Further cut in export cash incentive before LDC graduation unlikely

Squeezing cash incentives anymore is unlikely before Bangladesh's graduation from the world poor-country club as the government prioritises propping up trade and industry to navigate global trade uncertainties, officials say.

To support trade against adverse affect of tariff wars and "hostile attitude" of the neighbouring partners, they add, the current interim government for the first six months of the current fiscal year kept cash incentives same as the amount revised in January 2024.

Finance Secretary Dr Md Khairuzzaman Mozumder at a recent meeting said the government had taken steps to phase out cash incentives in four stages so that businesses do not have to bear the brunt at once when graduation is completed in November 2026.

However, he said, considering the current global trade uncertainties, the government is reviewing whether to defer the reduction in cash incentives until graduation from the least-developed countries (LDCs) group.

Rather, according to Mr Mozumder, the government is also exploring alternative production-linked incentives for promising sectors like agriculture, pharmaceuticals, leather, and jute and jute goods, in place of cash incentives.

Contacted over the rethink, a senior official who attended the meeting told the FE there was no possibility that the cash incentives would be lessened anymore before the county's status change onto a higher rung through graduation.

"We are about to graduate from the LDC group. But the present global scenario is not in favour of trade. So, the government is unlikely to lessen cash incentives only few months remaining in hand," he said.

After crossing the crossroads in November, the cash incentives will go automatically in line with the provision of the World Trade Organisation for developing countries, for which providing cash incentives or export subsidy is prohibited.

In January 2024 the government began restructuring export subsidies through lowering their rates. The rates of cash incentives following the trimming for 43 categories of products have gone down to stand between 1.0 per cent and 15 per cent.

In the second phase of lowering cash incentives the rate further went down to fall between minimum 0.3 per cent and maximum 10 per cent, over which the businesses reacted sharply, and demanded retention of the rates as before January 2024.

President of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) Mahmud Hasan Khan on June 25 met finance secretary Mr Mozumder and urged him to reinstate full cash incentives to help the sector remain competitive amid growing uncertainty.

Talking to the Financial Express on Friday, Mr Khan welcomed the government move not to lessen cash incentives anymore in view of the industry's condition and the global economic situation.

"We urge the government to reinstate the special incentive at 1.0 per cent for apparel industry which earlier was reduced to 0.5 per cent and now stands at 0.3 per cent," he said.

Abdullah Hil Nakib, Deputy Managing Director, Team Group, says the government should focus on facilitating exporters, including those in the apparel sector, instead of reducing cash incentives, as Bangladeshi exporters lag far behind competing industries in other countries in terms of supports.

"The government can, at this stage, prioritise reducing bank interest rates to encourage investment and create new employment opportunities," he told the FE.

He also calls for government-to-government agreements with certain countries to secure zero-tariff access for exports.

Nakib further urges the government to find ways of continuing incentives after the country's graduation from LDC status.

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