Post-LDC graduation pressure among structural challenges for economy: Experts

Experts have identified five long-standing structural challenges facing Bangladesh's economy, cautioning that these could undermine the country's growth prospects.

The five challenges are post-least developed country (LDC) graduation pressure, lack of diversification, inefficient trade facilitation, low investment, and weak global value-chain participation.

These were disclosed at a roundtable titled "Path to Economic Turnaround: How Business Environment Fares and Priorities" and organised by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange Bangladesh on Monday evening.

Addressing the event, held at MCCI's Gulshan office in the capital, as the chief guest, Commerce Secretary Mahbubur Rahman said Bangladesh was working on graduating from the LDC status.

"This is necessary, though sometimes the pace of change feels revolutionary," he noted.

He pointed out that Bangladesh could learn from global experiences.

"For example, Vietnam has achieved significant development in the private sector, which has created high expectations," he said.

"For us, challenges remain in tax mobilisation, development financing, and ensuring that our programmes are sustainable. These are real concerns in front of us," the commerce secretary added.

Referring to the World Trade Organisation's Trade Facilitation Agreement (TFA) checklist, he said Bangladesh had obligations to support the private sector, simplify business processes, and make it easier for enterprises to operate.

"We are trying to reduce unnecessary barriers, cut non-tariff barriers, and streamline business processes. Moderately, we are moving in that direction to support business owners. But it is true that we are still at an early stage. Right now, it is still mostly paper-based, though we are gradually adopting digital systems," Mahbubur said.

He also mentioned that Bangladesh was working with development partners to secure access to local markets in 38 major destinations.

"But after 2026, we will no longer be getting preferential treatment in most markets," he cautioned.

Regarding the challenges of LDC graduation, he said, "I do not think more than 15 per cent of our total export market is at risk."

"We are also in talks with the US regarding the rules of origin issue. If bilateral arrangements are in place, questions of originating and non-originating content can be resolved," he added.

Special Guest Shah Mohammad Mahboob, executive member of Bangladesh Investment Development Authority (BIDA), said, "To improve the investment ecosystem, we are always listening to businesses. We see the challenges they are facing and are committed to solving those to make the investment environment better."

"We have tried a few different models. At first, our goal was collaboration - getting all the agencies to work together under one umbrella. That model helped, but we are now trying something more focused on key decision-makers."

"Over the past week, we entered a critical decision-making phase. We empowered our leaders, like the BIDA chairman, to have more direct and daily contact with individuals like the cabinet secretary, the revenue board chairman, and the chief adviser. This direct communication allows us to quickly resolve issues by bringing all the right people together," he said.

In his keynote, Policy Exchange Bangladesh Chairman Dr M Masrur Reaz said the government had taken reform initiatives in various areas, including banking, revenue, anti-corruption, and democratic transition, after the August 2024 political changeover.

In the last one year, inflation fell to 8.55 per cent from 10.49 per cent in August 2024, easing pressure on consumers, he said.

Moreover, forex reserves rose by 21 per cent to $26.5b in July this year, boosting stability along with stabilising taka, he added.

However, frequent disruptive protests, disorganised decision-making, and slow economic reforms remained as challenges, said the economist.

To address critical business bottlenecks, he urged the government to enhance the investment establishment process, diversify exports, and address domestic investment and other issues.

Kazuiki Kataoka, country representative of Japan External Trade Organisation (JETRO), said the number of Japanese companies coming to Bangladesh was increasing.

"However, we face several challenges. For business to business (B2B), one of the main difficulties is finding appropriate partners," he said.

According to a JETRO survey, 55 per cent of Japanese companies expressed interest in continuing or expanding their operations in Bangladesh.

"I also request the government to systematise the process and improve procedures for profit remittance," said the JETRO official.

He said many Japanese companies here were engaged in official development assistance (ODA) projects run by Japan International Cooperation Agency (JICA) but often raised questions about policy consistency.

Mahtab Uddin Khan, president of the Institute of Cost and Management Accountants of Bangladesh (ICMAB), said Bangladesh's growth story was something that people were convinced about.

"But if we look closely at the numbers, do they really justify the opportunity? The opportunities are there, but the figures do not fully reflect them. Our growth story is good, but not fully realised," he said.

He also said, "The country needs rule of law and justice. If we continue to incentivise corrupt people, that will create many business tycoons, but real progress will not happen."

The true intention behind political motives also needed to change, he added.

Regarding the benefits of a cashless economy, Mahtab said it could drastically reduce corruption.

"We all know this, but the question of why we are not implementing it remains."

Mahtab, also the former chief executive officer at Robi, requested the MCCI to urge the government to delay LDC graduation.

Snehasish Barua, a partner of Snehasish Mahmud and Co, said inflation was above 10 per cent but now eased somewhat.

"Considering food and other inflation, we see the interim government has taken the right steps to reduce syndication," he said.

"We also have a low tax-to-GDP ratio due to all wealthy people not properly declaring their wealth value in their tax returns. Why not make these records paperless and digitised?"

He also said, "Trade facilitation measures should support the National Board of Revenue (NBR), and we appreciate the progress being made."

Speaking about electricity prices, he identified taxation as a key component of the cost.

"Why are we taxing electricity? Is it not a necessary item?" he questioned.

"We are not generating enough employment due to a lack of investment," he added.

Shams Mahmud, managing director at Shasha Denims, said, "We have already lost significant revenue due to NBR officials' strike near the end of the fiscal year. As a result, businesses are facing mounting pressure to increase their revenue."

"Regarding energy security, we have not seen enough urgency or pressure from the authorities," he said.

"The reforms we expected regarding LDC graduation have not materialised. As many countries are moving towards Africa for opportunities, why are we not? The government urgently needs to come up with a well-defined plan."

Farid Uddin, a member of the NBR Reform Committee, pointed out the priorities of the current times and said, "We have sent our report to 70 organisations, ministries, and relevant stakeholders but received only 12 responses. No one paid attention to issues like cashless economy, regulatory community, and related matters."

Asif Ibrahim, vice chairman of Newage Group, said the closure of some factories, job losses, and the economic impacts had become major concerns, though conditions had improved somewhat with the rebounding of exports.

"However, we still face significant challenges in securing energy for industries, while the availability of land for setting up industrial units remains limited. The number of licences required to open a small business and ultimately the overall ease of doing business are still difficult issues," he said.

"At present, industries depend heavily on commercial banks, which is a paradox. Long-term financing should ideally come from the capital market," said Asif.

Mohammad Iqbal Chowdhury, director and chief executive officer of LafargeHolcim Bangladesh, said NBR services should be simplified.

"People willing to pay taxes find the interpretation of the law very complex, which has created a state of fear among them. They are fearful of what will happen to them after paying taxes," he said.

He said the NBR was struggling to collect revenues and also knew there was a huge leakage in its policies.

Over the last year, the cement sector's net employment was zero despite millions of young people entering the job market every year, he said.

Doulot Akter Mala, president at the Economic Reporters Forum (ERF), said, "We have very good laws, but there is a big problem in service delivery as government officials have the bureaucratic mindset of exercising power."

She said the lack of coordination among government offices and agencies in service delivery was another problem.

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