity and capability of the Election Commission into

question. The Gazipur elections eventually took place on June 27th, but a date for the Dhaka elections is

yet to be scheduled.

The Khulna mayoral election held on May 15 was met with allegations of vote-rigging due to abnormally

high turnouts at certain polling stations.Election Commission authorities were perceived to beindifferent

to complaints of harassment and restricted access to polling stations.There had also been allegations of

arbitrary arrests of opposition members and supporters being made to sway results. Similar allegations

are being made against authorities overseeing the upcoming city corporation elections in Rajshahi,

Sylhet,and Barisal scheduled for July 30th.

The second hot button issue reflective of a decline in democratic values can be found in the ongoing

agitation concerning quota reforms in government educational institutions. The student movement

advocating for a higher percentage of merit-based admissions,which began on April 8th, and escalated on

June 30th, was met with sharp reproaches from authorities, violence, and, in some cases, arrests

without due procedure. There have also been reports of injured students being denied treatment on

grounds of their ideological leanings.

Both issues demonstrate an increasing trend ofexclusionary politics.This bodes poorly for the safety of

Bangladesh’s public as exclusionary practices usually pave the way for those who are left voiceless to act

out in violence.

5.7 5

.8

5.7

5.4

5.1

1

5.8

7

5.8

6

5.7

8

5.7

3

5.4

3

4.6

4.8

5

5.2

5.4

5.6

5.8

6

2010 2012 2014 2016 2018, 2017

Bertelsmann Stiftung Index Democracy Index

According to the World Governance Indicators, Bangladesh’spercentile ranking for Political Stability

andAbsence of Violence and Terrorism has been lower than most of its South Asian neighbors between

2010 and 2016, with the exception of Pakistan.While Sri Lanka, India,and Nepal have curbed the level of

political instability and violence within their borders, rankings for Bangladesh’s political stability and

absence of violence and terrorism has remained more less static barring an anomalous rise to the 17th

percentile in 2014.

In order to rectify the diminishing quality of democracy and curb violence, it would be in

Bangladesh’sbest interest to adopt an electoral and decision-making process that is more consensus-

oriented than the one it currently adheres to.

Figure 2. Political Stability &Absence of Violence and Terrorism in South Asia, Percentile Ranking (0-100)

Source: World Governance Indicators, World Bank

An Ambitious but Practical Vision for the Future

Over the years, the Government of Bangladesh has responded to Bangladesh infrastructural needs

bygreenlighting a number of mega projects in the power, roads and highways, and transport sectors.

However, their construction and completion have been far from efficient. Projects such as the Padma

Multipurpose Bridge, Dhaka Metrorail Project and the RuppurNuclear Power Plant, which are being

funded by the likes of China, Japan, Russia, and India, are subject to constant delays and costoverruns

due to insufficient feasibility studies,land acquisition issues, poor management capacity of line

ministries, lax monitoring operations and alocal shortage of technological skills and knowledge.

The same problems riddle Bangladesh’s Annual Development Programme (ADP) projects, which have

been proliferating at a staggering rate on a year-to-year basiswith little to no movement towards

completion.A grand total of 1710 ADP projects were listed in the budget for FY 18-19. Of these, 120 had

no financing and feasibility studies were pending for many of them. The National Budget has risen

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016

Bangladesh India Pakistan Sri Lanka Nepal

exponentially over the past eight years to finance these projects, but the absence of an efficient

bureaucracy and effective lines of disbursement has caused implementation of the budget to plummet.

Figure 3: Fiscal Budget and Implementation of Budget (%)

Source: Bangladesh Ministry of Finance, The Daily Star

It is clear from the GoB’sambitiousdevelopment project roster and the funds it allocates to them that

the GoB is genuinely trying to facilitate Bangladesh’s growing economic aspirations, but intent alone will

not guarantee the timely completion of these projects. Monitoring bodies have to be more scrupulous,

all parties such as private contractors and line ministries must be held accountable for the quality of

their work, and delivery dates must be enforced by the relevant authorities.

AWelcoming Business Environment

In 2018, the World Bank ranked ease of doing business in Bangladesh 177th in the world, making it the

second-to-last worst place to do business in South Asia, ahead of Afghanistan. Of the factors

determining the ease of doing business, enforcing contracts in Bangladesh was ranked 189th out of 190

countries, and getting electricity and registering property both ranked 185th. Factors such as getting

credit and trading across borders were ranked poorly as well.

15

2,4

48

17

5,6

42

18

9,0

98

20

8,8

68

23

8,4

33

34

0,6

05

40

0,2

66

0

20

40

60

80

100

120

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18

% I

mp

lem

enta

tio

n o

f B

ud

get

Bud

get

All

oca

tio

n

Fiscal Budget % Implementation of Budget

Table 1: Ease of Doing Business in Bangladesh

Ease of Doing Business Rank 177

Starting a Business 131

Dealing with Construction Permits 130

Getting Electricity 185

Registering Property 185

Getting Credit 159

Protecting Minority Investors 76

Paying Taxes 152

Trading Across Borders 173

Enforcing Contracts 189

Resolving Insolvency 152

Source: Ease of Doing Business, World Bank

The inhospitable nature of Bangladesh’s business environment is likely to lose Bangladesh potential

foreign investors. Bangladesh’s FDI is already lagging behind that of its neighbors. In 2016, Bangladesh

was reported to have earned USD 2 billion in FDI when Pakistan earned USD 3.2 billion and India earned

USD 60.1 billion. Unless reforms are implemented to welcome and support FDI, Bangladesh stands to

lose out on sectoral diversification and increased employment opportunities.

Another troublesome consequence of a restrictive business environment is a high unemployment rate.

In 2017, the Bangladesh Bureau of Statistics (BBS) reported that 2 million youths of working age were

unemployed and that 12.1 percent of these youth were unemployed at the tertiary level.An efficient

and supportive business environment is conducive to innovation and more employment opportunities

for Bangladesh’s educated youth. Without it, the proliferation of unemployed young people will likely

result in social and political instability.

At present, an investor needs up to a year and a half to obtain approvals from an estimated 42

government desks to start a business. In May 2017, the Prime Minister’s cabinet approved the One-Stop

Service Act 2017 which planned combine the services of 16 separate offices such as the Bangladesh

Investment Development Authority (BIDA), Registrar of Joint Stock Companies (RJSC), Bangladesh Bank,

and various utility companies under one roof. Though it initially seemed the Act would help in

streamlining the registration process, there has been no movement towards its implementation as of

yet.

Accountability of Authorities

Bangladesh has consistently been ranked lowest among South Asian countries in Transparency

International’s Corruption Perceptions Index. In 2017, it was ranked 141st behind India (81st), Sri Lanka

(91st), Pakistan (117th) and Nepal (122nd). The low ranking year after yearcomes from a reluctance to

hold wrongdoers accountable for their alleged discrepancies and crimes.The most topical issue ofwith

accountability, or lack thereof, in Bangladesh, arises from the banking sector.

The banking sector in Bangladesh has been known to engage in irresponsible lendingsince as far back as

the mid-90s. Though a Banking Reform Commission had been set up in 1996, all its 188

recommendations had been ignored. Rather than enforce stricter regulations, the GoB has provided the

banking sector with a grand total of BDT 10, 272 crores between 2005 and 2017 in bailouts for defaulted

loans. The budget for FY 17-18 continued this trend by allotting BDT 2,000 crores to a recapitalization

plan for the ailing sector.

In response to a barrage of incriminating allegationsagainst Sonali Bank, Basic Bank and Janata Bank in

2017 and early-2018, the Anti-Corruption Commission arrested a number of low-level bank officials but

chose not to pursue the primary orchestrators of the scamswho are rumored to be under the protection

of political connections. Furthermore, stalled investigations have allowed several of the arrested to get

out of jail on bail.

The volatility of the banking sector has had far-reaching consequences. At risk of losing their hard-

earned money, bank customers are growing skeptical of the sector’s integrity and refraining from

employing its services. The banking sector’s poor performance is further reflected in the persistent

decline in the Dhaka Stock Exchange, which in turn is discouraging investors from participating in capital

markets.

The absence of accountability is not isolated to the banking sector alone. The World Bank’s annual

survey of regulatory quality in Bangladesh has found it to be lower than all its South Asian neighbors,

including Pakistan and Nepal. The static nature of poor regulatory quality exhibits a longstanding

indifference towardsaccountability and unfortunately spells further volatility and upheaval across

sectors in the future.

Figure 4. Regulatory Quality in South Asian Countries, Percentile Ranking (0-100)

Source: World Governance Indicators, World Bank

Rule of Law

Part of the reason Bangladesh’s rank continues to drop in Transparency International’s corruption

rankingsyear after year is that its law enforcement and judiciary are neither efficient nor fair. As is

apparent from the delay in potentially incriminating probes and lack of due process in the ongoing

banking sector crisis, not everyone is subject to the same laws.

At present, perhaps the most glaring example of this is the manner in which the nationwide anti-drug

drive is being conducted. Beginning in May 2018, law enforcement arrested thousands of suspected

low-level drug dealers in an attempt to rid the streets of drugs. Law enforcement has been routinely

accused of making arbitrary arrests to extort arrestees’ families, andsome 130 of the arrested have so

far been killed in ‘encounters’ or ‘shootouts.’

Extra-judicial deaths are commonplace in Bangladesh. In 2003, an anti-crime campaign by the name of

Operation Clean Heart resulted in the deaths of 57 people. The anti-militant drive following the Gulshan

Terror Attack in 2016 led to 80 deaths.It is often argued that the individuals killed in these encounters

are not deserving of a proper criminal trial due to the harm their crimes inflicted on society. However, as

with excluding people of opposing from the electoral process, depriving a certain section of society from

a fair justice system is likely to result in violent and destabilizing retaliation.

Despite the bleak outlook, overall rule of law has actually been showing signs of improvement.While still

unsatisfactorily low, Bangladesh’s Rule of Law percentile ranking rose to 31 in 2016 from the measly 18

in 2012. The observed improvements ranked Bangladesh higher than Nepal and Pakistan in 2016,

though there is still a way to go before it catches up with India and Sri Lanka.

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016

Bangladesh India Pakistan Sri Lanka Nepal

Figure 5. Rule of Law in South Asian Countries, Percentile Ranking (0-100)

Source: World Governance Indicators, World Bank

The nationwide proliferation of mobile courts is perceived to be a major contributor to this

improvement as it grants the public both access to legal services in remote areas and resolves small

cases swiftly. Unfortunately, instances of magistrates abusing their power to exercise personal

vendettas through mobile courts has sparked backlash from the High Court. However, given the growing

backlog of cases, mainstream courts must tackle, many deem mobile courts a flawed but effective

alternative.

Conclusion

The concerns being raised during the ongoing election cycle are reflective of the perceived quality of

governance. Current issues and consistently low global rankings of key governance indicators support

these concerns.

Good governancehinges on insulating institutional mechanisms, the media,and press from political and

personal biases i.e. maintaining a system of checks and balances that prioritizes national interests and

holds authorities accountable for their conduct.

The quality of governance also relies on institutional mechanisms performing smoothly. Ideally,

institutionswould operate by incorporatingthree qualities intotheirdecision-making and

implementation.First, theywouldto ensure a high level of institutional performance, and be responsive

to the current economic climate, design effective solutions, and ensure those solutions are implemented

efficiently.

Second, they would ensure stability, both economically and politically. This can only be achieved by

exercising inclusivity, consensus-oriented decision-making,and accountability across public and private

sectors.

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016

Bangladesh India Pakistan Sri Lanka Nepal

Finally, theseinstitutions should be adaptable to future changes. Both public and private sectors need to

preempt potential political, economic and natural shocks by setting aside resources and funding for

innovation.

References:

https://bdnews24.com/bangladesh/2018/05/18/after-khulna-polls-election-commission-starts-

soul-searching-quietly

www.mof.gov.bd

http://info.worldbank.org/governance/wgi/

https://www.thedailystar.net/frontpage/fresh-bailout-state-banks-1586557

https://www.thedailystar.net/editorial/gazipur-election-postponement-disappointing-1572850

https://www.thedailystar.net/supplements/rethinking-urban-spaces/mega-projects-and-our-

hopes-and-concerns-1538071

https://www.thedailystar.net/star-weekend/spotlight/employing-our-burgeoning-youth-

population-1432747

https://www.thedailystar.net/perspective/mobile-courts-can-make-difference-1368808

https://www.thedailystar.net/frontpage/budget-aims-please-all-1586914

https://www.thedailystar.net/frontpage/high-ambition-low-capacity-1585945

https://www.thedailystar.net/opinion/no-frills/one-stop-service-caught-red-tape-1586305

https://www.thedailystar.net/frontpage/basic-plunderers-go-happy-1585960

https://www.thedailystar.net/opinion/human-rights/akram-accountability-joseph-and-justice-

1586302

http://www.undp.org/content/dam/undp/library/Poverty%20Reduction/Inclusive%20developm

ent/Towards%20Human%20Resilience/Towards_SustainingMDGProgress_Ch8.pdf

Cloud in the horizon : Central Bank Independence in Bangladesh

Introduction

In April 2018, Bangladesh Bank announced the decision to reduce cash reserve ratio (CRR) and repo

rates, two important monetary policy tools [1]. The changes in policy rates are shown in Figure 1

below.The central bank also provided more time to banks for adjusting their advanced deposit ratio to

83.5 percent for commercial banks and 89 percent for Islamic banks, after it was raised in January 2018.

The decisions were taken to inject liquidity in the banking sector. However, the manner of the

alterations is worrisome for three reasons.

Figure 1: Changes in Monetary Policy Rates

Source: Bangladesh Bank and Keystone research

First, Bangladesh Bank’s Monetary Policy Statement (MPS) for the second half of the fiscal year 2017-18

aimed to tighten money supply to curb excessive lending, focus on the quality of credit and ultimately

control the excessive non-performing loans (NPL) in the banking sector [2]. However, the decrease in

policy rates will increasemoney supply, giving banks the license to increase lending without focusing on

the credit quality and ultimately increase the volume of NPL.Second, the changes were announced after

continuous lobbying by the Bangladesh Association of Banks (BAB), a private association consisting of

sponsors and owner directors. Previously, they have been able to lobby for an increase in the number of

family membersfrom 2 to 4 in private bank’s Board of Directors (BoD). The tenure of the BoD has also

been increasedfrom 6 to 9 years. Both of these have madethrough amendments in the Bank Company

6.75%

4.75%

6.50%6.00%

4.75%

5.50%

Repo Rate Reverse Repo Rate Cash Reserve Ratio

Jan'2018 after MPS May ' 2018

Unchanged

Act. In June 2018, BAB decided to bring down the interest rate on lending to 9% and interest rate on

deposits to 6% [3]. Third, these changes do not solve the underlying problems of the liquidity

shortfall,i.e., deficit in corporate governance of banks, excessive risk-taking in giving out loans and

limited recovery of NPLs [4]. Rather they are bound to increase them. These factors have led to

questions over the Bangladesh Bank’s independence and its impacts on the economy.

What is Central Bank Independence?

Central Bank Independence (CBI)refers to the freedom of central banks from direct political influencein

achieving its objectives (mainly price stability). The case for CBIis based on the time inconsistency

argument that governments promise low inflation but are tempted to go for higher growth through

expansionary monetary policies.For example, a government may be inclined to lower interest ratesto

increase short-term employment and economic growth during election years.The lowering of interest

rate mightlead to short-term gain. However, this may be at the expense of long-term inflationary cost.

Therefore,an independent central bank with a clear mandate and without the concerns of the electoral

cycle is better placed to fulfill its objectives.

There are broadly two categories of CBI. The first one is goal independence, whereby the central bank

can determine policy goals without any direct influence (e.g., European Central Bank). The second one is

instrument independence, where the central bank is free only to adjust policy instruments in pursuit of

fixed goals by the government (e.g., Bank of England).

The high inflations in the 1960s and 1970s solidified the necessity for CBI globally. Empirical studies have

backed up the stabilizing effects of CBI on several economies through lower inflation and increased

credibility of the monetary policy [5].

Assessment of Bangladesh Bank’s Independence

Based on secondary research [6][7],the following is an assessment of CBI in Bangladesh:

Bangladesh Bank has no goal independence, but it has instrument independence.Even though,

Bangladesh Bank (Amendment) Act 2003 gave the central bank autonomy to conduct its own operation

and formulate monetary policy, it has no goal independence. Thisis because the Ministry of Finance

(MoF) and Bangladesh Bank coordinate through a policy coordination council, which is chaired by the

Finance Minister and come to a consensus on issues such as monetary policy.However, it has instrument

independence as it can use different monetary policy instruments (e.g., CRR, repo rates) for achieving its

objectives.

MoF can exert decisions on Bangladesh Bank decisions.This is due to the policy coordination council

which allows for an abrupt changein monetary policy, hampering its credibility. MoF also approves

licensing of new banks based on political consideration thus bypassing the authority of the central bank

[8]. In other emerging countries with no goal independence and scrutiny of the finance ministry, central

banks try to operate autonomously.However, this largely depends on the capability of the governor and

deputy governors to handle both external and internal interference. The result of operating

independentlywas exemplified by the former governor of the Reserve Bank of India who was successful

in bringing down inflation, control exchange rate andNPL [9].

Independence is hampered by other Government of Bangladesh (GoB) institutions and

regulations.TheMoF has a separate Banking and Financial Institution Division.This division supervises

and regulates the banks and non-bank financial institutions and capital markets, which is also a part of

Bangladesh Bank’s mandate. Therefore, it puts the central bank on the sidelines. Also, regulations do

not allow the central bank to regulate state-owned banks as they are controlled by the MoF.

Impact on the Economy

The current and future impacts of the central bank not being able to operate independently are as

follows:

Bangladesh Bank’s lack of independence allowed “regulatory capture” in the financial

sector.Regulatory capture is a form of government failure which occurs when a regulatory agency,

created to act in the public interest, instead advances the commercial or political concerns of

special interest groups it is charged with regulating [10]. Thisis seen through changes in policy rates,

amendments in Bank Company Act and the independent reduction of lending and borrowing interest

rates by BAB.The responsibility to supervise the banking sector is one of Bangladesh Bank’s function.

However, this seems to have reversed as a private association of owner directors is supposedly taking

such decisions, showing that regulatory capture has been completed. In other economies, an association

such as BAB can only consultthe central bank regarding interest rate decisions. If this continues, the

interest of the general public will be adversely affected.

NPLs are expected to increase in the near future.As stated in the MPS forthe second half of FY 2017-18,

Bangladesh Bank was trying to bring commercial banks under strict supervision to improve their risk

management, increase credit quality and bring down NPLs. Till March 2018, the overall NPL ratio was at

10.8% [11]. However, with the inability to implement monetary policy decisions and lack of control over

state-owned banks, it can be expected that NPL levels would rise in the near future.This would

negatively affect Bangladesh’s entire financial sector.

Bangladesh Bank may be unable to meet its price stability objective.The central bank decides on

monetary policy tools based on the prevailing macroeconomic situation. Due to lack of independence

and sudden shifts in policy rates, there will be excess liquidity available in the economy. In this situation,

banks might be willing to lend more which would create inflationary pressure in the near future. If

future changes are driven by GoB’s agenda,i.e.,the political cycle, it might not be possible to keep prices

stable.

Way Forward

The following measures can be implemented by the GoB to grant more independence to Bangladesh

Bank;

Removepolicy coordination council between MoF and Bangladesh Bankto allow goal independence

and prevent abrupt changes in policy rates.

Abolish Banking and Finance Division in the Ministry of Finance altogether or develop a separate

mandate for the Division. For example, it could focus on regulating non-bank financial institutions

and capital markets allowing Bangladesh Bank to focus on price stability, banking sector supervision,

and foreign exchange management.

Appoint competent and neutral people to run Bangladesh Bank.

Provide full autonomy to Bangladesh Bank in regulating both private and state-owned commercial

banks to reduce NPL.

Put BAB on a leash and curtail the tenure and powers of “owner directors” of private

banks.Implement regulations for BAB which would make it mandatory for them to consult

Bangladesh Bank before taking any decisions affecting the banking/financial sector.

References

[1] BDNEWS24 (2018). Bangladesh Bank Not Practising What It Is Preaches On Curbing Aggressive

Lending. Retrieved from: https://bdnews24.com/economy/2018/04/05/bangladesh-bank-not-

practising-what-it-preaches-on-curbing-aggressive-lending-analysts

[2] Dhaka Tribune (2018). New Monetary Policy Looks to Rein In Reckless Lending. Retrieved from:

https://www.dhakatribune.com/business/regulations/2018/01/29/new-monetary-policy-looks-to-

rein-in-reckless-lending/

[3] Dhaka Tribune (2018). Bank Owners Seek Central Bank’s Help To Implement Lower Interest Rates.

Retrieved from: https://www.dhakatribune.com/bangladesh/2018/06/22/bank-owners-seek-

central-bank-s-help-to-implement-lower-interest-rates

[4] Daily Star (2018). Will CRR Cuts Bring Down LendingRate? Retrieved from:

https://www.thedailystar.net/business/banking/will-crr-cuts-bring-down-bangladesh-bank-loan-

interest-rate-1556728

[5] Garriga (2016). "Central Bank Independence in the World: A New Data Set." International

Interactions 42(5): 849-868. Center for Research and Teaching in Economics. Retrieved from:

https://poseidon01.ssrn.com/delivery.php?ID=8540060041121161260690290290671090690530320

69011093069025100067025001127086107075006030110036003123013013080110094009126125

11002805100203201106608908502707601008206804001203201706407012610107209911411609

5024094119007084097115006103081028007082064083067&EXT=pdf

[6] Ahmed (2006). Bangladesh Bank Reform Changes and Challenges. CGS BRAC University WPS 4.

Retrieved from:

http://dspace.bracu.ac.bd/xmlui/bitstream/handle/10361/889/CGS%20working%20paper%20Bangl

adesh%20Bank%20reform.pdf?sequence=1&isAllowed=y

[7] Newas& Chowdhury (2014). Bangladesh Bank Independence and Governance: Lessons from the

Reserve Bank of Australia. Retrieved from: https://www.fbs-

du.com/news_event/146648817310.pdf

[8] Dhaka Tribune (2017). PM gives the nod to three new banks. Retrieved from:

https://www.dhakatribune.com/business/banks/2017/12/10/pm-gives-nod-three-new-banks

[9] IILM (2018). Top 5 Achievements of Raghuram Rajan as RBI Governor. Retrieved from:

https://blog.iilm.edu/top-5-achievements-of-raghuram-rajan-as-rbi-governor/

[10] Regulatory capture. 2018. In Investopedia.com. Retrieved from:

https://www.investopedia.com/terms/r/regulatory-capture.asp

[11] Bangladesh Bank (2018). Bangladesh Bank Quarterly Jan-Mar 2018. Retrieved

from:https://www.bb.org.bd/pub/quaterly/bbquarterly/jan-mar2018/overview.pdf

Silver lining: Growth in Service Sector in Bangladesh

Introduction:

In modern societies, service concept has become crucial to ensure standard living. Consumers’

affordability and willingness to pay for better services have also increased. Bangladesh is not an

exception. Service sector comprises of wholesale and retail trade, transport storage and communication,

construction, real estate, renting and business activities, community, social, and personal services,

education, public administration and defense, health and social works, financial intermediation, utilities,

and hotels and restaurants.

Service sector in Bangladesh has always made a significant contribution to GDP. In recent years, as

shown in table I, GDP contribution from service sector is increasing with a steady growth.

Table I: Sector-wise contribution in GDP (%) and growth rate* (%) in Bangladesh

1990-91 1995-96 2000-01 2005-06 2009-10 2017

Agriculture 23.23

(2.23)

25.68

(3.10)

25.03

(3.14)

21.84

(4.94)

20.16

(4.39)

14.2

(3.04)

Industry 21.04

(4.57)

24.87

(6.98)

26.20

(7.45)

29.03

(9.74)

29.95

(6.42)

29.2

(10.50)

Service 49.73

(3.28)

49.45

(3.96)

48.77

(5.53)

49.13

(6.40)

49.90

(6.59)

56.5

(6.50)

Source: Bangladesh Economic Review, 2007 &2010 and indexmundi

*Growth rate in parenthesis

Service Sector in Neighboring Countries

As shown in tableII, the contribution of service sector in Bangladesh is comparable to neighboring

countries and developing economies.

Table II: Contribution of service sector to GDP (%) and growth rate (%) comparison

Bangladesh

(2017)

India

(2017)

Sri

Lanka

(2012)

Pakistan

(2017)

Developing

economies

(2011)

Developing

economies:

Asia

(2011)

Developing

economies:

Southern Asia

(2011)

Contribution to

GDP (%)

56.5 55.2

58.5 53.09 51 48.1 54.5

Growth rate (%) 6.50 8.30 4.6 6.43 - - -

Source: Services Policy Review, UN, 2016 and various online resources

Among the neighboring countries, service sector in India, particularly financial services, IT, and

telecommunication, grew significantly in recent years. Telecommunications, energy and financialsectors

in Bangladesh also experienced rise during the same period.

Importanceof the Service Sector

Bangladesh, being the 10thmost densely populated country, has limited per capita resources for

agricultural and industrial production. Scarcity of resources limits the growth potential of agriculture and

manufacturing industries. In contrast, large workforce is a vital input to the service sector. According to

Center for Policy Dialogue, service sector in Bangladesh registered 6.3% higher growth rates in FY16

thanin FY15.The contribution to GDP growth by service sector was 3% in FY 2015, 3.21% in FY16 and

3.31% (estimated) in FY17.

Employment Intensity

As shown in figure 1, in 2016, service employmentwas 40% of totalemployment. From 1991 to 2016, in

25 years, serviceemployment was more than doubled. In contrast, the agricultural employment became

almost half in the same period. Interestingly, the sharp drop in agricultural employment in 1991-96 and

2000-03 period was compensated by a rise in service employment. Also,the percentage share of

serviceemployment has always been higher than industrial employment.

Figure 1: Year-wise employment (%) by sectors

Source: The World Bank database

The wage indices for services also increased by 7.8% in June 2016 compared to that in June 2015. The

same increased by 6.4% for agriculture and 5.8% for industry.

Backward Linkage

Apart from providing direct services to consumers, service sector also acts as a backward linkage to

other sectors. In 2016, Services Policy Review in Bangladesh by United Nations (UN) mentioned that 26%

and 9% of the total services provided domestically acts as an input to the manufacturing industries and

agriculture, respectively. The industry sector itself absorbs 72% of the country’s land transport services,

69% of wholesale and 66% of retail trade services, 59% of rail transport, 27% of professional services

and 20% of communication services.

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Agriculture

Industry

Service

Attracting FDI Inflows

Service sector also has been attractinglarge amount of foreign direct investment (FDI) inflows since and

by 2005, it accounted for 81% of FDI inflows. In recent years, the highest shares of FDI were received by

telecommunications, energy and financial sectors.

Constraints and Challenges

Service sector has been an essential contributor to the economy. However, Bangladesh is yet to tap the

fullpotentials of this sector as it faces the following challenges:

Weak infrastructure, limited domestic capacity, and low labor productivity are some of the major

constraints. Another challenge is to raise the quality of education at all levels as well as to increase

enrolments at secondary and tertiary levels.

The service at various sub-sectors is also hampered by shortage of gas, electricity and water.

The cumbersome customs procedures in transportation and logistics pose a barrier to trade.

The World Bank’s recent report on doing business Bangladesh ranked 177th among 190 countries

and only ahead of Afghanistan in South Asia. Bangladesh's grade registered major fall on starting a

business, getting credit, protecting minority investors, paying tax- all related to the service sector.

Computer and software-based skills are still a new concept among the mass population. Although

Bangladesh is doing well regarding software and ICT export, this has been restricted to a specific

group of people, mostly youngsters in big cities.

Banking sector in Bangladesh experienced some major crisis in recent years. Lack of transparency,

favoritism, poor governance, weak management, inadequate regulatoryframework, lack of

autonomy and capacity of the Central Bank, etc. have been instigating people to question the

quality of services provided by the banks.

Service Export and Import

In 2012, services accounted for only 10% of total exports and 15% of total imports. However, including

services embedded within the other exports, the sector’s contribution to exports would be much higher.

According to UN (2016), service export grew at11.95% between 2001 and 2010, whereas import grew at

a marginally lower rate of 11.36%.

In 2013, more than 50% of the revenues from services exports arose from government services, mainly

comprising of Bangladesh’s participation in various peacekeeping missions of UN. Transport services

accounted for 16.2% of export revenue, followed by 12.4% by information and communication

technology, and 11.2% by various businesses, among others.

Lessons from High Service Economies

The 20thcentury saw an increased growth of service sector particularly due to increased mechanization

in the industries. Currently, the service industry contributes more than 70% of the GDP in the global

economy.Service sector in Monaco, Hong Kong, the Bahamas, Sloveniacontribute more than 90% of the

GDP. Tourism and financial services in Monaco and Bahamas lead the service sector. Service sector in

Hong Kong depends on financial service, trading, real estate,and Slovenia depends mainly on foreign

trade. Developed countries are focusing more on service sector as it provides employment opportunities

to the majority of the population. Emerging economies are increasingly seeking to improve their service

industries to reap the benefits associated with tourism, banking, and education.

Potential Sub-Sectors

The following sub-sectors have been showing a steady growth in and recent years and have better

prospect:

i) Software and IT: The software services subsector has been an essential driver of services exports

from the country.

ii) Wholesale and Retail Trade: Wholesale and retail trade is the largest component of services,

comprising of 23% of sector GDP in 2013. This sub-sector has been growing at 6.4% per annum since

2001.

iii) Tourism: Tourism in Bangladesh is in its nursing stage and has significant unrealized potential given

natural beauty, cultural richness, and heritage sites. Tourism, at present, accounts for 2% of both

GDP and employment and attracts only 1% of FDI in Bangladesh. Notably, domestic tourism

accounts for 98% of tourism receipts.

iv) Transportation: It includes different type of transport in roads, waterways, railways, and airlines. Of

these, road transport is most widely used. With growing traffic congestion at roads, safety issues

and time required, there is much scope to improve the other transportation means. In 2013,

transportation comprised of 74% of the service import. Hence, there is much scope to work in this

sub-sector.

v) Financial Services: This sub-sector has shown the highest growth of 8.8% per annum since 2001.

However, in 2013, financial sub-sector accounted for 7% of the total service imports, being the

second highest share of import, and exported only 2.19% of total export.

vi) Education: Education has the second highest growth of 8.3% per annum since 2001. With the

advancement of technology and industrial involvement, vocational and skill development training

programs are being more valued than mere academic education. Skill-based training also

contributeto creating the workforce for export.

Reforms Needed

Some suggested reforms are:

Use of computer, internet,and software for easy communication and fast services.

Investment and reforms in the areas of energy, transport infrastructure, ICT and banking to adopt

most viable projects and ensure transparency.

Make the activities of financial service providers, like banks, non-banking financial institutions,and

insurance companies, transparent and trustworthy.

Deliver technical and vocational training to young employees and students.

Policy attention to the service sub-sectors.The government has undertaken a long list of regulatory,

legislative, institutional and policy support for the development and promotion of industries of the

country. Service sector, in contrast, has seen some trade liberalization like deregulation policy in

telecommunication which has been instrumental in attracting FDI. However, other sub-sectors

require much attention.

Conclusion

The public services in Bangladesh are somewhat losing concern due to lack of quality, tardiness, and

hassles. People are shifting towards private sectors such as financial institutions, transportation,

hospitals, educational institutions, and communication media for better service.However, better

services are mostly accessible by affluent people living in big cities. Majority of the people in rural and

semi-urban areas are still dependent on cheap and low-quality services. As indicated earlier, the concept

of better serviceis new to Bangladesh and it will take some time to disseminate the benefits throughout

the country.

Politics : Student Protests Over Road Safety

How Did It Happen?

On 29 July 2018, a privately-operatedspeeding bus lost control while racing with another bus to pick up

passengerson Airport road in Dhaka and ended up running over the people waiting for transport in the

pavement. Two students of Shaheed Ramiz Uddin Cantonment College were dead on the spot while 12

other people were severely injured.Thistragic accidenttriggered widespread anger among the students

and as an immediate reaction they blocked the nearby roads and set fire to few vehiclesin that area.

However, the rage spread among the general public and students of other school and colleges for

another reason. Shahjahan Khan, Minister of Shipping of Government of Bangladesh (GoB) with ties to

the transport union, unapologetically remarked in a press conference that such incidents are not

protested in other counties pointing out the case of India where 33 people were killed by a road

accident very recently.Following this incident, from July 30 to August 8, the transport system of the city

was paralyzed as the student protestors demonstrated at different roads and intersections of the capital

with posters, banners and chanting voices demanding justice for the killed students and safe roads.

Student Protests

During this protest, students in school and college uniforms blocked main roads in key areas of the

capital. They expressed their frustration regarding the mismanaged and corrupt transport system of the

country. However, their protest was peaceful and non-political in nature. The students managed the

traffic situation, checked driving licenses and fitness documents.They introduced separate lanes

according to the vehicle speed in many roads of the city. Separate lanes for rickshaw and motor vehicles

were seen in many roads of the city. To the country’s surprise, the small children maintained the traffic

efficiently,and for the first time in its history, Bangladesh saw separate emergency lane for ambulances

in some of the busiest roads of the city.Vehicles without proper documentation were immediately asked

to stop and were mostly reported to nearby police stations. Police and even GoB vehicles were bought

into the purview of the protestors. Students revealed that the deep-rooted mismanagement in the

transport sector couldbe resolved through proper management and accountability. In many areas,

parents, guardians,and teachers of different schools and colleges were seen to be joining the children in

the protest.

The students placed a nine-point charter of demands for the authorities to meet. Their demands include

incorporation of the provision of capital punishment for reckless driving,an apology from the shipping

minister, construction of foot over bridge at the accident spot, setting up speed breakers in every

accident-prone road, strict rules for driving license and fitness certificates,etc.

GoB’s Response

Right from the beginning, the GoB was extremely cautious in dealing with the student protests.The

government readily acceded to many of the demands of the students and promises were made to

finalize the long-awaited RTA, compensations were given to the road accident victims’ families.The GoB

appealed to the parents of the students to persuade their children to end their protest.The GoB also

drew attention to the possible misuse of Facebook and social media to foment protest.A TV actress

QuaziNawshabaAhmed and a noted photograph artist of international repute Dr.ShahidulAlamwere

taken into custody for fomenting violence by spreading reported unfounded stories and narratives of

what was happening in Bangladesh. Actions were also taken when students of private students joined

protests,and a protest march headed towards the ruling party office in Dhaka.At the heels of

governments actions characterized by a combination of conciliatory and tough measures led to an end

to the protests as suddenly as they had started in the first place.In the meanwhile, the typical blame

game has begun with the GoB claiming that different forces, conspiring to destabilize the country,were

out again to mislead and use the students to serve their devious purpose.The GoB strongly continues to

object that none of itssupporters ever indulged in any act of violence against the students.

Impact of the Protest on Political Landscape

After the unprecedented student protests, Bangladesh has returned to relative calm. The students are

back to their campus after the long Eidholidays. But the protests showed once again that like in many an

occasion in the past the students and the younger generation in Bangladesh fired by idealism and a

youthful penchant for positive changes remain a very potent transformative force that no one should

take lightly. If their grievances and aspirations are not properly addressed,no one can say with any

degree of certainty that Bangladesh has seen the last of the protests that ruffled the apparent socio-

politicaldoldrums and has the potential to undermine the country’s domestic stability.

Economic trends : National Budget Analysis: FY18-19

Budget FY18-19: An Overview The announced national budget for the fiscal year (FY)18-19has set total expenditure and revenue targets atBDT

4,646 billionand BDT 3,393 billion, respectively, leaving a budget deficit of BDT 1,253 billion (4.9%of GDP). The

revenue target is 30.8 percent higher and the expenditure target is 25 percent higher than that of FY17-18. Main

sources of budget financing are NBR taxes,nontax revenue, domestic loans, and foreign loans (figure 1).

Comparison of expenditure allocation in FY18-19 and FY17-18 shows that except for the public services sector, allocation in no other sector has increased notably (figure 2). Within the public services sector, allocation in investment in share and equities grew substantially. However, details of this allocation arenot provided in the budget document.

Figure 1: Financing sources Figure 2: Sectoral allocation of expenditure

Source: Budget Speech, 2018

The budget deficit of BDT 1,253 billion is proposed to be financed 56.9 percent (BDT 713 billion) from domestic sources and 43.1 percent (BDT 540 billion) from external sources. Of the domestic sources, 59 percent will be borrowed from the banking sector and the remaining 41 percent from National Savings Schemes and other non-bank sources.

Key Issues in Expenditure Allocation

Truncated share of Education and Health The proposed budget allocated a reduced share in education and health sector compared to the budget for FY17-18 (figure 3).Both education and health expenditure as a share of GDP is below the targets set in the seventh five-year plan (7FYP:2015-2020)(education target: 2.84% of GDP and health target: 1.04% of GDP).In addition, education expenditure is below the UNESCO’s set standards of 4-6 percent of GDP or 15-20 percent of public expenditureand health expenditure is well below the World Health Organization’s (WHO) setbenchmark of 5 percent of GDP.

Non NBR

Tax

Revenue,

2.10%

Non Tax

Revnue,

7.20%

Domestic

Loan, 15.30%

Foreign

Loan,

10.80%

Foreign Grants, 0.90%

VAT, 23.78%

Import Duty,

7.01%Income Tax,

21.68%

Supplementary Duty,

10.52%

NBR Tax

Revenue,

63.76% 0%

5%

10%

15%

20%

25%

30%

35%

Revised Budget FY17-18 Budget FY18-19

Figure 3: Education and health expenditure share in budget and GDP

Source: Budget Speech of different years

An analysis of the education expenditure as a percentage of GDP in South Asian countries shows that Vietnam spends 5.7 percent of its GDP in education followed by 3.8 percent in India, 3.7 percent in Nepal, 2.6 percent in Pakistan, and 2.2 percent in Sri Lanka. Therefore, in terms of education expenditure as a share of GDP, Bangladesh ranks last in South Asia as the country spends only 2.12 percent of its GDP in education.

Like education, Bangladesh spends the lowest in health sector as well among the South Asian countries except Pakistan.In South Asia, health expenditure as a share of GDP is highest in Maldives (10.85%) followed by Vietnam (3.8%), Nepal (2.3%), Sri Lanka (2%), India (1.4%), Bangladesh (0.92%), and Pakistan (0.9%).

Annual Development Program (ADP) Allocated ADP in this year’s budget is 16.6 percent higher than the revised ADP of FY17-18. Transport sector received the highest ADP allocation (26.3%), followed by power sector (13.3%), physical planning, water resources and housing (10.3%), rural development and institutions (9.6%), and education and religious affairs (9.6%). However, analyzing the ADP implementation rate in last 10 years, the ADP target of FY18-19 seems unlikely to be achieved. The average ADP implementation rate in last 10 years is 81 percent with the lowest being 76 percent in FY16-17. Notably, ADP implementation rate till May 2018 is only 56 percent.

Moreover, ADP allocation for FY18-19 is skewed towards mega-projects with 19 percent of the total ADP being allocated for mega projects. This overdependence on mega-projectsin ADP allocationshrinks the financing scope for small projectsthat are necessary for rural and city-level development. In addition, severalmega projects scheduled to be completed in FY18-19 may not be completedwithin this period resulting in time and cost overrun and creating fiscal pressure.

Key Fiscal Measures

The announced budget of FY18-19 has proposed a few laudable fiscal measures to strengthen local industries,

induce investment, serve the interest of the marginal group of people, conserve the environment, and safeguard

people’s health. Some of these key fiscal measures and their probable impact include:

1.95 2.01

1.78 1.731.87 1.85

2.18 2.192.09 2.12

0.79 0.8 0.73 0.71 0.7 0.69 0.73

0.34

0.89 0.92

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Share of education in total budget (%) Share of health in total budget (%)

Share of education in GDP (%) Share of health in GDP (%)

Exemption of VAT on selected raw materials for medicines of cancer and kidney diseases — expected to

reduce the production cost of these medicines;

Exemption of VAT and surcharge on local mobile phone manufacturing, imposition of 2 percent surcharge

on mobile handsets import and exemption of VAT on motorcycle parts import — expected to incentivize

local manufacturers and attract investment;

Exemption of VAT on loaf, bread, buns, handmade biscuits, cakes,and plastic/rubber sandals priced equal

or below 150 (each kg in case of food items) — expected to safeguard the interest of marginal groups of

people;

Imposition of 5 percent supplementary duty (SD) on production of all kinds of polythene and plastic bags

— will help in the conservation of the environment; and

Increased SD on low and medium segment cigarettes and increased price of homemade bidi (with filter)

—will likely to reduce tobacco consumption and eventually health risk.

In addition, to improve revenue mobilization, a few tax administrative initiates are proposed in the budget such as

introduction of online tax return facilities to reduce hassle and increase efficacy, and mandatory installation of

Electronic Fiscal Device instead of Electronic Cash Register and Point of Sale in all hotels, restaurants, resorts,and

shops to make the VAT collection systemtransparent.

However, the budget did not address the income tax demands of middle-income groups of taxpayers such as

increasing tax-free income threshold and reducing tax rates. Moreover, some of the VAT extensions to meet the

ambitious VAT target might also hurt the middle-income group of people. For instance, 5 percent VAT imposition

on app-based service providers (Uber, Pathao) is likely to increase the transport cost burden for the consumers

given the scanty public transport facility in the country.

Another notable fiscal change in this year’s proposed budget is the reduction of corporate tax for both publicly and

non-publicly traded banks and financial institutions by 2.5 percent. This highly debated fiscal measure is unlikely to

address the crisis in the banking sector as it might shrink the possibility of merger among small banks and increase

reluctance among the banks to focus on their management efficacy.

Concluding Remarks

The proposed national budget for FY18-19 did not contain any major tax and non-tax reforms, andimplementation

plan to strengthen revenue collection, improve expenditure efficacy, and raise allocative efficiency.In FY17-18, only

62.4 percent of the targeted revenue in the revised budget was collected till March 2018. Such gap between

revenue target and actual revenue mobilization casts doubt over the possibility of achieving the set revenue

targets in the budget for FY18-19. Therefore, to achieve the targets, reforms regarding revenue mobilization and

expenditure allocation are imperative. Notably, the budget did not address the issue of financing the cost of

hosting approximately 889 thousand Rohingyas.

To improve tax compliance, tax rates need to be lowered with simplified tax payment procedures in place.

Proposed initiative of online tax return facilities might be capable of increasing collection efficacy if implemented

properly. Along with efficient revenue mobilization measure, expenditure allocation also needs to be revised. The

education and health sector need to be given increased allocation. Small development projects must be given

emphasis along with mega projects and decentralization of the budget expenditure may prove to be effective in

this case.

Economic indicators:

1 . Real Sector

GDP Growth Rate and Per Capita GDP

GDP observed a growth of 7.65 in FY17-18, according the Bangladesh Bank. For FY18-19, Bangladesh Bank has

forecasted a GDP growth rate of 7.8 percent. The Asian Development Bank (ADB) and World Bank have forecasted

GDP growth to be lower at 7.2 percent and 6.7 percent respectively.

GDP per capitarose to USD 1,752 in FY 2017-18 which was8.81 percent higher than the previous year. This figure

presented by the Bangladesh Bank is significantly higher than the growth estimated by the ADB which was 5.8

percent.Bangladesh Bank’s higher growth rate can be a result of changing the base year from 1995-96 to 2005-06.

Inflation

Month Inflation % (P-2-P) Base Year (2005-06) Food Inflation % (P-2-P) Base Year (2005-06)

FY16-17 FY17-18 Change FY16-17 FY17-18 Change

May 5.76 5.57 -3.30% 7.37 6.56 -10.99%

April 5.47 5.63 2.93% 6.94 7.03 1.30%

March 5.39 5.68 5.38% 6.89 7.09 2.90%

Headline inflation on a P-2-P basisremained stable between 5.57 and 5.68 between March and May FY17-

18.Despite achieving a low of 5.83 percent in December, headline inflation has been higher in this period of FY17-

18 than it was in FY16-17.

Food Inflation on a P-2-Palso remained stable between March and May FY17-18, between 6.56 and 7.09. Food

inflation in May was almost 11 percent lower than the same time last year.

0200400600800100012001400160018002000

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Per

Cap

ita

GD

P

GD

P G

row

th R

ate

GDP Growth Rate and Current Per Capita GDP

GDP Growth Rate Per Capita GDP at Current Market Price (USD)

Credit to Public and Private Sector

Import Coverage Ratio

5.02% 5.32% 5.01% 4.92% 4.95% 4.73% 4.44% 4.18% 4.14% 4.06%

34.76% 35.37% 35.79% 36.30% 36.94% 37.80% 38.04% 38.52% 38.93% 39.38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

July August September October November December January February March April

Credit to Public and Private Sector (% of GDP) FY17-18

Credit to Govt. Sector (% of GDP) Credit to Private Sector (% of GDP)

0.70

0.72

0.70 0.70

0.620.63

0.60 0.60

0.54

0.56

0.58

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.74

January February March April

Import Coverage Ratio

FY16-17 FY17-18

Current Account Balance

Current Account Balance (USD-million-latest 12 months)

Month [converted from BDT to USD using monthly average exchange rate]

FY16-17 FY17-18 % Change

March -312.10 -695.64 122.89%

February -256.31 -1019.47 297.75%

January -324.03 -667.64 106.04%

Trade Balance

Trade Balance (USD-million-latest 12 months)

Month [converted from BDT to USD using monthly average exchange rate]

FY16-17 FY17-18 % Change

May -9005.24 -11971.60 32.94%

April -8712.74 -16389.50 88.11%

March -8193.94 -15412.50 88.10%

Annual Trends of Selected Macroeconomic Indicators

Fiscal Year GDP Growth Export Growth Import Growth Foreign Aid Remittances FDI Inflows

FY 2007 6.4 15.69 16.35 4.01 24.49 6.46

FY 2008 6.2 15.87 26.17 26.43 32.39 -3.03

FY 2009 5.7 10.31 4.16 -10.39 22.42 24.96

FY 2010 6.1 4.11 5.41 20.60 13.40 -4.95

FY 2011 6.7 41.49 51.48 -20.25 6.03 -14.67

FY 2012 6.3 5.93 -1.49 19.68 10.24 -14.01

FY 2013 6.03 11.22 -7.06 37.02 12.59 9.15

FY 2014 6.12 11.65 17.91 31.04 -1.66 -10.2

FY 2015 6.51 -0.4 6.65 -18 8 23.88

FY 2016 7.05 10.22 -18.99 16.41 11.78 24.17

FY 2017 7.25 -9.00 10.00 17.08 -14.48 22.52

FY 2018 7.65 -0.85 10.68 8.95 11.42 9.27

Financial Sector

Interest Rate Spread (IRS)

Month Interest Rate Spread %

FY16-17 FY17-18 % Change

March 4.69 4.4 -6.18%

April 4.65 4.46 -4.09%

May 4.37 4.45 1.83%

The spread between the weighted average interest rate on advances and deposits of all banks remained stable on

a month-to-month basis between March and May, staying between 4.4 and 4.46. Comparison with corresponding

rates from last year reveal a dramatic decline in rates of 6.18 and 4.09 percent in March and April of FY 16-17.

Bangladesh Bank Interest Rate

Call Money Rate continued on the upward trend started in July, 2017, experiencing a peak of 4.37 in March, 2018.

Repo Ratewas lowered from 7.25 to 6.75 in May 2017 and has remained the same since.

Reverse Repo Rate was lowered from 5.25 to 4.75 percent in May 2017 and has been the same since.

Weighted Average Yield on 91-Day T-billexhibited plateaued at 4.08 betweenJuly and August FY 17-18. After that it

experienced a downward trend until November when it registered at 3.09. Since then, it has remained stable

between 3.14 and 3.4. 91-Day T-bills were not issued in February, 2018.

Call Money Rate Repo Rate Reverse Repo Rate 91 day T-Bill Rate

Loan to Deposit Ratio

Loan Deposit Ratio has exhibited an upward trend after a low of 98.22 in December, 2016. In April, 2018, it

registered at a high of 103.17.

95

96

97

98

99

100

101

102

103

104

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Feb

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May

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Dec

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6

Jan

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7

Feb

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7

Mar

ch'1

7

Ap

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7

May

'17

Jun

e'17

July

'17

Au

gust

'17

Sep

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'17

Oct

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No

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Dec

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7

Jan

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8

Feb

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8

Mar

ch'1

8

Ap

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8

Contribution to Broad Money Growth

Broad Money (M2) growth(over 12 months)slowed down after January 2017 (15.61%).In July 2017, after a low

growth of 10.54 percent, there was momentary increase to 11.73 percent in August before it continued slowing

down. March, 2018, saw an all-time low of 9.08 percent.

Net Foreign Assetsexperienced a sharp decline between May and October 2017 from 16.03 percent to 6.41

percent. Despite a slight uptick to 7.13 percent in November, the downward trend continues.

Private Sector Credithas steadily risen since October 2016 when it was at 15.2 percent growth, though 2017 ended

with a fall in growth from 19.06 percent in November to 17.6 percent in April.

Net Credit to Governmenthas experienced negative growth since June 2016. Though November 2016 saw scope for

growth, the numbers have fallen at a steep rate for the most part of 2017. The lowest growth was recorded in May

2017 at -19.11 percent. Since then, the negative growth has been showing signs of shrinking. February 2018

registered a low of -19.73 percent.

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Broad Money (M2) Net Foreign Assets Credit to Private Sector Net Credit to Government

DSEX Index (April – June 2018)

The DSE Broad Index continues on its downward trend, the steepest decline occurring between 26th April and 20th

May when it fell from 5813.79 to 5390.701. Following 5th June, the DSE has shown signs of picking up again, though

minor.

5000

5100

5200

5300

5400

5500

5600

5700

5800

5900

6000

DSEX April-June, 2018

Sector-wise Price Earnings Ratio

Sector January February March

Bank 10.11 9.56 8.98

Financial Institutions 20.25 18.38 14.94

Mutual Funds 8.29 8.2 8.12

Engineering 17.95 17.17 16.5

Food & Allied 30.43 28.96 28.18

Fuel & Power 11.82 11.38 10.95

Jute 111.49 113.13 110.38

Textile 17.61 16.97 16.02

Pharmaceuticals 22.11 21.64 21.3

Service & Real estate 19.32 17.97 17.14

Cement 22.52 22.36 21.43

IT 26.64 26 25.37

Tannery 17.66 17.41 17.35

Ceramic 24.94 25.15 24.2

Insurance 14 13.64 12.92

Telecommunication 30.38 29 27.97

Travel and Leisure 29.04 30.15 30.12

Miscellaneous 21.07 21.42 20.47

Market P/E 17.18 16.47 15.67

CSE Update (April- June 2018)

Chittagong Stock Exchange (CSE)also continued its downward trend,the steepest decline occurring between26th

April and 20th May when it fell from10836.10 to 10059.90. After that the CSE showed signs of stabilizing, and there

is potential of a new upward trend.

9200

9400

9600

9800

10000

10200

10400

10600

10800

11000

11200

CSCX Index April- June, 2018

External Sector

Month Woven Garments Export (USD million) Knitwear Export (USD million)

FY16-17 FY17-18 % Change FY16-17 FY17-18 % Change

February 1209.7 1381.63 14.21% 1015.95 1219.28 20.01%

March 1222.65 1382.93 13.11% 1067.3 1195.48 12.01%

April 1097.86 1251.97 14.04% 1110.62 1219.15 9.77%

Woven Garments Export earnings remained stable between February and April FY17-18. Earnings for all three

months were higher than the same time in FY16-17. February saw the highest change with 14.21 percent growth in

earnings.

Knitwear Exports also saw an increase on an annual basis. As with woven garments, knitwear exports in FY17-18

saw the greatest growth in earnings in February (20.01 percent). Earnings on a month-to-month basis were stable,

registering between USD 1195 and 1219 million.

Monthly Export Growth

Month-to-month export earnings saw a peak of 55.4 percent growth in May 2017. Export growth has been volatile

since then, oscillating between positive and negative growth. In 2018, export earnings grew in January and April,

only to fall in February and April. However, it is reassuring to see that the decline in April 2018 was only of 0.8

percent.

-13.9%

19.7%

-14.4%

3.6%1.9%-0.8%

-24.8%

-6.7%

9.6%

-7.6%

55.4%

-14.1%

24.8%

3.6%

-21.0%

17.2%

-4.4%-5.1%

18.5%

-11.3%

9.7%

-0.8%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Monthly Export Growth Rate

MonthlyImport Growth

Growth of imports has fluctuated from month-to month. The sharpest decrease in imports was seen in February

2017 (-16.7 percent) and June 2017 (-16.8). Highest payments were made in March 2017 (2.9 percent growth)

when payments USD of3, 1558 million were made for imports, and in January 2018 (20.2 percent growth) when

payments amounted to USD41388 million. Import growth experienced a fall of 12.5 percent in March. In May,

growth was at 10.9 percent.

-13.9%

14.4%

-7.8%

13.7%9.7%

-7.8%

14.3%

-16.7%

18.0%

-4.0%

2.1%

-16.8%

22.9%

1.1%

-4.8%

13.5%

5.4%

-7.3%

20.2%

-12.5%

0.6%

10.9%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Monthly Import Growth in Percentage

Regional Export and Import

EU

56%

NAFTA

16%

Other Asian

Countries

6%

OIC

5%

Other European

Countries

4%

Developing Eight

3%

ACU

3%SAARC

3% OPEC

2%

ASEAN

2%

Regional Exports, October-December 2017

Other Asian

Countries

24%

OIC

14%

Asian Clearing

Union (ACU)

14%

SAARC

12%ASEAN

12%

D-8

7%EU

6%

OPEC

4%

Other European

Countries

4%

NAFTA

3%

Regional Imports , October-December 2017

Monthly Remittances Growth

Month-to-month remittance earnings growth experienced a record drop of -39.6 percent in October 2017. Since

then, remittance earnings have remained stable between months. A peak growth of 35.7 percent was recorded in

November 2017. With the exception of January and March 2018, growth has remained positive.

-31.4%

17.7%

-10.7%

-4.3%-5.9%

0.8%5.3%

-6.8%

14.5%

1.4%

16.0%

-4.2%-8.2%

27.2%

-39.6%

35.7%

4.5%

-4.2%

18.6%

-16.7%

13.2%

2.4%

11.4%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

July'16 November'16 March'17 July'17 November'17 March'18

Monthly Remittance Growth (%)

Month Remittance (USD million)

FY16/17 FY17/18 Change

May 1267.61 1482.85 16.98%

April 1092.64 1331.33 21.85%

March 1077.52 1299.77 20.63%

Month Foreign Currency (USD million)

FY16/17 FY17/18 Change

May 32245.70 32158.50 -0.27%

April 32518.80 32901.50 1.18%

March 32215.20 32403.20 0.58%

Month

Exchange Rate

BDT/USD BDT/INR

FY16/17 FY17/18 Change FY16/17 FY17/18 Change

May 80.6 83.70 3.85% 1.25 1.24 -0.80%

April 80.23 82.98 3.43% 1.25 1.25 0.00%

March 79.67 82.96 4.13% 1.23 1.27 3.25%

2. Fiscal Sector

Revenue through NBR (Million USD)

The National Board of Revenue (NBR) has seen an almost exponential growth in revenue collection since FY93-94.

According to the Ministry of Finance, total revenue collected by the NBR in FY 17-18was18.83 percent higher than

what was collected FY 16-17, amounting to BDT2,59, 454 crores.

Fiscal Indicators

In FY 16-17, revenue as a percentageof GDP was estimated to be about 10.2 percent and expenditure was

estimated to have been 13.6 percent of GDP, leaving a budget deficit of 3.4 percent. This is 0.5 percent less than

the deficit in FY 15-16. This is a result of a decreased expenditure, as well as higher collection of revenue in

comparison to FY 15-16.

0

5000

10000

15000

20000

25000

30000

35000

-5

-3

-1

1

3

5

7

9

11

13

15

2008-09 2009-10 2010-11 2011-12 2012-13 2013-2014 2014-2015 2015-16 2016-17

Revenue Expenditure Budget Deficit

Trade with India (USD in millions)

Trade deficit with India in 2016 fell by 3.2 percent from the previous year. Imports from India have decreased 3.0

percent while exports have slightly decreased to 0.7 percent. It is too early to tell whether this trend will continue.

Nevertheless, trade performance in 2016 has been positive overall

0

1000

2000

3000

4000

5000

6000

7000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Trade with India (In Million USD)

Import Deficit Export

Energy indicators:

Monthly Fuel Import (BDT Crore and % Change)

Month

Crude Oil Petroleum Products

FY16-

17

FY17-

18

%

Change

FY16-

17

FY17-

18

%

Change

April 310 420 35.48% 1989 2840 42.79%

March 323 0 -- 3064 2882 -5.94%

February 322 413 28.26% 1698 2973 75.09%

Source: Bangladesh Bank

Crude Oil imports were higher in FY 17-18 than they were in FY16-18; in February, they were

28.26 percent higher, and 35.48 percent higher in April. There are no crude oil imports

recorded for of March 2018

Petroleum Product imports were stable on a month-to-month basis between February and

April, valued between 2882 and 2973 BDT crores. Import expenditure in February FY17-18

was75.09 percent higher than FY16-17. March, on the other hand, saw a decline of 5.94 percent

in petroleum product imports.

Gas and Coal Production

Month Gas (MMCM) Coal (M. Ton)

February 2112.825 96960.37

January 2347.01 119817.44

December 2322.175 106357.62

Source:Petrobangla&Barapukuria Coal Mining Company

Gas production was stable in December and January. However, a production decline of 9.97

percent was recorded between January and February.

Coal Production also saw a decline of 19.08 percent between January and February.

Source: Bangladesh Power Development Board (BPDB)

Source: Bangladesh Power Development Board (BPDB)

Gas

61%

HFO

22%

Power Import

4%

Hydro

1%Diesel

9%

Coal

3%

Fuel Mix of Installed Capacity as of June-18

BPDB

33%

APSCL

9%

EGCB

5%NWPGCL

7%

BPDB-RPCL JV

1%

Private Sector

0%

IPPs

27%

SIPP

(BPDB)

1%

Sipp

(REB)

2%

3/5 year Rental

1%

15 year Rental

10%

Power Import

4%

Generation Capacity by Ownership June-18

Electricity Generation, Demand and Load-shedding and No. of Plants in Operation

Month

Plants in Operation (Avg.)

Peak

Demand

(MW)

Peak Generation (MW)

FY 16-

17

FY17-

18 Change

FY 16-

17 FY17-18 Change

FY 16-

17

FY17-

18 Change

April 80.2 82.8 2.6 9356 10958 1602 9471 10958 1487

March 83.6 83.2 -0.4 9212 9212 0 9212 9212 0

February 83.6 83.8 0.2 8323 9507 1184 8323 8848 525

January 88.4 80.6 -7.8 7836 9507 1671 7836 8251 415

Month Max. Load shed (MW) Total Generation (MkWh)

FY 16-17 FY17-18 Change FY 16-17 FY17-18 Change

April 1459 1459 0 5488 5715 4%

March 0 1459 4983 5347 7%

February - 1459 - 4110 4377 6%

January - 1459 - 4200 4382 4%

Source: Power Grid Company of Bangladesh (PGCB)

The average number of plants in operationsaw a decline in the number of operational facilities

in January. However, the number of operational facilities in FY17-18 has been higher than it was

in FY 16-17. That being said, with 119 plants available instead of 106, the difference in

operational facilities is small and leaves area for improvement.

Power Generation in FY 17-18 has consistently been higher than FY 16-17. 10958 MW was

produced in April, which was 1487 MW more that was produced in April FY16-17.

Peak Demandwas recorded at 9507MWin January and February.It dropped to 9212 MW is

February, then rose to 10958 MW in April.

Total power generationin FY17-18 is consistently higher than FY16-17. Loadshedding remained

constant at 1459 MW.

Renewable energy

Source: IDCOL

Source: IDCOL

0

200

400

600

800

1000

1200

1400

1600

1800

August September October November

Monthly installation of Solar Home System, 2017

0

50

100

150

200

250

July August September October November

Monthly Installation of Bio-Gas Plant, 2017

News Update :

Business Bangladesh Industrial Finance Company Ltd (BIFC), faced liquidation as it has failed to pay back loans and deposits of BDT 640 crore to 19 banks and seven NBFIs.

Economy

Bangladesh Bureau of Statistics estimated the growth rate for the country to be 7.65 percent in FY18-19 due to expansion of the manufacturing sector and domestic demand. However, this overambitious growth rate has been questioned by both the World Bank and ADB.

Bangladesh's current account deficit surpassed USD 8.51 billion for the first time in history at the end of April 20118 as the country's capacity to export continues to lag behind the appetite for imports. According to the Bangladesh Bank, at this point in last fiscal year, the deficit was USD 1.79 billion.

The Dhaka Stock Exchange has entered into strategic partnership with Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE). The Chinese consortium, purchasing 25 percent stake in the DSE, has offered to share an array of technical products and services covering all aspects of the stock exchange business.

National budget for the FY18-19 with a value of BDT 464,573 crore passed in the parliament.

Infrastructure The cost of Padma Bridge Project is going to increase to BDT 30,193 crore from BDT 28,793 crore, as per the last revision in January 2016, due to additional land acquirement of 1,163 hectares.

According to the report ‘Renewables 2018-Global Status’, solar home system (SHS) installation grew by 27 percent in 2017 due to production cost drop aided by technological advancement, making the total number of SHS installed 5.2 million with a total capacity of 218 megawatts.

Science and Technology

According to GSMA, Bangladesh has the lowest level of mobile internet penetration (21%) in the Asia Pacific compared to neighbouring countries such as Nepal (28%) and Myanmar (35%).

The country's first communication satellite, Bangabandhu-1, was launched in 10 May 2018 from Cape Canaveral, Florida and with this Bangladesh became the 57th country in the world and fourth in South Asia, after India, Pakistan and Sri Lanka, to have its own satellite in space.

Society Two Bangladeshi youth Ayman Sadiq and ZaibaTahya were conferred with the prestigious “Queen's Young Leaders Award” at a ceremony at Buckingham Palace, London for their work on improving access to education for young people throughout Bangladesh and promoting gender equality.

Bangladesh dropped down by nine spots in the Global Peace Index (GPI) 2018 and ranked 93rd out of 163 countries with a global score of 2.084.

Environment A vessel sank in the Sundarban’sPassur river with 775 tonnes of coal after it ran aground on 16 April 2018. This has been the fourth cargo of coal to sink in the mangrove forest in the last three years.

A Bangladeshi scientist named Dr. Mubarak Ahmad Khan has synthesized a polymer from jute fiber which can be used to create a kind of bag that works, looks and feels like a polythene bag but without the negative environmental impact.