May was a relatively stable month politically. On the economic front, the government’s GDP growth calculations show a GDP growth rate of 5.82% for the current fiscal year, which is around the estimations of international financial institutions such as the World Bank and the IMF. The central bank has also stopped regulating lending rates for banks and left it the individual banks to decide on the rates based on supply and demand. While exports saw a slight year-on-year decrease, remittances, on the other hand, saw a big 21% year-on-year jump. Sun Pharma, the Indian pharmaceutical giant, has opened a pharma plant in the Meghna Industrial Economic Zone, in a welcome investment in the pharma sector of the country.
The rhetoric continues. Whilst we would usually see this level of rather wild accusations as fairly normal for Bangladesh’s political scene, with upazila elections ongoing we are monitoring to see how the public react to the results in what is essentially a one-horse-race.
Awami League. “Awami League General Secretary and Road Transport and Bridges Minister Obaidul Quader (has) said that the main goal of the ruling Awami League is to work for the welfare of the toiling people of the country.” He said that the Awami League aimed to work for the farmers and workers, and mentioned that the party had increased the salaries of both garment sector workers and tea workers, and generally improved the living standards of people since coming to power. He also stated that they were working towards ensuring people’s right to vote, among other rights, and that the elections which were held earlier this year in January were the fairest elections since 1975. He further said that this was a massive improvement from the time when BNP were in power, accusing them of excluding millions of voters and also creating more than 12 million fake voters to grab power, while also accusing them of making workers’ lives miserable through their policies.
BNP. “BNP Secretary General Mirza Fakhrul Islam Alamgir [has] alleged that an ‘invisible force’, not Awami League, is running the country.” He accused the ruling party of taking away the rights of the people (similar to what the Awami League has accused the BNP of – see above). He also said that the Awami League had destroyed various important public institutions such as the police and law system through politicizing them. He also alleged that anyone who was not an Awami League supporter were struggling to get jobs or avail themselves of public services. He further said that even ruling party members have to give money in the form of bribes to get government jobs, even at the lower levels such as those of a peon (messenger). He accused the government of holding dummy elections earlier this year and of not giving any consideration to the needs of the people in the country.
GDP Growth. Bangladesh has registered a 5.82% GDP growth rate in this current fiscal year so far (FY 2023-24), up from 5.78% in the previous fiscal year, signaling a small growth, according to data from the Bangladesh Bureau of Statistics (BBS). The service sector grew by 5.8% in the current fiscal year, while the industrial sector grew by 6.66% over the same period. However, one has to be careful about the figures because even though the industrial sector shows greater growth, it should be noted that the sector’s growth rate was in fact the lowest it has been since the Covid-19 period. The government bureau’s growth statistics are very much in line with the projections for the current fiscal year made by international organizations such as the IMF, which has revised their estimates down to 5.7%, and the World Bank, whose estimate is 5.6%. According to the BBS, Bangladesh’s GDP is currently USD 459 billion, meaning a slight increase in per capita GDP to USD 2,784, up from USD 2,749 a year earlier.
Banking. Bangladesh Bank has stopped regulating lending rates for banks, giving banks the authority to set their own lending rates based on supply and demand. The central bank has taken this step as part of its efforts to make banks move to a market-based interest rate. The central bank said that in addition to supply and demand, the banks can also set interest rates based on the banker-customer relationship. Bankers have stated that this decision may favor larger banks who are more likely to have lower costs of funding compared to weaker banks.
In other banking news, the central bank also stated that banks must recover at least 1% of non-performing loans (NPL) through the Alternate Dispute Mechanism (ADR) mechanism, and has said that they will increase their monitoring in this regard. The central bank said that if a case is in court already, but a verdict has not yet been given, then the parties can settle the case through ADR with the permission of the court.
Separately, the International Monetary Fund (IMF) has expressed concerns over the Bangladesh Bank’s (central bank) effort to merge weaker banks with stronger ones. The World Bank has also raised concerns about the matter, stating that forcing mergers without doing proper due diligence of asset quality might prove to be counterproductive. Worryingly, the merger process has hit snags in Bangladesh’s banking sector, with various banks who had been initially shortlisted to be merged now backtracking on the process, especially in light of worried depositors’ withdrawing of money from their banking accounts causing the central bank to slow down their merger processes. As an example, the board of National Bank, who were supposed to be merged with United Commercial Bank, have already walked back on the merger.
Exports. Bangladesh’s export earnings for April 2024 stood at USD 3.91 billion, a slight decrease of 0.99% year-on-year. This brings the overall export earnings for the current fiscal year (July 2023-April 2024) to USD 47.47 billion, which was a 3.93% rise year-on-year. Growth of ready-made garments, which accounts for around 85% of the country’s exports, grew 4.97% year-on-year to USD 40.49 billion in the current fiscal year so far, while woven garments exports remained the same as last fiscal year. On the other hand, leather and leather products and home textile, among others, registered a fall in shipments compared to last year.
Remittances. Remittance earnings in April 2024 stood at USD 2.04billion, signifying a 21% increase year-on-year. (Note: the figures in the linked article are incorrect. The correct figures are USD 1.99 billion (Dec 23), USD 2.10 billion (Jan 24), USD 2.16 billion (Feb 24), USD 1.99 billion (Mar 24)). The April 2024 figures bring the total remittances earned this fiscal year (July 2023-April 2024) so far to USD 19.11 billion – almost 90% of the way to the total earnings of USD 21.61 billion worth of remittances earned in the entire previous fiscal year. The increase in remittances in April was helped by the fact Eid-ul-Fitr, one of the largest religious festivals for Muslims, fell during this month, resulting in a surge of people sending money back home. Bankers are optimistic that remittances will continue to see good figures, especially in light of another big religious festival coming up in June (Eid-ul-Adha). Positive remittance growth is important, especially in the backdrop of the country’s dwindling foreign exchange reserves, with the country in a struggle to meet the IMF’s net international reserve (NIR) reserve targets that it set for Bangladesh as part of its USD 4.7 billion loan package that it gave to the country to restore Bangladesh’s macroeconomic stability.
Pharmaceuticals. Sun Pharmaceuticals, an Indian pharma giant, has opened a new pharma plant in Bangladesh in the Meghna Industrial Economic Zone. Sun Pharma, which operates in more than 100 countries, is the world’s fourth largest generic pharmaceutical firm. This is Sun Pharma’s second investment in the country, and the plant will have a capacity of more than one billion tablets and capsules per year. The plant will be the first pharma plant in any of the economic zones in Bangladesh. The investment further signifies India’s close relationship with Bangladesh in the health sector, following on from India’s support to the country during the Covid-19 pandemic through its Vaccine Maitri and Oxygen Express trains to Bangladesh, while the latter gifted critical medicines to India. Pranay Verma, the Indian High Commissioner to Bangladesh, also noted that India provides about 30% of Bangladesh’s overall demand for Active Pharmaceutical Ingredients (API).
Nothing significant to report.
The ongoing upazila elections has completed two phases out of four, with two more rounds scheduled over the next scheduled later this month, and early next month. Even though the main opposition, BNP are not competing in the elections, we will monitor the general public’s reactions to the results, given that this is essentially a one-party election. On the economic front, the planned mergers of stronger banks with relatively weaker banks has not gone as smoothly as hoped, not least with the public withdrawing deposits. Rather than force mergers, we suspect that the Central Bank will reluctantly leave it to the discretion of the commercial banks to choose on their own whether they want to merge or not, or scrap the plan altogether. The Central Bank decision to stop regulating the lending rates for banks, and instead leaving it to individual banks, allowing them to set their own lending interest rates based on supply and demand, is also noteworthy. While it allows the market to dictate the rates, which in essence is a good thing, the central bank also said that banks can set the interest rate based on individual customer-banker relationships as well. While in theory this should be fine, it has the potential to increase banking inequality between the rich and the poor and to potentially stymie growth by reducing access to capital. It also increases the risk of unscrupulous practices. Should it work, however, it will be a clear sign of developing maturity in Bangladesh’s banking sector.