Entering LDC status is optional, leaving it is pre-determined

Mustafizur Rahman: When the interim government took over power, our economy was under tremendous pressure. It was a pressure accumulated over the years.

There was high inflation and investments had come to a standstill. Exchange rates witnessed a significant downturn with instigated import inflation. Default loans in the banking sector destroyed the sector's discipline. Depositors faced problems in withdrawing funds. A large chunk of the deposits have been siphoned out of the country. And so the bankers had to charge high interest on the loans they were providing. That had a negative impact on investment. In the meantime, foreign exchange reserves plummeted. Infrastructure construction costs were extremely high. All this created extreme pressure on the economy.

Meanwhile, NBR failed to make any big change in revenue collection. It could not take our tax system from indirect to direct. Even now our indirect taxes are two-thirds. Those in power at the time had no interest in direct taxes. The government was more interested in increasing the tax and VAT burden on the common people.

As a result, our annual development programme depended almost entirely on local and foreign forces. And this has all been passed down to the interim government.

Mustafizur Rahman: Everyone felt there had been a huge change. Everyone thought that the interim government would perhaps very speedily be able to resolve the long accumulated problems of high inflation, unemployment, investment inertia and disparity. But that is not realistic. That was not possible. The government had to take over responsibility under the pressure or public expectations and the pressure of the accumulated problems.

In August, September, October last year, there had been large labour unrest. The supply chain was impaired, economic activities were few. This put pressure on inflation and investments came to a standstill. Employment opportunities were not generated.

These propensities emerged in the first quarter, but the positive fact remains that we are seeing these problems being overcome in the last few months. After falling to the nadir, it seems we have started ascending again.

Remittance is good. Our expatriate workers certainly have a big contribution here. And the interim government has successfully mobilised the expatriates' awareness about the benefits of sending remittance through formal channels, the downside of hundi and hawala and how these illegal channels enable corrupt persons, tax evaders, loan defaulters and politicians to siphon money out of the country. The interim government had managed to create a clean image among the expatriates. And so we see the highest even inflow of remittance.

Despite all the challenges, our exporters have made a 12 per cent growth in exports. The propensity of under-invoicing in the case of exports and over invoicing in the case of imports has lessened. This has brought stability to trade with other countries. That is something significant. Foreign exchange reserves have stabilised, bringing stability to exchange rates and relieving pressure of import inflation.

It has also been possible to relax the tight control on imports. Imports have picked up. Supply of winter vegetables are good. But rice prices are spiralling. We need to import rice in time and have an adequate stock of rice. OMS, family cards have to be increased. Despite a downward turn in inflation, price levels remain high. As a result, the slump in purchase power remains in place. The average rate of inflation remains higher than increase in wages.

The main challenge before the government is boosting investment. But there is still a large challenge here. Due to a contractionary monetary policy, entrepreneurs have to take loans at high interest rates. We are having to raise our gas and electricity costs. The government may reason that they are having to pay for the erroneous policies of the past government, but at the end of the day it is the entrepreneurs and consumers who are having to pay the higher prices.

Mustafizur Rahman: There are two issues here. One is to stop capital flight by allowing our institutions to function independently in the days to come. The second is about how to bring back the money that has already been laundered.

In the report of white paper on the economy, we pointed out that around USD 16 billion was siphoned out of the country during the rule of the Hasina government. This is around 5 per cent of our GDP. Bangladesh Bank has said a large chunk of the default loans have been laundered overseas. Those involved in corruption have also sent their money abroad. An unholy syndicate involved in hundi and hawala and remittance emerged and they smuggled out money from here to Dubai, Singapore, Malaysia, the UK, US and Canada. They kept their money in banks there and bought property and assets.

They created a lot of tiers between the persons who actually sent money from here and the person abroad who actually received the money. They created such a smokescreen that it will be extremely difficult to grasp the paper trail. But we must bring back the money. Recently Angola managed to bring back USD 5 billion. The Philippines and Malaysia have also got their money back. In fact, they have even taken back their money sent to our county from some other country.

Mustafizur Rahman: Bangladesh Bank has formed a task force to bring back the money that has been unlawfully sent out of the country. We see that the Financial Intelligence Unit and the Anti-Corruption Commission working with much enthusiasm to this end. They have sought information from various countries. They have even signed bilateral and multilateral agreements with various countries. They are members of the World Bank's Star programme. These are all good initiatives.

However, we need to resort to companies that specialise in forensic investigation. We need to allocate funds in the budget for this. Establishing a paper trail for the laundered money is no easy task. We will have to take assistance from those who have expertise in such matters.

Mustafizur Rahman: I think the interim government has moved away from this vacillation. They have cleared that that Bangladesh will graduate out of the LDC status on 24 November 2026. This is positive.

However, we can't deny that our exporters, the RMG sector entrepreneurs in particular, are concerned. Readymade garments make up 85 per cent of our export revenue. And 70 per cent of our export goods get various tariff-free facilities. If we graduate from the LDC status, we will have to enter the UK and EU markets with 11.5 per cent tariff and the Canadian market with 15 per cent tariff. We will have to pay duty to enter the Indian and Chinese markets too. Generally speaking, the tariff on readymade garments is high globally.

Intellectual property is important for our pharmaceutical industry. We still do not have to buy licence patents for our pharmaceutical drugs. We can manufacture the patented drugs. If we emerge from the LDC status, we will not linger enjoy these perks. Our garment sector and pharmaceutical sector industrialists will face global and regional competition. This will usher in huge changes.

It must also be understood that graduating as an LDC country does not depend on us. This is a process. It is optional for a country to enter the Least Developed Country category. Zimbabwe did not take on the LDC status. But leaving the LDC status is not optional. It is more or less predetermined. We have achieved the projected targets for per capita income, human resources indexes, and climate and economic vulnerability.

We have been enjoying the privileges of a least developed country for the past 50 years. As an LDC country we have managed to enjoy the highest amount of tariff-free facilities. That is because many LDC countries do not have the supply capacity.

The fact remains that at a certain level we will inevitably have to emerge from the LDC status. Nepal is preparing to graduate from the LDC status on 23 November 2026. Among the neighbours, Bhutan graduated in 2023. Unless we graduate, we will be bracketed with the war-torn Afghanistan as an LDC is South Asia. This will not be very positive for us.

Mustafizur Rahman: The RMG industry, the drug industry and other sectors must be provided with support so that they can change from their market privilege-dependent competition competence to build up the capacity to face skill and production-dependent competition. We must certainly improve our business environment.

Business expenditure increases as our exporters have to take bank loans at 14 to 15 per cent interest rate, the price of gas escalates at regular intervals, there are delays at the port, etc. They can make up for these additional costs with the zero tariff facilities availed from the markets of various countries. Now of these loose on both ends, they will face huge problems.

If we emerge from the LDC status, we will no longer be able to provide cash incentives to the export-oriented industries here. We will not be able to impose any taxes or VAT in imports that create a gap with local production. We must prepare. We will have to gradually withdraw the case incentives. We will have to improve our efficiency and our business environment. We will have to devise ways to cutting export expenditure.

We will get three additional years of tariff free facilities in the markets of the European Union and Canada. We can hold talks with India on this. Vietnam has free trade agreements with 52 countries. We have not been able to sign any PTA (Preferential Trade Agreement) with anyone other than Bhutan. We must avail such tariff benefits by means of bilateral agreements.

A positive matter is that talks are on with Japan regarding a bilateral trade agreement. We must strongly step this up with other countries too.

Mustafizur Rahman: I won't say it's a matter of gaining or losing.  LDC graduation will put a lot of pressure on export. The entrepreneurs will face challenges. The World Trade Organisation figures of 2020 show that Bangladesh will face 85 per cent pressure than the pressure in 12 countries leaving the LDC status. The challenges are much higher.

The biggest area of gain is this gives us scope to change the branding of our country. Starting from December 1975, we have been an LDC for 50 years. Graduation will be a sign of success. Bangladesh is among very few countries which have achieved success in all three indicators.

In our White Paper we said much of our indicators have been inflated, but even if we take that into account, we have much surplus in these three indicators. It is not that these are the achievements of the governments alone. Our common people, the entrepreneurs, NGOs, the private sector, everyone has huge contribution. So this is a recognition for all of us. This achievement will be a positive factor for us in the matter of credit rating of sovereign bonds.

This will also give us advantage in attracting FDI. We tell our investors that we are a developing country, our economy is vibrant, we have a large domestic demand. That will be a big attraction for them. Even if we have a 10 per cent middle class here, that means a market five times bigger than Singapore.