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Thursday February 22nd, 2024

Bangladesh a surprising economic success

ECONOMYNEXT – In the last three decades Bangladesh has recorded the fastest and most stable rate of GDP growth among developing countries and is now recognized as among the top 40 economies of the world.

Bangladesh came into being in 1972, and then US Secretary of State, Henry Kissinger saw no future for the country, describing it as “a bottomless basket case.”

His comments were coloured by the fact that the US was at the time, a close ally of Pakistan and opposed to the creation of Bangladesh.

Kissinger’s description was not far off the mark, as Bangladesh was indeed at the bottom of the pile. With a per capita income of scarcely USD90, it was grouped with other impoverished countries of the world such as Chad, Rwanda, Burundi, and Nepal.

Today,50 years later its per capita income has crossed the USD2000 mark with a GDP of about USD355 billion. Poverty rates have plunged from nearly 43 percent in 1991 to 14 percent last year. Economists predict that it will “graduate” out of the Least Developed Country (LDC) status by 2026.

The remarkable success of this South Asian nation and its future course was discussed at a webinar on April 7 organised by the Friedrich Naumann Foundation for Freedom South Asia (FNF).

As Dr. Christoff Hoffman, member of the German Federal Parliament observed, Bangladesh’s success rests on the fact that the country’s government has acted more as a facilitator for the economy, rather than a regulator.

Yet, that success may well be a problem in the future, as the country could lose some of the special tariff rates currently available, as national income grows. “The country will have to compete with many other countries” to hold on to markets.Bangladesh is the second largest exporter of readymade garments in the world.

Apart from garment exports, Bangladesh’s other source of foreign exchange is remittances of their migrant workforce.

Moderator of the webinar, Dr. Najmul Hossain, an economist and FNF’s Country Representative, Bangladesh categorizes the remittance income as an Export. “We need to diversify these sources of income,” he told the webinar.

While the country earns around USD40 billion per year through garment exports, foreign remittances make up more than USD20 billion annually.

The country’s economic boom began in the 1990s explains panelist Dr. Zaidi Sattar, Founding Chair, Policy Research Institute of Bangladesh and Member of the Bangladesh Economic Association. That happened when the country looked outwards for markets, instead of focusing on inward growth, he said.
There was significant economic liberalization including making the local currency, the Taka convertible.

“We were industrializing, but it was more about import substitution,” Dr Sattar added. “Once we started looking outwards, looking for markets for our products, then the economy started to boom,” he told the webinar, adding “We had protected our industries for too long.”

Panelists agreed that democratically elected governments had fared far better liberalizing trade
regimes than authoritarian governments that ruled the country from time to time.

Dr.Sattar pointed out that Bangladesh has maintained a high degree of macroeconomic stability. “Our fiscal deficits have always been less that five percent of the GDP,” he said.

He added, however that other exports do not fare as well as the garment industry, as those do not enjoy the same tax breaks; while the apparel industry imports its raw materials duty free, an import tax is levied on products brought in by other industries. This “export policy dualism” must end he said, adding that the country must further liberalize the tax regime, so other industries too could grow, Dr. Sattar said.

He called on the government to seek free trade agreements with countries which are big markets and lower import tariffs.

He also added that “Bangladesh needs to get into the component industries like Vietnam.”

Most of the global trade is into manufacturing various components for machinery, and that is an area the country should venture into, he stated as it is a field that would suit the high proportion of young people entering the workforce.

The country’s widespread Non-Governmental Organisations have also contributed to the economic success. As Tarikul Ghani, Advisor, Manabik Shahajya Sangastha stated,NGOs have played a vital role in reducing extreme poverty amongst the people.

NGO interventions have seen an increase in primary school enrollment and an improvement in the status of mothers’ health. He stated that around 34 percent of foreign aid received is channeled to Bangladeshi NGOs.

“Institutions such as Grameen Bank have helped poor communities to borrow funds to start enterprises,” he said. Ghani is an internationally known activist for clean elections and pioneered election monitoring in Bangladesh.

The webinar included a documentary tracing the country’s economic development. Chief Economist of the UNDP Bangladesh, Dr. Nazneen Ahamed, the narrator stated that despite the positive interventions by the government to increase school attendance amongst girls, “only 36 percent of women are in the workforce while more than 80 percent of men are in the workforce.”

If more women are to be encouraged to enter the workforce, more women-friendly infrastructure and women-friendly transport must be introduced, she observed.

Dr Ahamed credited the government’s Female Secondary Stipend Programme (FSSP) for the increase in the number of girls graduating from Secondary schools and delaying marriage.

The programme provides girls attending Secondary School, an allowance for uniforms, school fees and to meet other expensed.

Nearly two million girls are supported by this programme. According to a World Bank report, female adult literacy which was at 26percent in the 1999s, when the programme was launched, has seen a significant increase, standing at 72percent, currently. It has also helped reduce the number of child marriages.

Economic improvement has also facilitated a momentous transformation of Bangladeshi society. Financial success has given rise to a growing pool of entrepreneurs, positively impacting the lives of both urban and rural communities. A shift towards digitisation has further added to the success.

Indeed, both public and private sectors have contributed to Bangladesh’s success story; a template that developing nations must emulate, the webinar heard.

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Sri Lanka rupee closes at 310.95/311.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.95/311.05 to the US dollar Thursday, from 311.30/50 on Wednesday, dealers said.

Bond yields were down.

A bond maturing on 01.02.2026 closed at 10.60/80 percent from 10.65/85 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent from 12.05/15 percent.

A bond maturing on 15.03.2028 closed at 12.10/25 percent from 12.20/35 percent.

A bond maturing on 15.07.2029 closed at 12.20/95 percent from 12.45/95 percent.

A bond maturing on 15.05.2030 closed at 12.40/95 percent from 12.35/95 percent.

A bond maturing on 15.05.2031 closed stable at 12.45/13.00 percent.

A bond maturing on 01.07.2032 closed at 12.50/13.30 percent from 12.50/13.20 percent. (Colombo/Feb22/2024)

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Sri Lanka’s CEB to submit significant power tariff reduction proposal to regulator

ECONOMYNEXT — Sri Lanka’s state-run Ceylon Electricity Board (CEB) is expected to submit to the country’s public utilities regulator on Thursday February 22 a proposal to slash a power tariff hike made in October 2023.

Power & Energy Minister Kanchana Wijesekara said on Wednesday February 22 that the CEB expects to reduce rates by at least the same rates and percentages it was increased in October 2023: by 18 percent for the domestic and religious sectors, 12 percent for the industries and hotel sectors, and 24 percent for the general purpose and government buildings sectors.

CEB management and tariff department officials had briefed the ministry on the revised new tariff proposal, taking into account costs reduced from capital and operating expenses from the original proposal, cash flow requirements for 2024 and suggestions received from public consultation and stakeholder meetings, Wijesekara said.

CEB Senior Engineers’ Association Media Spokesman Nandika Pathirage said on Wednesday that this was the best decision that can be taken at the moment.

“There was no rain at all on Tuesday. We have to use more oil these days. If you take hydro, together with mini hydro it makes up 26 percent. Solar and wind make up about 6 percent. Solar alone is 4 percent. If we can increase solar by 10 percent, it will be like during the rainy season of November and December,” said Pathirage.

“Thermal is 68 percent. CEB needs cash to run. If we can reduce it further, we’re all ready to consider it in the next quarter. This is a good number we can arrive at now,” he said.

CEB Deputy General Manager Noel Priyantha, whose resignation was announced Thursday morning following a PR scandal, told reporters on Wednesday that, while it does carry some risk, maintenance and repairs deemed non-essential have been postponed to 2025 and 2026.

“We plan to greatly reduce our capital costs and maintenance costs, through which we expect to provide a considerable reduction in tariffs. What we did was push maintenance and repairs to 2025, 2026. There is a small risk there,” he said.

The official explained that a recent reduction in tariffs by a relatively low 3 to 3.4 percent was due in part to costs involved in activities including maintenance work at the CEB’s extensive network of power stations.

“Profits from the November, December rains were carried forward to 2024. We proposed this year’s tariff with that taken into account. We also planned to do several things that we had missed. CEB owns a large number of power stations. The pandemic came, and then the country went bankrupt. Because of the dollar crisis we couldn’t carry out essential maintenance work. This year we have assigned maximum maintenance,” said Priyantha.

The previous tariff proposal was thus sent to the regulator, the Public Utilities Commission of Sri Lanka (PUCSL), taking into account such tasks the CEB could not carry out due to various reasons, according to Priyantha.

“This was why we had to reduce the tariff by an amount as low as 3 to 3.4 percent. Then we held public consultations. Everyone said in one voice to reduce the tariff. The PUCSL as regulator gave us some criteria, to discuss with the government and move a few these things around and reduce loading a big cost for 2024 and defer it if possible,” he said.

“Which meant do the essential things in 2024, and whatever that can be postponed be moved around a bit,” he said. (Colombo/Feb22/2024)

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Sri Lanka stocks close up, turnover tops 1bn

ECONOMYNEXT – The Colombo Stock Exchange closed up on Thursday, data on its site showed.

The broader All Share Index closed up 6.05 points, or 0.06 percent at 10,655 while the S&P SL20 Index closed down at 3,064 points, up 0.18 percent, or 5.43 points.

Turnover was at 1.4 million. A large part of this came from trading in John Keells Holdings Plc (571 million); the share closed up at 194.00.

Expolanka Holdings Plc also saw large volumes being traded, contributing 202 million to the day’s turnover. The share closed up at 143.75.

Sectors that attracted investor interest were Capital Goods (608mn), Transportation (203mn), Food, Beverage and Tobacco (141mn), and Banks (157mn).

Several companies that announced dividends yesterday saw share prices trade up today. Commercial Bank of Ceylon Plc closed up at 91.30. Overseas Realty (Ceylon) Plc closed up at 16.20.

Positive contributors to the indices in the day included Hemas Holdings Plc (73.60), and Haycarb Plc (72.00). (Colombo/Feb22/2024).

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