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Bangladesh Economy: News & Updates



One more country-made sea vessel handed over to Danish buyer

FE Report

Industries Minister Dilip Barua said Thursday shipbuilding could be a potential diversification thrust sector to counter the effects of global financial crisis.

"The government will boost shipbuilding and extend all possible facilities and support to the sector players," he said while speaking at the launching ceremony of Stella Moon, a locally manufactured sea vessel, at Meghnaghat of Sonargaon in Narayanganj.

Stella Moon, a 2900 DWT multipurpose container vessel with overall length of 81.35 metre and breadth of 13.15 metre, is Ananda Shipyard and Slipways Limited's eighth ship exported.

The company has built the $7.5 million ship for the Danish company Stella Shipping, which last year received the company's first manufactured ship 'Stella Maris.' It also sold six ships to the African nation Mozambique in the same year.

The country's lone ship exporter has so far secured export orders for 34 ships for a total contract price of $373.5 million, with orders from Denmark, Germany, Norway and Mozambique.

Speaking as chief guest, Dilip Barua said: "Once upon a time, European ships and river vessels had come to our country as a symbol of Western civilisation. But now it is our pride to achieve the ability of building ships and river vessels for the European countries."

He said with the launching of the ship Bangladesh has stepped into a golden door of opportunities. So the government will provide all possible support to the shipbuilding industry.

"Shipbuilding is a potential sector for our economy and we have enlisted its name at the top of the thrust sectors."

He hoped that Bangladesh would export a considerable number of ships annually in future.

The minister said shipbuilding industry employs a large workforce and plays a vital role in poverty alleviation.

The allied secondary industries around shipbuilding may create further scope of employment, he added.

"Diversification is a way to counter the effect of global financial crisis. Shipbuilding can be the first industry for a diversification in Bangladesh."

The minister admitted that the cost of bank guarantees, high interest rate and inadequate cash incentives are still obstacles for the sector.

Capt. Michael Soerensen of Stella Shipping said: "We are highly satisfied with the quality of the product of Ananda Shipyard. So we have already placed ordered for another two ships."

Managing Director of Ananda Shipyard Afroza Bari said: "Her company aims to earn foreign currency through export and create employment opportunity for thousands of people."

She requested the government to provide 30 per cent incentive for at least five years, as it is a heavy and risky industry. It, then, will encourage others to come and invest in the potential sector, she said.

"Besides, we should be provided with working capital at 7 per cent bank interest rate. The bank guarantee required during import of raw material should be repealed. We should also be relived of letter of credit confirmation cost."

Dutch Ambassador to Bangladesh Bea M ten Tusscher: "We are exploring markets in the shipbuilding sector of Bangladesh. We have found ground."

But the burgeoning sector needs assistance from the government and banks to grow as it is still in its early stage, she added.

Denmark's Ambassador Einar H Jensen termed the achievement of Ananda Shipyard as a milestone, saying: "Even three years ago, we were not sure whether they will be able to do it."

"Soon 'Made in Bangladesh' will be a global brand.":tup:

Ananda Shipyard Chairman Dr Abdullahel Bari, local MP Abdullah Al Kaisar Hasnat, Iranian Ambassador Hassan Farazandeh, German company Komorowski Maritim GmbH President Ernst P Komorowski, among others, also spoke on the occasion.
 
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Public-Private Partnership Budget
Govt short-lists six very urgent projects

The government has identified six projects for implementation on a 'very urgent' basis under the proposed public-private partnership (PPP) budget.

Except construction of a deep-sea port in Chittagong, the rest of the projects are estimated to cost $11.05 billion or Tk 75,900 crore.

According to a finance ministry working paper on PPP, the projects are Dhaka-Chittagong Access Control Highway at an estimated cost of $3.023 billion, construction of a sky rail around Dhaka city at a cost of $2.8 billion, construction of a Dhaka city underground railway at a cost of $3.1 billion, Dhaka city elevated expressway at a cost of $1.23 billion, two coal-based 900 megawatt power stations at the coastal areas at a cost of $0.9 billion, and the construction of Chittagong Deep-sea Port.

Finance ministry sources said apart from these big projects, a list of some small projects has also been sought incorporating projects like construction of link roads, flyovers, and underpasses.

Many local business groups already expressed interest in the big projects. For quick increase in investment in infrastructure, the government is going to take some initiatives under the PPP. Most of the investments will be in the private sector and the government will participate in it. To that end, in the next budget the government is likely to allocate

Tk 700 crore to Tk 3,500 crore depending on the volume of projects under the initiative.

The working paper estimates an investment deficit of $23 billion or Tk 1,58,700 crore in the period between the next fiscal year and 2013. An estimated investment deficit of $2.16 billion or Tk 14900 crore is expected to dog the next fiscal year.

A new fund titled 'Bangladesh Infrastructure Investment Fund (BIIF)' will be formed to ameliorate the investment deficit through projects under the PPP initiative. The funds will be raised from public and private sectors.

The working paper also proposes increasing BIIF through release of long-term bonds and shares on the capital market.

It also suggests collecting fund through turning loans into transferable debt securities through securitisation, and through sales of those. Besides, a special technical assistance fund might also be set-aside in the next budget for studying PPP projects.

Those who will invest in BIIF might be given tax waiver or allowed to pay a minimum tax.

Import of capital machinery under PPP initiatives might get duty-free facilities and tax holidays, or a minimum tax might be allowed on profits for a specific period.

An advisory committee comprising 11 to 13 members headed by the finance minister might be formed to provide guidelines for the PPP initiatives.

The sources said a final announcement regarding the issues will be made in the budget speech of the finance minister.
 
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Dhaka may claim $5.06b from recession rescue fund

The government is going to claim at least $5.0 billion as compensation from the developed world's $1.1 trillion fund created to help the developing countries tide over the effect of the global financial crisis, said commerce minister Muhammad Faruk Khan told the FE.

"According to a preliminary study, the estimated economic losses of the country are worth over $5 billion and the final report will be done in a very short time," he said.

After getting the final report, the country will seek its fair share of the $1.1 trillion fund from the different multilateral financial institutions, which will primarily channel the funds to different countries, he added.

The final report will be prepared soon and Dhaka will seek the compensation within two to three months' time, and it is expected that by next year the total amount will be disbursed, he said.

"Frozen food, jute and jute goods, leather, pharmaceuticals and other exporting sectors have been badly affected by the crisis," he said.

During July-April period of the current fiscal, frozen food export dropped by 14 per cent, jute by 18 per cent, leather by 14 per cent, pharmaceuticals by 14 per cent and vegetables by 27 per cent.

Economic Relations Division (ERD) and Bangladesh Bank are assessing the losses caused by the global crisis, Mr Faruk said.

"The World Bank, International Monetary Fund and Asian Development Bank have their own estimation about the damage, and the government is also preparing its own assessment report," he said.

Bangladesh and other least developed countries (LDCs) will jointly seek compensation from the developed world, he added.

The commerce ministry recently sent a letter to Tanzanian trade minister, who is coordinating LDCs interest in the World Trade Organisation, to raise 'aid for trade' issue before the multilateral trading body.

"I had a long conversation with the Tanzanian minister recently in Turkey where we discussed how to get maximum compensation from the developed world and increase our trade volume," he said.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) president Fazlul Hoque said the government, so far, did not offer anything to the sector thinking that it was doing fine.

"But the government is not considering the whole picture," he said.

The readymade garment (RMG) sector is growing at a rate of 20 per cent. But in October-March period the growth rate was 8.0 per cent against 54 per cent in July-September period, he said.

Many RMG companies that run on sub-contracting are facing difficulties as big companies, which offer them work against export orders, are running under-capacity, he added.

"Most of the companies are working with 70 to 80 per cent of their capacity," Mr Hoque said.

The BKMEA president pointed out that capital machinery import fell in the July-March period, which is very alarming.

"After the crisis is over it will be difficult to meet the growing demand as our capacity is not growing," he feared.
 
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^^^^^^^^^^^^^^^^^^^^
Very smart move by the AL govt. Good opportunity to cash in post recession scenario. ;)
 
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Tk 1.138 tn expansionary budget unveiled

FE Report

Finance minister Abul Maal Abdul Muhith rolled out Thursday a Tk 1.138 trillion (Tk 1,13,819 crore) national budget for the fiscal 2009-10, with a resolve to mitigate effectively the global recession impacts, maintain macroeconomic stability and develop infrastructures relying more on the public private partnership concept.

"The budget for FY 2009-10 has been formulated bearing in mind the need to maintain macroeconomic stability in the context of current global economic meltdown, achieve the desired economic growth to fulfill our election pledge and thereby contribute to poverty reduction," the finance minister said in his speech while placing the country's 38th budget in parliament Thursday.

The finance minister projected the gross domestic product (GDP) to grow at 5.5 per cent in the next fiscal, lower from the current fiscal year's revised estimate of 5.8 per cent. Inflation in the coming fiscal is expected to ease at around 6.5 in 2009-10 from 7.0 per cent in the current fiscal.

Despite a negative impact of the ongoing global recession on export earning and inflow of remittance, the finance minister expects the domestic revenue generation to increase following the expansion of tax and non-tax revenue net.

Prime minister Sheikh Hasina was present at the budget session. Opposition leader Khaleda Zia remained absent as Bangladesh Nationalist Party (BNP) and its ally Jamaat-e-Islami have been boycotting the budget session following dispute over seating arrangement.

In the proposed budget for FY 2009-10, the total revenue earning has been estimated at Tk 794.61 billion (Tk.79, 461 crore) (11.6 per cent of GDP), with a growth of about 15 per cent over the revised revenue target of Tk 69,180 for the outgoing fiscal. Of this, the share of National Board of Revenue (NBR) revenues will be Tk 610 billion (Tk. 61,000 crore) or 8.9 per cent of GDP, Non-tax and Non-NBR revenues will be Tk 155.06 billion (Tk. 15,506 crore) and Tk 29.55 billion (Tk. 2,955 crore) respectively (2.7 percent of GDP).

On the expenditure side, the size of Annual Development Programme (ADP) for the FY 2009-10 will be Tk 305 billion

(4.4 per cent of GDP), up Tk 75 billion (Tk 7500 crore) or about 32.61 per cent from the revised ADP of Tk 230 billion.

He also said a provision for a fresh stimulus package involving a total Tk 50 billion has been made in the budget for the next fiscal to salvage the export sectors hard-hit by the global recession.

In his budget speech the finance minister said overall budget deficit, excluding grants, has been estimated at Tk 343.58 billion or 5.0 per cent of GDP of which Tk 86.73 billion (Tk 8,673 crore) or 2.0 per cent will be financed from external sources and the remaining 3.0 per cent will be financed from domestic sources, including borrowings from the banking system, non-bank borrowing and national savings certificates.

Muhith admitted that the budget might look ' slightly expansionary' but defended the same by saying that compared with most countries the fiscal deficit here was minimal in the context of the current global crisis.

He also defended the large ADP, saying that the ADP has been proposed keeping in mind the "commitment in our election manifesto to regional parity, improved infrastructure and the quality of expenditure."

In the proposed allocations in the ADP, 7.8 per cent has been allocated to the agriculture sector (agriculture, fisheries and livestock, rural development and water resources), 22.1 per cent for local government, 14 per cent for power and energy, 15.7 percent for communication (roads, railway, bridges, waterways, airways and telecommunication), 23.5 per cent for human development (health, education and science & technology).

Interest payments on account of both external and domestic borrowings have been estimated at Tk 158.08 billion -- Tk 13.37 billion on external loans and Tk 144.71 billion on domestic debt.

The finance minister said the government would implement the recommendations of the Pay Commission from July 2009 in phases. "Considering the resource position of the government we are analysing those recommendations and we intend to implement them in phases," he added.

The finance minister proposed allocation of Tk 21 billion for the much-touted Public Private Partnership (PPP) programme.

The finance minister in his budget speech stressed on the measures to attract private investment in the country through such partnership.

The proposed budget sets aside another Tk 3.0 billion in Viability Gap Funding as subsidy or 'seed money' to attract private sector spending for power plants, hospitals, schools, roads and highways which are non-profitable but essential for public services.

Another Tk 21 billion has been allocated to accelerate the process of investment through PPP by setting up an Infrastructure Investment Fund.

The government would use the fund to provide equity or loan to the private investors to ensure government's participation.

In the budget speech, Mr. Muhith said the national budget is prepared centrally, which does not capture the hopes and aspirations of the people at the grass roots level. "At the same time, transparency and accountability cannot be ensured, as none can say how much resources have been utilised in a particular district," he said.

As an initial step, he proposed preparation of a district budget for one district in each division through partial modification and improvement in the classification structure and a few changes in the development project proforma. If it is possible, then the central budget will also be able to illustrate a district wise budgetary break up, which will ensure transparency of public expenditure and accountability in the implementation of programmes.

The finance minister said he has a plan to present a district level budget in the budget for FY 2010-11 before the parliament.

"In fulfillment of the strategy for attaining prosperity the government has attached priority to massive employment generation, enhancement of social safety net, creation of self-employment, reduction of regional disparity, increasing emphasis on agricultural development, achieving the target of power generation, acceleration of industrialisation and building necessary infrastructure for 'Digital Bangladesh'," he added.

In the context of the reality of the global situation where it is forecast that the overall global output growth and the growth of the developed economies will be negative, the expected growth registered by Bangladesh demonstrates the resilience of our economy, the finance minister said.

However, in the context aftermath of deepening of the crisis and its lingering prospect until the later half of 2010, the upcoming budget year will be a real challenge for the economy.

"In particular, the first half of the fiscal year will be very critical," Mr. Muhith added.

He said it may not be possible to disinvest any state-owned enterprise (SoE) next fiscal considering the uncertain environment, adding no SoE would be closed without making alternative arrangements for the likely displaced workers.
 
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Facing the economic challenge with 'Charter of Change'

The long awaited budget of the new government came with a few surprises. The general direction had become public knowledge in light of several leaks in the press on tax and expenditure strategies. With an outlay of Taka 1.14 trillion, the Finance Minister acknowledged it was ambitious, but his Government was determined to take on the challenge that confronts the economy in the wake of the global economic crisis. He called attention to their election promise of instituting a charter of change.

To be sure, the budget does make an effort to respond to the pressing national economic issues while responding to demands from various pressure groups/constituencies. The task is not easy and sometimes the objectives could be perceived as conflicting.

This preliminary analysis looks at the appropriateness of the various targets set in the budget and the associated down-side risks and tradeoffs. Arguably, some of the measures are populist in nature - like the proposal for whitening black money or declaring undisclosed money -- despite their short-term appeal and support from pressure groups. It could cause more harm than good to the economy and the government's revenue efforts in the medium to long-term.

One can sight some novelty in this budget, at least on two counts. One, it brings a semblance of gender sensitivity by earmarked expenditures specifically for women's advancement through special allocations in the Ministries of Education, Social Welfare, Health and Family Welfare, Food and Disaster Management. A second novelty lies in the proposal for District Budgets which though will be offered in the next budget, but preparations will take off this fiscal year.

The ambition for growth acceleration has been chastened by the impending slowdown of exports and imports over the next few months, as the global crisis hits home with somewhat greater severity. Budget numbers are therefore predicated on the assumption of a modest gross domestic product (GDP) growth of 5.5 per cent in fiscal 2010, with average inflation tamed at 6.5 per cent for the year.

Nevertheless, the economy reaches an enviable milestone with a size of $100 billion at the end of the next fiscal year - small cause for celebration for an economy that was barely $7.0 billion at independence in 1972. GDP growth of 5.5 per cent next year would be no mean achievement, given the sign of dark clouds in the export horizon, though remittance is expected to be still robust at about $10 billion.

None should be faulted for questioning the realism of the expenditure and revenue programme, not to mention the financing of the deficit and its implications for private sector development. It is hard to believe that the target of Taka 305 billion development expenditure can be achieved when the previous Annual Development Programme (ADP) had to be downsized significantly to Taka 230 billion - a number that appears unlikely to be realized. Taka 200 billion is what might be achieved by end June. In that case, a target of 50% increase in ADP spending could raise genuine questions about the realism of budgetary targets.

Likewise, some cynicism about the targeted National Board of Revenue (NBR) revenue growth of 15 per cent, from Taka 530 billion to Taka 610 billion, might not be misplaced in light of the expected slowdown of imports, exports and domestic activity over the coming six months or so. Only if the developed market economies turn around by next September - as is being cautiously predicted by some - can we expect these revenue numbers to actually take shape.

From a macroeconomic perspective, the overall fiscal deficit of 5.0 per cent is certainly appropriate, given the need for a countercyclical fiscal policy stance. The expansionary fiscal stance is needed to boost domestic demand in the face of a markedly slower foreign demand for Bangladeshi exports. While supporting the expansionary stance we would like to point out that in the past the government could not implement such expansionary stance due to its own capacity constraints. Last budget also was expansionary with the targeted deficit of 5.0 per cent of GDP. In the event, because of shortfalls in implementing the ADP, the deficit turned out to be 3.7 per cent. The challenge for the Finance Minister this time would be to somehow energize the lethargic implementation machinery while ensuring quality of public spending. To be fair, he has recognized this shortcoming and taken on the challenge by vowing to introduce strict monitoring of implementation with innovations like Critical Path Method (CPM).

Financing of the large budget deficit will, however, be a challenge. Setting aside the populist rhetoric, financing of such a large budget deficit will require a record level of foreign financing if we want to avoid an excessive crowding out of the private sector borrowing from the banking system. As stipulated in the budget, net foreign financing at Tk 132 billion (equivalent to US$2.0 billion) will require gross disbursements of more than US$2.5 billion. Such a high level of disbursement has never materialized in the past and there is no particular reason for this to happen this year as well, even if government efforts to mobilize budget supports worth US$700 million from the Asian Development Bank (ADB) and World Bank succeed.

Any shortfall in external financing will increase financing from the banking system further, which at the target level of Tk. 205 billion is already excessive and would be an all time high, leading to pressures on the banking system to curb lending thus crowding out private investment - contrary to the overall mission of what the Finance Minister would like to call a market friendly budget. (The authors are, respectively, Chairman and Executive Director, Policy Research Institute of Bangladesh)
 
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Turkish top retailer to nearly treble apparel purchase from Bangladesh

Top Turkish retailer Tema group unveiled a plan to procure US$ 500 million worth Bangladeshi apparel items by 2012 as it moves to make the country its main sourcing hub, a top company official said.

The Istanbul-based group with an annual sales turnover of $ 812 million will also set up joint venture apparel plants in the country to churn out denim and jacket.

Group Vice President Ted Southall said Sunday Tema, which sells LC Waikiki brand clothing, would import US $ 200 million worth garment items from Bangladesh this year even as global recession stings the industry.

"Bangladesh is a fantastic place for productivity and we are pinning our hopes on its growth," Southall told the FE during a short visit to the country.

"This country, I think, has incredible future. What you need is to improve mid-management and make policies predictable and consistent," he added.

Last year, the Turkey-based group imported garments worth $182 million from the country, but Southall said the amount would nearly treble within the next three years.

"Our dream is to make US $ 500 million purchase (from Bangladesh) by 2012," Mr Southall told his company's top 30 Bangladeshi suppliers in a conference.

Square Group, Fakir Group, Misami, Mohammadi and Babylon are Tema's top suppliers making up 75 per cent of the company's total procurement from Bangladesh.

The company has already tied up with local groups to make sweater and shirt, and has also unveiled plans to establish joint ventures in all segments including denim.

Global consultancy Nielson last year put Tema's LC Waikiki brand as the six most popular in the world, leaving behind Levi's, Mavi Jeans and Bosch.

His announcement comes at a time when the worst global economic downturn has sapped demand for costlier clothing in the West, with Bangladeshi exporters warning of a slump in shipment in the coming months.

Data released by the Export Promotion Bureau (EPB) show that Bangladesh has done relatively well despite the downturn, as top global retailers kept their faith in the country's low-end apparel products.

Swiss retailer H&M is the largest importer of Bangladeshi textiles and its officials have said they have increased sourcing from the country in the past 18 months.

Organised retailers like H&M and Wal-Mart account for some 30 per cent of the clothing items produced by Bangladeshi manufacturers, which smaller shops make up the rest.

Mr. Southall said Bangladesh has defied all odds and continued prosper even in this dour global economic scenario.

"We have been sourcing from Bangladesh for the last 12 years. And all I can say that the country has made rapid strides in apparel sector in each of the passing years," he said.

"I think garment exports from Bangladesh will grow in the near future," he said.

Today, Tema Group is running a store chain which is the leader of its sector and serves millions of people and 240 LC Waikiki stores in 50 cities in Turkey.

The group has interests in retail, architecture, equity investments and apparel-making and is the biggest retailer in Turkey.
 
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Banks awash with excess liquidity

Excess liquidity in the country's banking sector reached a record high at the end of April last and the poor demand for funds is still persisting.

The demand for funds in the inter-bank call money market is now so poor that, on Sunday, most of the deals were concluded at rates between 0.25 per cent and 0.50 per cent.

Experts attribute the buildup of the excess liquidity in the banking system to poor investment situation, mainly triggered by the ongoing global recession.

The overall excess liquidity with the commercial banks stood at Tk 270 billion in April last, representing a 25 per cent growth over that in February last, according to the Bangladesh Bank (BB).

The amount of excess liquidity was Tk 215 billion and Tk 237 billion in February and March 2009 respectively, the BB data showed.

The amount of excess liquidity in April included both marketable and non-marketable government securities, worth Tk 180 billion, under the possession of different commercial banks.

"The demand for government treasury bills and bonds has increased in recent months due mainly to lower call money rate," a BB senior official told the FE Sunday.

The call money rate, in some cases, came down to as low as 0.10 per cent in inter-bank money market Sunday as the banks are now awash with excess liquidity.

The BB official also said some banks have invested a substantial amount in the treasury bills and bonds to minimise their cost of funds.

"Currently, the banks can invest over Tk 50 billion in different sectors after maintaining reserve with the central bank to meet their foreign exchange liability," he added.

The government sometimes issues non-marketable securities against liabilities of different state-owned enterprises that are traded in the secondary market.

The value of total non-marketable securities stands at Tk 73.225 billion. The government issued these securities against the liabilities of Bangladesh Petroleum Corporation (BPC).

The government had earlier provided the bonds to the state-owned Sonali Bank Limited and Janata Bank Limited amounting to Tk 55 billion and Tk 18.22 billion respectively to clear BPC's fuel oil import related liabilities.

Besides, the government issued Bangladesh Telecommunications Company Limited and Shipping Corporation bonds to meet the liabilities of the two SOEs, the BB official confirmed.

Bankers, however, said the excess liquidity reached record high level because of falling trend in credit flow to the private sector in recent months.

The private sector credit growth came down to 18.18 per cent in March from 19.84 in February this year, according to the central bank statistics.

The credit flow to the private sector declined by 18.18 per cent to Tk 323.41 billion in March last on a year-on-year basis from 21.16 per cent or Tk 310.61 billion during the matching period of the previous year, the BB's data showed.

"We expect that project loans will go up from first quarter of the fiscal year 2009-10," Managing Director and Chief Executive Officer of the Agrani Bank Limited Syed Abu Naser Bukhtear Ahmed told the FE Sunday.

Non-acceptance of reverse repurchase agreement (repo) by the central bank since March 25 last also contributed to the decline in call rate sharply, market operators said.

"The central bank does not accept the reverse repo. Instead it is injecting fresh funds through purchase of the greenback from the commercial banks continuously," a senior treasury official of a commercial bank told the FE while explaining reasons for the sharp fall in the call money rate
 
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Forex reserve close to $7.0b for first time

The country's foreign exchange reserve rose close to US$ 7.0 billion mark for the first time due to a slackened private sector investment, causing worry among the central bank executives about a manufacturing setback in the near future, reports UNB.

Bangladesh Bank sources said the forex reserve stood its highest ever level at US$ 6.94 billion at the closing Sunday showing signs that the reserve would cross the US$ 7.0 billion mark within a day or two.

A senior central bank executive said that a slowdown in the private sector investment had contributed to the increase of reserve to that level. But they were worried due to the slackened investment in the private sector, he added.

The slow growth of import of capital machinery and industrial raw materials reflects a declining trend of the private sector investment.

The Bangladesh Bank executive, however, said the price of industrial raw materials declined but not the volume to show less import cost while the trend of capital machinery import was difficult to understand as the importers never declared the actual value.

"Obviously, the slowdown is due to the global recession," he said, replying to a question. He added that the private sector entrepreneurs were in dilemma whether they would invest amid uncertainty of demands for their products in a situation of worldwide slowdown.

Replying to another question, the executive said it would be better to wait for the private sector, which would be more efficient in using the huge reserve than the public sector. "Public sector can also utilise the fund, but it would be less efficient."

He said the sharp drop in the prices of essential commodities and decline in import volumes also helped increase the reserve.

Inflow of foreign remittance through formal channel gave an extra push as the necessity for sending remittance through informal channel like "hundi" diminished due to the global recession, the Bangladesh Bank executive added.

Latest Bangladesh Bank figures shows significant increase in opening of import L/Cs for intermediate goods and machinery for miscellaneous industry during July-April of fiscal 2008-'09 compared to the same period of the preceding year.

But opening of import L/Cs for consumer goods, capital machinery, petroleum and petroleum products, and industrial raw materials declined during the July-April period of fiscal 2008-'09 compared to the same period of the preceding year.
 
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FDI up by 67.4pc in nine months

Foreign direct investment (FDI) in Bangladesh has swelled to US$882 million, up by 67.4 per cent, in first nine months of the current financial year compared to the same period last year, officials said Monday.

The central bank data showed net investment by the foreign firms in July-March period of last FY2008 was worth of $527 million, which has risen by $355 million to $882 million in the same period of this fiscal.

"It's a great news for Bangladesh. At last, the country has started to recover from the ailing FDI trend in last couple of year," a Bangladesh Bank (BB) official told the FE.

The investment flow of $882 million during nine months (July-March) of current fiscal is also 36 per cent higher than US$650 million investment during 12 months of the previous FY2007, the central bank official said.

He said political stability and transition to democracy have mainly helped to regain the investment flow to the country from second quarter in the outgoing financial year.

He said during the interim government period imposition of the state of emergency had affected the FDI flow to Bangladesh though it had been maintaining growth till FY2006.

In FY2006, Bangladesh bagged $793 million worth of net foreign direct investment, which plunged to $650 million in FY2007 and to $527 million in FY2008.

Economist Mustafizur Rahman told the FE that it was a good news that the FDI flow started to regain in the current fiscal.

"But you should bear in mind that the country has grabbed $300 million single investment from a Japanese company to local mobile phone industry which helped build the net foreign investment," he said adding if the trend shows a gain in the last quarter then the real picture would be realised.

Mr. Rahman, also executive director of the local think tank --Centre for Policy Dialogue (CPD), said there is massive potentiality of investment in the coming days as the registration for fresh investment with the Board of Investment (BoI) has gone up nearly three-fold.

"If the government can supply adequate energy and develop the infrastructure, plenty of investment will come to the country," he said.

A senior BoI official said there are lot of investment proposals coming especially for the textile sector.

"We've already registered billions of dollars worth of investment proposals both from local and foreign countries this fiscal. It is more than double compared to the same period last fiscal," he said requesting anonymity.

As per BoI statistics, the board has registered $4.1 billion worth of investment proposal till April this financial year, more than half a billion dollar higher than the total registration in previous FY2008.

The BoI official said most of the investment proposals are coming to the manufacturing sectors including textile, pharmaceuticals, sports-wear etc.

Mustafizur Rahman said since the government has proposed adequate funds in the next budget for power and energy sector development and introduced new paradigm of investment --public-private partnership (PPP), there is potentials of boosting investment.

Zaid Bakth, research director of Bangladesh Institute of Development Studies (BIDS), said: "Since Bangladesh has abundant cheap labour, some manufacturing units from different countries including China have been relocating to the country. It will boost our investment further."

There is a possibility of a heafty sum of foreign investment in energy and power sector in the coming days, he added.

Mr. Bakth said the government should take quick decision on the "offshore bidding round 2008" for the sake of exploring new oil and gas sources as those would facilitate more investment to the country.
 
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Govt initiates talks with NRBs over coalmining prospects

The government initiated talks Monday with non-resident Bangladeshis (NRBs) over the country's coalmining prospects to ensure the country's future energy security utilising its coal reserves.

A total of ten NRBs -- two from the US and eight from Australia -- are taking part in the discussion titled, "Brainstorming with NRB experts on coal mining in Bangladesh." at Jamuna Resort in Tangail.

The state-owned Petrobangla has organised the four-day workshop. It is spending around Tk 50 million for flying in the NRBs and arranging their accommodation at the resort, said a senior Petrobangla official.

German GTZ has arranged fund for holding of the workshop.

The NRBs will discuss elaborately on the draft of the national coal policy, geophysical structure of the country's coalmines, mode of coalmining and compensation and rehabilitation for the victims, said the official.

A set of recommendations is expected on the concluding day of the function on June 18 next.

A senior energy ministry official said apart from the discussions with the NRBs the government will engage elected representatives -- members of parliament and the members of parliamentary standing committee on power and energy ministry -- in the process of finalising the coal policy.

The past caretaker government had finalised the draft of the national coal policy and recommended that foreign companies would be allowed to develop the country's coalmines under a joint venture with local coalmining company.

No foreign companies would be permitted to develop coalmine independently, the draft of the national coal policy pointed out categorically.

Like elsewhere in the world Bangladesh can extract coal by either open pit or underground mining method.

But the mining method should be determined on the basis of geological structure and reserve potentials, the draft said.

A Coal Sector Development Committee comprising professionals from all walks of life will be constituted for smooth operation of coalmines and relevant activities.

The committee will fix the royalty rate of different coalmines considering mine-specific geological structures instead of the existing mining rules where the royalty rate has been fixed at 6.0 per cent for open-pit mines and 5.0 per cent for underground mines.

Awarding of licences for coal explorations from any coalmines will be given through open tenders, whereas the existing rules say that the licences would be awarded on first-come-first-served basis, it stated.

The government will follow the country's existing Land Acquisition Act to acquire required land and compensate the displaced people from the mining sites to ensure smooth development of coalmines and its subsequent utilisation, as per the draft of the policy.

To ensure adequate management of environmental and social issues the government might adopt globally accepted guidelines of 'equator principles,' the draft of the national coal policy pointed out.

Khani Bangla, an entity under the state-owned Petrobangla, will be given the responsibility to look after the development of coal and other issues relevant to country's mines and minerals.

There will be no option of coal export other than 'cocking coal' in the coal policy.

Cocking coal is a kind of coal especially used in steel manufacturing plants.

Setting up coal-fired power plant at the mine mouth will be made mandatory for developing any coalmine, the draft observed.

Investment proposals worth several billion US dollars are now pending with the Board of Investment (BoI) for coal sector development.

The successive governments are keeping those investment proposals on hold and asked the entrepreneurs to wait until the finalisation of the national coal policy.
 
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Introducing Public Private Partnership programmes

THERE is a lot of discussions about public-private partnership programmes (PPP). The government wants to take the economy to higher trajectory of growth. As a vehicle to attain this higher growth, investment in infrastructure development, especially power and energy, ports, communication, supply of drinking water and waste management, education and health will be given highest priority. A huge investment is required to achieve this target. The government alone can not provide such a huge amount of resources. Past experience shows that it has been difficult to ensure economic use of public resources and quality of service delivery when government is involved in infrastructure development and maintenance because its involvement is not determined through a competitive market process.

The implementation and funding of any infrastructure development projects is a long drawn process and the investment risk is much higher. In many cases, the investment may not be commercially viable and it is difficult to attract private investment. In this context, the government will be taking special steps to involve the private sector under public private partnership to meet the probable investment gap. The government feels that successful implementation of PPP concept will open up the door for increased flow of investment from both local and foreign investors.

It is pointed out that PPP projects were successful in the past. According to the Finance Minister, the existing PPP framework and the institutions associated with PPP should be more transparent and should also be strengthened to ensure the success of the PPP sector. The government is committed to take timely measures to attract investment in the country through PPP. Therefore, three new expenditure heads will be created under the new budget to facilitate new projects under PPP.

The first expenditure head will be named as PPP technical assistance to cover expenditure related to feasibility studies and other preparatory work. Tk 1.0 billion (100 crore) has been allocated for PPP technical assistance. Agencies concerned will be able to receive necessary funds quickly from this head to prepare PPP project documents.

Tk 3.0 billion (300 crores) has been earmarked as Viability Gap Funding as subsidy or seed money to attract private initiatives for the construction of power plants, hospitals, schools, roads and highways which are non-profitable but essential for public services.

The government has proposed to allocate Tk 21 billion (2100 crore) in the PPP budget to accelerate the process of investment through PPP. The allocation will be used for setting up an Infrastructure Investment Fund. Depending on the type of projects, the government will provide equity or loan to the private investors. Different financial incentives will be extended from this fund to encourage investments.

The challenge before the govt is to set up an institution for preparation and implementation of PPP budget which will ensure innovative ways, independent operation and accountability of planning and budget process of the private sector. This body is expected to provide incentives to PPP initiatives in different sectors and expedite project approval process. The government believes that this institution will follow the best practices of modern management philosophy. It is hoped that the PPP budget management system will be operational by September next. The above proposals look very interesting.

The mode of project implementation under the PPP initiative will be on the basis of Build-Own-Operate (BOO), Build-Operate-Transfer (BOT) and Build-Own-Operate-Transfer (BOOT). It is pointed out that if the government can not improve its administrative efficiency and capacity for negotiation, the public-private partnership concept may not be successful. The PPP unit needs to be staffed with technically sound and experienced negotiators with specific knowledge on project design, financing and management.

The stock market has offered to provide Tk 200 billion (20,000 crore) in the next five years in setting up power plants under the PPP. The Dhaka Stock Exchange (DSE) authorities have suggested that government may raise a big amount of the total cost from the stock market. But a lot of formalities are to be completed before money can be drawn from the stock market. Companies have to be floated. This has to be cleared by Security and Exchange Commission. Thereafter, notice has to be given for floating of shares. Allocation of new shares has to be according to certain procedures. It is not as simple as drawing money from the bank.

PPP is a good concept in principle. It can help mobilise additional funding in financing large-scale projects. But there are many challenges. The government will have to review the financial and economic viability of a PPP project because success will depend largely on costing and pricing. Generation of revenue is crucial.

The legal framework will lay down obligation to private sector partners, keep provision for cost recovery and address the issues of compensation and redress mechanism. Action will be required to establish a comprehensive policy and regulatory framework for competitive and transparent bidding, sharing risks and rewards and dispute settlement mechanism.

PPP projects will be very capital-intensive and there is a fear of rent-seeking. Therefore, ensuring competitive bidding process is very vital. A match between asset and liability and cash flow is also crucial. In terms of foreign partners, repatriation foreign currency may create pressure on the reserve. Reviewing the private partner's financial and technical capacity would be a big job for the government.

A heavy reliance is placed on private-public participation. It is intended to utilise the idle money of the private sector in big infrastructure building projects. But potential private sector partners will look for good return on their money but infrastructure projects may not offer the best return in the short run.

International experience shows that the institutional arrangement for implementation is the key. In western countries, specialised PPP units to facilitate and manage infrastructure investments have existed for years. Such units have recently begun to proliferate in the developing world. There is no unique formula to develop a sound PPP framework. Private sponsors in PPP ventures have a natural tendency to press for deals that effectively privatise the profits while socialising the losses. To guard against such risks, the PPP units needs to be staffed with technically sound and experienced negotiators. The government of Bangladesh will have to be extremely cautious in setting up an outfit for PPP projects. The potential investors must not use PPP projects as a conduit to access public investment without performing and fulfilling their obligations.
 
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DHAKA: The Islamic Develo-pment Bank (IDB) will provide a $1.3 billion loan to Bangladesh for construction of a bridge over the Padma river estimated to cost $1.5 billion, a government spokesman said on Monday.

“IDB will provide $1.3 billion for the construction of the Padma Bridge,” Abul Kalam Azad, press secretary to the Prime Minister Sheikh Hasina told reporters. Azad said Finance Minister Abul Maal Abdul Muhith had told a cabinet meeting on Monday about the funding by the IDB.

Bangladesh adopted a plan in January to construct the $1.5 billion Padma bridge to connect the southwest of the country with the capital Dhaka. Azad could not immediately confirm the details of the loan. Bangladesh will provide the remaining $200 million for the bridge, which will carry railway and gas transmission lines, finance officials said. Construction of the 5.58 kms (3.5 miles) long bridge, at Mawa, 50 kms south of Dhaka, will begin soon. A Japanese firm submitted project designs last month, an official of the communication ministry said.
 
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Pakistan textiles relocating to Bangladesh

16 Jul, 2009 - Bangladesh
A number of Pakistani textile houses are relocating their businesses to Bangladesh due to continuous hardship here, The News learnt on Wednesday.

Around four major Pakistani textile giants are in Bangladesh these days to shift their business so that they could furbish their exports orders in time, said one textile exporter of Pakistan on phone from Bangladesh.

“Towellers, a leading name in Pakistan’s home textile industry, is about to shift its business to Bangladesh,” informed Farrukh Maqbool, Chairman of Towel Manufacturers’ Association of Pakistan (TMAP) in a press statement and added that Towellers COO Pervaiz Kazi is travelling to Dhaka this week to meet with the Bangladesh Board of Investment (BoI) officials and finalise the company’s relocation strategy.”

Textile exporters had already warned the Pakistani authorities that they would move their businesses to Bangladesh when they were highlighting the anomalies in budget 2009-10 at PHMA House last month. These businessmen were included S M Obaid and Rafiq Habib Godil.

The reasons behind shifting their business to their competitor country i.e. Bangladesh are that the cost of doing business is continuously rising in Pakistan while country’s bureaucracy was formulating unnecessary regulations, said Syed Usman Ali, Former Chairman of TMAP.

He maintained that the law and order situation, on the other hand, was not allowing them to do their business tension free here. Owing to this law and order situation, the buyers did not come to Pakistan and they have to go to the buyers’ country or any other third country.

So that travelling to buyers’ country was an additional burden on our balance sheets, he added.

The frequent protest strikes, electricity outage and red tape and law and order altogether did not allow exporters to ship orders in time to the buyers, he elaborated. On the contrary, the Bangladesh was offering a number of incentives to its textile-exporting sector. According to rough estimates, doing textile business in Bangladesh is about 30-50 per cent cheaper than Pakistan, it was learnt.

Under the label of Least Developed Country (LDC), the Bangladesh enjoys zero rated exports to European Union, Australia and Canada, while Pakistan pays these levies range from 11-20 per cent, said Former Chairman of TMAP.

He compared that the electricity in Bangladesh was 40 per cent cheaper than Pakistan and 60 per cent cheaper in India as compared with Pakistan, he added. He maintained that the labour in Bangladesh was also available on low salaries. The maximum salary over there is 3,600 taka, while they in Pakistan have to pay Rs6,000/- plus 15 per cent salaries here.

He said that the State Bank refinancing was not available to them since the beginning of new fiscal year 2009-10, as SBP has stopped refinancing to those exporters whose dues with SBP are overdue then 90 days. He said this type of policy was never made in the last 25 years then why bureaucrats were formulating this type of policy during the tenure of an elected government.

TMPA statement added that due to non-cooperative attitude of the government towards the industry, many exporters are planning to relocate their units to Bangladesh. The government has been turning a deaf ear to many pleas from the textile industry which is resulting in closing down of numerous mills leading to further unemployment in the country.

Textile sector has been crying for months about stuck up RandD funds, high finance cost, continuous increase in cost of production and energy shortages, the statement added.

Source: The News, Pakistan
 
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What to do with the Savings Glut?
Zaidi Sattar

Bangladesh seems like an unlikely country to have excess savings. Yet, that is xactly the impression one would get looking at the aggregate picture of savings. Our hard-working population is not only churning out income at a higher rate every year (6 percent plus GDP growth), they are also saving a good part of it – nearly 30 percent of GDP. Our migrant workers are known to be saving and sending pretty much all of their hard-earned wages. Two questions emerge from our present state of savings: is it a good or bad thing to have excess saving? Are we putting our savings to good use?

It was John Maynard Keynes, the leading economist of the 20th century, who popularized the notion of paradox of thrift (or paradox of saving). The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall, lowering income generation, which will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings (as a percentage of income) rises, and, broadly speaking, that increases in savings may be harmful to an economy!

The Bangladesh case is not exactly akin to the Keynesian paradox but has a flavor of it nonetheless. It was in 2006, at a meeting of the Planning Commission to finalize the Poverty Reduction Strategy Paper (PRSP), that I pointed out that the PRSP – a medium-term planning document – had ignored an emerging paradox of excess savings over investment, an event which began around fiscal year 2002 [Fig. 1]. Planners had not taken notice of the fact and so there was no strategy to address this. For thirty years prior to that, Bangladesh, like every other non-oil developing country, ran a savings deficit which had to be met from inflow of foreign savings to match the demand for investment. Reliance on concessional foreign aid (i.e. foreign savings) for financing bulky infrastructure investment was justified by development theory (Big Push a la Paul Rosenstein Rodan) and post-war global practice. Now that we are paradoxically running a savings surplus over investment, we should be asking why in the world should we need foreign aid to finance investment?



To be sure, two things were happening in concert. In aggregate terms, the economy was accumulating savings at a faster rate, thanks largely due to a surge in remittance inflow. So, the gross national savings reached a figure of 29 percent of GDP in FY08, and is expected to reach 31 percent in FY09, from only 18 percent in 2002. At the same time, our gross domestic investment has been stuck at 23-24 percent since 2002. What is striking is the switch in the composition of this investment – a rise in private investment and a fall in the share of public investment, which reached a low of about 5 percent (out of 24 percent) in the latest fiscal year. The savings-investment “surplus” now stands at 5 percent of GDP – resources equivalent to the cost of three Padma Bridges! I know of no other non-oil developing country (except China) that has such a huge savings surplus [Table 1 presents a sample of developing countries with their savings, investment, and current account balance as a ratio of GDP]. So much of savings is going waste when the economy is crying for resources to invest in infrastructure, health and education.

Table 1: Savings, Investment, Current Account Balance 2006-09 (%GDP)
Gross Domestic Investment Gross National Savings SavingsSurplus Current Account Balance
Bangladesh 24.2 29.2 5.0 1.0
India 35.9 37.1 1.2 -2.89
Pakistan 23 24 1.0 -8.37
Sri Lanka 27.2 22.7 -4.5 -7.32
Nepal 28 28.5 0.5 2.62
China 42.9 48.7 5.8 10.00
Vietnam 38.7 32.8 -5.9 -9.38
Source: Asian Development Bank (ADB)
First and foremost, it signifies our inability to invest all our available resources. Second, it could be that our financial intermediation is not efficient. Savers and investors are two divergent groups. It is the financial system – banks and non-bank financial institutions – that bring savers and investors together. In a smoothly functioning financial system, such an excess of savings (investible capital) would have reduced interest rates, increased the demand for investment and restored savings-investment equilibrium. That none of this is happening tells us that there is some stickiness or major inefficiency in the financial intermediation process. Third, we have been made aware of the poor performance of ADP implementation in recent years, which has had the effect of reducing the share of public investment in total investment. Problems with power and infrastructure have pulled back potential private investment as well. Lately, the global economic slowdown has compounded the problem. So the overall investment climate has not been conducive to result in an improvement in the investment-GDP ratio, which has remained stagnant for nearly five years and shows no sign of improvement.
There is one more dimension to the paradox not to be ignored. There is a one-to-one relationship between current account of the balance of payments and national accounts. For several years running, our current account has been posting a modest surplus, which was close to one percent of GDP in the last fiscal year. A current account surplus implies that the economy generated more income from domestic production and foreign earnings (remittances) than it spent on goods and services – domestic and foreign. In national accounting terms, this corresponds to the excess of savings over investment. That is to say, the savings-investment surplus should equal – or approach equality with -- current account surplus, which should then be also 5 percent of GDP rather than only one percent. How do we explain the incongruence of the two figures?
The aggregate economic relationship point to the fact that some of our national savings is not invested in the domestic economy but abroad. In the absence of capital account convertibility, this would not be permissible, though India has allowed Indians to invest abroad under limited convertibility of the capital account. It is common knowledge that a significant part of worker remittances might not be coming through official channels. That creates one scope, among others, for investment of national savings abroad. In addition, both exporters and importers have multiple conduits – well known to those who mange the country’s financial system -- for parking resources abroad outside the purview of the non-convertible capital account regime.
All this points to the fact that capital in the present day and age could be quite mobile. It would be naïve to think that all savings of Bangladeshis are in the domestic economic system. Although our current account is convertible (done in 1994), non-convertibility of capital account puts numerous bounds on current account transactions. So the incentive for parking domestic capital outside is not eliminated. These days, with interest rates in developed financial markets being at near zero, the relatively high returns in domestic banks and financial institutions should attract resources parked outside the country to be ploughed back in though other uncertainties of life and limb in Bangladesh might still prompt the flight of capital. I reckon it is only a matter of time when restrictions on outward and inward movement of capital will have to be relaxed, even under the regime of non-convertibility. This is more so because of the new initiative of government to encourage public-private partnership (PPP), particularly in mega-projects. Unless the restrictive rules of capital mobility are relaxed, it will remain a battle for private capital to move in or out; and an uphill task for those in the private sector trying to mobilize funds from international capital markets.
Dr. Sattar is Chairman, Policy Research Institute of Bangladesh.
Research support was provided by PRI’s Rubayat Chowdhury
zaidisattar@gmail.com
 
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