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Policy Research Centre.bd & NAPSIPAG Meeting Minutes- October 26, 2019
August 12 2020

Policy Research Centre.bd & NAPSIPAG Meeting Minutes- October 26, 2019

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Policy Research Centre.bd & NAPSIPAG
Minutes of the Meeting
Place: The Café Rio (Seminar Hall)
Date: Saturday October 26, 2019, Time: 11:00 A.M


Monthly meeting of Policy Research Centre.bd (PRC.bd) was held on Saturday (11:00 A.M), October 26, 2019 at the seminar hall of The Café-Rio, Dhanmondi, Dhaka. The meeting was chaired by Prof. Dr. Shamsur Rahman (Senior Advisor, PRC.bd). The meeting was attended by a group of research experts, academicians, civil servants and ex-army personnel to discuss current activities of Policy Research Centre.bd (PRC.bd), Bangladesh and future strategies to be followed to activate the organization. The following members were present:

1. Prof. Dr. Akbaruddin Ahmad, Chairman
2. Dr. Mahfuzul Haque, CEO
3. Dr. Shamsur Rahman, Senior Advisor
4. Colonel Zillur Rahman Mohd Ashraf Uddin, Advisor
5. Dr. Nilufer Hye Karim, Senior Research Fellow
6. Prof. M. Rashidul Islam, Research Fellow
7. Prof. Md. Abdus Salam, Research Fellow
8. Dr. M. Shah Alam, Member
9. S. M. Baker, Treasurer
10. Khan Abdus Salam, Member
11. Mujtoba Ahmed Murshed, Director (Research & Media)
12. Md. Ataur Rahman, Member
13. Nur Mohammad Khan (Ph.D Fellow), Associate Researcher
14. Md. Abdul Latif Mahmud, M.Phil (Research Fellow), Associate Researcher
15. Mr. Touhid Alam, Executive Secretary & Research Associate

The meeting started with the recitation from the Holy Quran and Dua. After discussion, some of the points raised are as follows:

SAARC has been a non-functional organization. Moreover, BIMSTEC activities are also slowing down. Another initiative, namely Bangladesh Bhutan India Nepal (BBIN) Sub-regional Cooperation, promoted by India with assistance of some development partners is in progress. The initiative is looking at collaboration in the field of road connectivity, energy, hydro-power, environment and climate change.

• Collaboration with Chinese Universities/Institutions: Chinese government is keen to promote Belt and Road Initiative (BRI) with around 152 countries of the world involving infrastructure development and investments. PRC.bd could explore collaboration with Chinese universities and some strategic institutes. In this regard, Shanghai Institute of International Studies (SIIS) could be contacted. Chairman, PRC.bd is expected to attend the 3rd Global Conference on International Network of Disaster Studies (INDS) to be held at Shanghai, China on 21-23 July 2020.He could find an opportunity to visit the Institute.
• Collaboration with Japanese Universities/Institutions: PRC.bd could establish contact with Iwate University at Morioka, Japan while attending the 2nd Global Conference on International Network of Disaster Studies (INDS) in 2017. Hopefully the forthcoming 2020 conference at Shanghai would be another opportunity to rejuvenate our earlier contact.
• Collaboration with Indian Universities/Institutions: Through Network of Asia-Pacific Schools and Institutes of Public Administration and Governance (NAPSIPAG), PRC.bd has been in the fore front developing connections with Indian and Sri Lankan Universities. PRC.bd had the privilege to host the 11th conference in 2014 in Bangladesh. In this regard, Special Centre for Disaster Reduction (SCDR) at JNU has been a pioneer. It is expected the forthcoming Global Symposium on “Disaster Resilient Smart Cities” at SCDR, JNU, 4-6 December 2019 would be another opportunity for the PRC.bd delegates to revitalize the contacts. It could be mentioned here that by now a good number of books published by noted publishers like Springer, Routledge, Francis and Taylor have been jointly edited by PRC.bd members. On tourism sector, the International Conference on “Responsible Tourism Practices in India: Issues and Challenges” organized by the University of Pondicherry, Poducherry, India on 7-9 December 2019 would enable the PRC.bd delegation to open another window of collaboration with the regional universities.
We have very recently started joining Psychological Association of Asia Pacific countries. Couples of such conferences are to take place in Gujrat and Colombo in November and December 2019.
• Sectoral Issues: There were discussions on various sectoral issues. The participants observed that instead of trying all issues, perhaps, it would be wise to put emphasis on some of the issues. There was emphasis on agriculture, education, disaster risk reduction, environment and climate change. Participants observed that a small group may work on this issue to identify focus of this organization.
• Achievements and Failures: There are many achievements as well as failures. The Organization could not generate a stable fund in order to make it a self-sustaining one. The meeting thanked Prof Akbar Ahmad for generating required funds single-handed, in order to continue activities of this organization. Many studies, publications took place by PRC.bd. So far the recommendations could not be implemented because of lack of ownership of the government. Linking policy recommendations into action has been a gray area all along. The Finance World has been irregular. Everybody observed that the newspaper should commence publication soon.
• Future follow-up actions: It was agreed upon that efforts would be made to meet regularly once a month.


The meeting ended with a vote of thanks from the chair.

Approved by:


Prof. Dr. Akbaruddin Ahmad
Chairman, PRC.bd & NAPSIPAG (Admn)

IMG-20200204-WA0018
February 5 2020

School Psychology Seminar by PRC.BD

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School Psychology Seminar by PRC.BD
Ashraf Al Deen

It was a two day long Seminar on “School Psychology for Quality Citizen”, jointly organised by Policy Research Center.bd (PRCbd) and Bangladesh School Psychology Society (BSPS) on 30th and 31st January 2020. The destination was the Royal Resort, Dhanbari, Tangail, Bangladesh. The target groups were the Students, Teachers and Guardians of ‘Asiya Hasan Ali Girls Degree College’, ‘Nawab Institution’ and ‘Sakina Memorial Girls’ High School’ of Dhanbari. All these three institutions were established under the auspices of Dhanbari Nawab and his descendants. We are proud to hold the first program of our ‘School Psychology Project’ remaining connected with the legacy of the highly regarded Educationist of that time, Nawab Syed Nawab Ali Chaudhary of Dhanbari, who was one of the two founders of the Dhaka University (DU).

Journey
On 29th January 2020, we, a team of 47 members from PRC.bd and Department of Psychology of Dhaka University (DU), started in the morning from Dhaka for Dhanbari, Tangail. The communication was good and we enjoyed the journey. We were accommodated in the Royal Resort of Dhanbari by the kind courtesy of the Chairman, PRC.bd Prof. Dr. Akbaruddin Ahmed, who is also the Chairman of the Royal Resort. We had free-time after the welcome lunch. The evening was spent in sightseeing, going around and wonderful Kawali songs after the dinner. During our entire period of stay we cherished the food of sumptuous menu offered by the Royal Resort. It may be mentioned here that, a special kind of local product named as ‘Tangail Saree’ attracts the female visitors the most.

Thursday, The 30th January
It was a day long program with breaks for Tea and Luncheon, starting at 9:00 a.m. in the morning and finishing at 4:30 p.m. in the evening. The opening session, chaired by Professor Dr. Mahfuza Khanam, Chairperson, Department of Psychology, DU, started after some delay at the specious auditorium of Asiya Hasan Ali Girls’ Degree College. Welcome address was delivered by the Principle/Headmaster of the 3 host institutions. The session was addressed by the Education Officer of the Dhanbari Upazila, Professor Dr. Md. Kamal Uddin, Department of Psychology, DU and President, Bangladesh School Psychology Society, Dr. Mahfuzul Haque, CEO,PRC.bd, Dr. Nilufer Karim, Senior Research Fellow, PRC.bd, Colonel Ashraf Al Deen, Ex. Principal and Advisor, PRC.bd and Nur Mohammad Khan, Assistant Professor, Primeasia University and finally the Chief Guest Professor Dr. Akbaruddin Ahmed, Vice-chancellor (retd), Darul Ihsan University. Ms. Jakia Rahman, Lecturer, Department of Psychology, DU was the moderator.

After the Tea Break a combined session started with Dr. Mahfuzul Haque as the Session Chair. The paper presenters were Colonel Ashraf Al Deen on “Education in Bangladesh”, Nur Muhammad Khan on “Psychological Aspects of Second Language Learners”, Dr. Md. Kamal Uddin on “School Psychology for Quality Citizen” and Ms. Jakia Rahman on “Non-violent Communication”. The session ended with an interesting interaction and question-answer time.

After the Lunch Break the program resumed at 2:00 p.m. There were three parallel sessions in three different venues. A session for the Students at Nawab Institution. The presenter was Aminul Islam, MS in School Psychology (SP). Subject: “Effective Strategies for Learning”. The session chair was Dr. Mahfuza Khanam. A session for the Teachers at Sakina Memorial Girls’ High School. The presenter was Mahin Sultana, MS in SP. Subject: “Art and Science of Teaching”. The session chair was Ms. Ishrat Shahnaz, Assistant Professor, Department of Psychology, DU. The session for the Parents was in the auditorium of Asiya Hasan Ali Girls Degree College. The presenters were Principal Ashraf Al Deen and Abu Bakar Siddique, MS in SP. Subject: “Effective Parenting”. The session chair was Dr. Nilufer Karim.
Again, at 2:50 p.m. a combined session started at the auditorium, chaired by Dr. Akbaruddin Ahmed. The presenters were Farjana Khanam, MS on SP, on “Raising a Resilient Child: The Role of Teachers and Community”; Jarin Tasnim Diba & Jannatul Adon, MS on SP, on “Bullying: It’s Prevention and Intervention”. Tazbina Zaman & Jannatul Adon, MS on SP, on “Psychological First Aid”. The response was very good during questions and answers time. Some of the ordinances were very enthusiastic and forthcoming.
Friday, The 31st January
It was half day program and closing ceremony. A combined session started at 9:00 a.m. in the auditorium of Degree College. Session Chair was Dr. Md. Kamal Uddin. Sanjida Kabir Jui, MS on SP, presented on “Coping with Stress”. Parallel Sessions started at 10:00 a.m. Session for the Students at Nawab Institution, where Adnin Jabin Eme, MS in SP, DU, presented on “Overcoming Exam Anxiety”. The session chair was Nur Mohammad Khan. Session for the Teachers was at Sakina Memorial Girls’ High School, where Toslim Uddin, MS in SP, presented on “Classroom Management”. The session chair was Colonel Ashraf Al Deen. The session for the Parents was in the auditorium of Asiya Hasan Ali Girls Degree College, where Mahin Sultana, MS in SP, presented on “Social Emotional Learning”. The session chair was Dr. Nilufer Karim.
After the Tea Break the Concluding Session started at 11:00 a.m. at the auditorium. On both days two separate teams were working on Assessment and Rapporteuring. A summary of those was presented by Ms. Jakia Rahman. Then there was interactive period for the audience composed of Teachers, Students and Parents. Their reactions, remarks, comments and suggestions were received with appropriate response. It was found that, as a positive result of this 2-day program the participants have developed enough interest and respect for various aspects of School Psychology. We had to promise them to come back again to include a larger audience and spare more time. On the other hand, the Assessment Report shows that there are alarming number of cases in respect of the mental health and other Psychological issues of the students. This demands that enough time should be given to take care of them, before they are into greater harms.

Finally, certificates were distributed among the participants, paper presenters & session chairs and crests were presented to the host institutions and organizers.

September 21 2019

Banking Sector Challenges

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Banking Sector Challenges

by Prof. Dr. Akbaruddin Ahmad

 Introduction: Modern banks play a pivotal role in promoting economic advancement of a country. Banks provide necessary funds for executing various programs underway in the process of economic development. They collect savings of large masses of people scattered throughout the country, which in the absence of banks would have remained idle and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the requirements. Economy of Bangladesh is in the group of world’s most underdeveloped economies. One of the vital reasons is probably its poor banking system. Government as well as different international organizations have also identified that underdeveloped banking causes some costly obstacles on the way of even economic progress of the country. Investors are frequently scared to invest because of its sluggish banking system. Hence the task of making the banking system of Bangladesh of international standard deserves the highest priority. The traditional banking system dominates Bangladesh’s financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system is composed of four state-owned commercial banks, five specialized development banks, thirty private commercial Banks and ten foreign commercial banks. The Nobel-prize winning Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh. The features of traditional banking system in Bangladesh are as follows: Traditional Product & Services : In Bangladesh, the Banking system uses various instruments for making payment and transactions, such as cash, cheque, bill of exchange, promissory note, demand draft, payment order and other services including mail transfer and telegraphic transfer, letter of credit etc. Loan Products that are given for economic purposes: Consumer Loan, Micro Credit, Terms Lending i.e. Project and Infrastructure, Housing Loan, Cash Credit and Overdraft etc. In addition to this, SME lending are also been given much priorities. Technology: Modern and innovative technology given products, popularly known as plastic money, Debit, Credit and other ATM Cards. Currently, Banks are also giving emphasis on improving their transaction capabilities through ATM, POS (Point of Sale), Online, Internet, Tele-banking, SWIFT and Reuter. Islamic Banks: Islamic banks have been operating in Bangladesh for about one and half decade alongside with the traditional banks. Out of over 39 banks only five banks (including one foreign A C i v i l S o c i e t y T h i n k T a n k 2 Islamic bank) and two Islamic banking branches of a traditional bank, Prime Bank Limited (PBL) have been working on Islamic principles. Like any other traditional commercial banks, they do mobilize deposits and produce loans. But their modes of operation, based on shariah, is different from the other traditional commercial banks. Islamic banks, with a view to facing the growing competition either follow-Islamic banks or the conventional banks which have launched Islamic banking practices, will have to adapt their functioning in line with modern business practices, through improvement and expansion of the range of dealing in the banking sector. Thus, it is necessary for them to provide comprehensive banking and investment services to clients and simultaneously to take advantage of modern technological breakthroughs in areas such as electronic communication, computerization etc. FSAC: Financial sector reform started in an intensive way in the beginning of the 1990s under the Financial Sector Adjustment Credit (FSAC) which Bangladesh contracted with the World Bank. In order to address the issue of increase in efficiency, the FSAC of the World Bank in 1990 determined the following objectives for the financial sector reform programme. • Gradual deregulations of the interest rate structure with a view to improving the allocative efficiency; • Providing market oriented incentives for priority sector lending; • Making subsidies in the priority sectors more transparent; • Adoption of appropriate monetary policy; • Improvement in debt recovery environment; and • Strengthening of the capital markets. FSRP & BRC: Though the Financial Sector Reform Programme (FSRP) ended in mid-1990s, yet the reform measures were continued to be pursued. After the expiry of FSRP in 1996, the Government of Bangladesh (GOB) formed a Bank Reform Committee (BRC), which submitted its recommendations in 1999. While the then government partially acted on some of the recommendations of the BRC, a large part of them remain unaddressed. FSRP forced banks have minimum capital adequacy, improve loan classification system, enhance operating efficiency of banks, implement modern accounting system and establish “Credit Information Bureau” (CIB) at Bangladesh Bank. FSRP project provided major automation program by installing mid range computer system at the 4 NCB head offices and the Bangladesh Bank. FSRP also undertake training of bank officials at home and abroad. It also provided training for BB officials to strengthen the central bank inspection and monitoring system. Impact of Global Recession: In order to minimize the potentially negative impact of global recession, the banking system has to adopt a number of measures. These are briefly noted below: A C i v i l S o c i e t y T h i n k T a n k 3 (i) The banks should make determined efforts to increase income. They can do so by diversifying their asset base. In this context, they should consider expansion of loan to the un-banked or under banked sectors such as agriculture, small and medium industries and small scale domestic traders. (ii) With a view to diversifying asset base, the banks must depart from the traditional practice of collateralbased lending. They should aggressively seek out new borrowers with high income potentials and viable project proposals. (iii) Banks should also consider offering new products such as swaps, options and derivative products. However, they must make sure that they do not assume unsustainable risk from such operations. The Central Bank needs to issue guidelines in this regard. (iv) All out efforts should be made to recover non-performing loans (NPL). It is understood that the stateowned banks have been able to reduce their NPL to total loan ratio, but mostly by rescheduling rather than cash recovery. On the other hand, NPL ratios of the privately owned banks have recently gone up. (v) In order to increase profitability, the banks need to focus on the volume of business and total profit, not per unit profit. This implies that they should reduce the prevailing high spread between deposit and lending rate, particularly by reducing the lending rate. Some progress has been achieved in this respect, but not enough. Moreover, the banks have considerably reduced deposit rates. This poses the risk that depositors will shift into non-bank assets such as stocks, real estate etc. The price increases of these assets suggest some movement in this direction. (vi) The banks should also look at their expenditure side to improve income-expenditure ratios. In particular, salaries and perks of employees and directors and ostentatious expenses on branch decorations should be reduced. (vii) Finally, banks should strengthen their risk management and early warning systems so that they are not caught off-guard by developments in the real economy. ICT: Due to incredible proliferation of Information and communication technology (ICT) the concept of money has been radically changed. Different kinds of business sectors have been merged in a single that can be accessible in a global way and that has been possible just for the proliferation of ICT. So the business takes a new name Electronic business or E-business, which has dispelled the geographical bar among countries. ICT has influenced every sectors of business. The financial institutions are now compelled to be involved in ICT to cope with the changes in the modern business trend. As a third-world developing country, Bangladesh is far behind to reach the expected level in global banking system. So it is our urgent need to upgrade its banking system. E-Banking: Electronic banking as a segment of electronic business, which, in turn, encompasses all types of business performed through electronic networks. The terms ‘PC banking’, ‘online banking’, ‘Internet banking’, ‘Telephone banking’ or ‘mobile banking’ refer to a number of ways in which customers can access their banks without having to be physically present at the bank branch. E- A C i v i l S o c i e t y T h i n k T a n k 4 banking may be understood as term that covers all these ways of banking business electronically. Bangladesh is still lagging behind to avail the opportunity of e-business. However, banking sector as a whole has been introducing online banking system which plays complementary role to spread of e-business. Internet has opened a new horizon of e-business, creating immense opportunities for marketing products as well as managing organizations banking internationally. Gradually wireless Internet system has been creating a new paradigm and electronic fund transfer can have a suitable formation. E-business can improve the quality of the services, save customers valuable time, movement from one place to another and receiving the goods accurately. E-Business: E-business brings a new channel of distribution process. But this leads to change in the regulatory issues, cross border trade through emerging new marketing distribution channel. This reduces transaction time, boundary less trade, and accuracy. In developed nations, e-business creates an opportunity to directly selling of the product to the customer without using any intermediaries. Governments as well as different international organizations have also identified that underdeveloped banking technology creates hindrance on economic progress of the country. Mobile Banking: Mobile phone use in Bangladesh is not a luxury now. Almost half of the country’s 160 million population uses mobile phones, but very few have bank accounts. Banks should concentrate on how the big population could be brought under the banking services via their mobile handsets. It is the bank’s responsibility to identify, contract, educate, equip and monitor activities of the agents regularly. There must be a clear, well documented agent selection policy and procedures. The agreement signed between the banks and the agents will primarily include business hours of the cash points/agents, standard of performance, fees permissible by Bangladesh Bank, customer service, dispute resolution procedure and proper signage. Anti-money laundering and terrorist financing: Anti-money laundering and terrorist financing are the two major areas of risks in mobile banking. Banks and its partners shall have to comply with the prevailing anti-money laundering/combating the financing of terrorism related laws, regulations and guidelines issued by the BB from time to time. Liquidity Crunch: The country’s financial sector has been facing severe liquidity crunch, unhealthy competition for deposit collection and lack of efficient human resources. Nine new banks approved by BB will add new challenges for our economy. However, the central bank explained the economic context and rationale behind issuing new bank licences. The economy has grown and the banking system has become more competitive while 45 per cent of the population still remains unbanked in Bangladesh. Moreover, BB expects that the entrance of the new banks will add to the aggregate capital base of the existing syndications, allowing for larger loans to be granted for productive investment and job-creation. But the economic reasons propounded by Bangladesh A C i v i l S o c i e t y T h i n k T a n k 5 Bank for licensing new banks are not cogent enough because the country is facing a downturn as a result of second round effect of global recession. Moreover, in a situation of stagnation, the banking sector is now suffering from deposit shortage and investment fallout. New banks mean paid up capital amounting Tk 36 billion and money to be deposited in those banks would be withdrawn from existing banks. This may lead to further deteriorations of the stringent situation prevailing in the banking sector. There is a weak relationship between bank rate and market interest rates because of the fragmentation characterising the financial market in Bangladesh. The Spread: With a reserve requirement of 20 percent, the spread between lending and deposit rate should be around 2 percent. However, throughout the 1990s, the spread was almost 7, if not more. Though the magnitude of non-performing asset (NPA) is largely responsible, yet it cannot fully explain the high interest rate spread prevailing in Bangladesh. In addition to high NPA, collusive behaviour and misconceived price strategy, high operational costs and over staffing (of NCBs) are also responsible for high interest spread. On the other hand, NCBs account for 75 percent of total classified loan of the commercial banking sector. Moreover, their operational and overhead costs are also high as compared to PCBs and FCBs. Non-Performing Assets (NPA): It is imperative to reduce the NPA level and operating costs of the NCBs in order to bring down lending rates in a sustainable manner. The share of the PCBs in total lending is around 27 percent, and along with the FCBs it is around 33 percent. The rest of the lending market share (67 percent) belongs to state-owned banks. Conclusion: It must be remembered that in the absence of a reasonably well functioning financial system in the country, all other policy overtures (e.g. fiscal incentives) provided by the government for investment promotion will be of marginal value. So financial sector reform should occupy the foremost position. It is expected that during the period leading to the announcement of next national budget, the government will find it advisable to implement a number of measures to reform the banking sector. (The writer is the Chairman, Policy Research Centre Bangladesh (PRC-BD) & Vice Chancellor, Darul Ihsan University)

August 9 2018

Banking in Bangladesh “Prospects and Challenges”

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Banking in Bangladesh “Prospects and Challenges”

 (Round Table Conference held at CIRDAP Hall dated June 09, 2012)

Organized by: Policy Research Centre (PRC-BD)

Addressed By: Prof. Dr. M. Monwar Hossain,

Director – PRC-BD

Introduction and Historical Background After the independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country and named it Bangladesh Bank. This reorganization was done pursuant to Bangladesh Bank Order, 1972 and the Bangladesh Bank came into existence with retrospective effect from December 16, 1971. In 1972 the government decided to nationalize all banks in order to channel funds to the public sector and to prioritize credit to those sectors that sought to reconstruct the war-torn country – mainly industries and agricultural sectors. However, government control at the wrong sectors prevented these banks from functioning well. This was compounded by the fact that loans were handed out to the public sector without commercial considerations, that banks had poor capital lease, provided poor customer services and didn’t have any market-based monetary instruments. But mostly, because loans were given out without commercial sense, and because they took a long time to call a loan non-performing, and once they did so, recovery under the erstwhile judicial system was so abjectly expensive and their loan recovery was extremely poor. While the government made a point of intervening everywhere, it did not set up a proper regulatory system that would diagnose such problems and correct them. Hence, banking concepts like profitability and liquidity was alien to bank managers, and capital adequacy took backseat. In 1982, the first reform program was initiated, where the government denationalized two of the six nationalized commercial banks and permitted local private banks to create competition in the banking sector. In 1986, a National Commission on Money, Banking and Credit was appointed to recover the problems of the banking sector and a number of steps were taken for the recovery targets for the nationalized commercial banks and development financial institutions and prohibiting defaulters from getting new loans, yet, the efficiency of the banking sectors could not be improved. The Financial Sector Adjustment Credit (FSAC) and Financial Sector Reform Programme (FSRP) were formed in 1990, upon contracts with the World Bank with the objective to remove government distortions and lessen the financial repression. The policies made use of the McKinnon-Shaw hypothesis which stated that removing distortions will augment efficiency in the credit market and increase competition. The policies therefore involved banks to provide loans on commercial basis, enhance banks’ efficiency and to limit government control to the monetary policy only. FSRP forced banks to have a minimum capital adequacy, to systematically classify loans and to implement modern accounting systems and computerized systems. It forced the central bank to free up interest rates, revise financial laws, and to increase supervision in the credit market. The government also developed the capital market, which too was performing poorly. However, FSRP was expired in 1996 and afterward the Government of Bangladesh formed a Bank Reform Committee (BRC) whose recommendations were largely remained unaddressed by the then government. Structure of Banks in Bangladesh The commercial banking system dominates Bangladesh’s financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system is composed of four state-owned commercial banks, five specialized development banks, thirty private commercial Banks and nine foreign commercial banks. The Nobel-prize winning Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh. Bangladesh Bank As already stated, pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country and named it Bangladesh Bank with retrospective effect from 16 December 1971. State-owned Commercial Banks The banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks in which 3 are totally controlled by government and 1 (Rupali Bank) bank is controlled by both government and private sector which together controlled more than 54% of deposits and operated 3388 branches (54% of the total) as of December 31, 2004. The nationalized commercial banks are: Nationalized Commercial Bank of Bangladesh: · Sonali Bank · Agrani Bank · Rupali Bank · Janata Bank Private Commercial Banks Private Banks are the highest growth sector due to the dismal performances of government banks. They tend to offer better service and products. Now 30 private commercial banks are operating in Bangladesh. List of Private Banks · United Commercial Bank Limited · Mutual Trust Bank Limited · BRAC Bank Limited · Eastern Bank Limited · Dutch Bangla Bank Limited · Dhaka Bank Limited · Islami Bank Bangladesh Ltd · Uttara Bank Limited · Pubali Bank Limited · IFIC Bank Limited · National Bank Limited · The City Bank Limited · NCC Bank Limited · Mercantile Bank Limited · Prime Bank Limited · Southeast Bank Limited · Al-ArafahIslami Bank Limited · Social Islami Bank Limited · Standard Bank Limited · One Bank Limited · Exim Bank Limited · Bangladesh Commerce Bank Limited · First Security Islami Bank Limited · The Premier Bank Limited · Bank Asia Limited · Trust Bank Limited · ShahjalalIslami Bank Limited · Jamuna Bank Limited · ICB Islamic Bank · AB Bank Foreign Commercial Banks 10 Foreign Commercial Banks are operating in Bangladesh. These are : · Citibank · HSBC · Standard Chartered Bank · Commercial Bank of Ceylon · State Bank of India · Habib Bank Limited · National Bank of Pakistan · Woori Bank · Bank Alfalah · ICICI Bank Specialized Development Banks Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank- only for the development of the agriculture of the north bengal of Bangladesh) were created to meet the credit needs of the agricultural sector while the other two (Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) were created for extending term loans to the industrial sector. The Specialized banks are: · Karmasangsthan Bank · Bangladesh Krishi Bank · Rajshahi Krishi Unnayan Bank · Progoti Co-operative Land mortgage Bank Limited (Progoti BanK) · Grameen Bank · Bangladesh Development Bank Ltd · Bangladesh Somobay Bank Limited(Cooperative Bank) · Ansar VDP Unnayan Bank · BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) · The Dhaka Mercantile Co-operative Bank Limited (DMCBL) New Banks The Government has recently approved new private banks on political consideration. First three private NRB (NonResident Bangladeshi) banks were approved and then six more banks have been approved. The promoters of all these banks are either leaders of the ruling party or are closely related to them. The six new banks are Union Bank, Midland Bank, Modhumati Bank, South Bangla Agricultural and Commerce Bank and Meghna Bank. The Governor of Bangladesh Bank, the central Bank of the country, has said that the new banks got approval on condition that they will have to go for operation by the end of this year. Each of the new banks will have to deposit a paid up capital of Tk. 400 crore in the Bangladesh Bank. The paid up capital must be white. Each of them will have to open branches outside Dhaka. Setting up of their branches outside Dhaka will be encouraged. At the moment there are 47 banks in the country. Of those 30 are private banks. With the additional nine banks there will be 56 banks in Bangladesh in total. Prospects and Challenges of Banking Sector Recently Bangladesh Bank approved nine new banks in addition to the existing 47 in Bangladesh. This approval created ambivalent reaction in many corners of the society. Some called it a bane to our economy while other justified it as an apt decision. The country’s financial sector has been facing severe problems such as liquidity crisis, unhealthy competition for deposit collection and lack of efficient human resources for the last one year. Thus it is safely assumed that these nine new banks will add new challenges for our economy. However, the central bank explained the economic context and rationale behind issuing new bank licenses. The economy has grown and the banking system has become more competitive while 45 per cent of the population still remains unbanked in Bangladesh. Moreover, BB expects that the entrance of the new banks will add to the aggregate capital base of the existing syndications, allowing for larger loans to be granted for productive investment and job-creation. But the economic reasons propounded by Bangladesh Bank for licensing new banks are not cogent enough because the country is facing a downturn as a result of second round effect of global recession. Moreover, in a situation of stagflation, the banking sector is now suffering from deposit shortage and investment fallout. New banks mean paid up capital amounting Tk 36 billion and to be deposited in those banks would be withdrawn from existing banks. This may lead to further deteriorations of the stringent situation prevailing in the banking sector. The current challenges facing the banking sector of Bangladesh as well as the measures taken up by GoB to meet the challenges are described below: Bank Rate and Lending Rate In September, 2001 the Bangladesh Bank reduced the bank rate with a view to decreasing the lending rate and, consequently, increase the volume of lending. It has been observed that following the reduction of bank rate, most of the NCBs and the PCBs have reduced their lending rates more or less proportionately. As a result, the actual spread for the banks was supposed to decline. However the actual spread of the NCBs is not expected to decline because of their simultaneous reduction of deposit rates. However, the spread has declined for the PCBs. This is also true for the foreign commercial banks (FCBs). It may be pointed out that there is a weak relationship between bank rate and market interest rates because of the fragmentation characterizing the financial market in Bangladesh. With a reserve requirement of 20 percent, the spread between lending and deposit rate should be around 2 percent. However, throughout the 1990s, the spread was almost 7, if not more. Though the magnitude of non-performing asset (NPA) is largely responsible, yet it cannot fully explain the high interest rate spread prevailing in Bangladesh. In addition to high NPA, collusive behavior and misconceived price strategy, high operational costs and over staffing (of NCBs) are also responsible for high interest spread. On the other hand, NCBs account for 75 percent of total classified loan of the commercial banking sector. Moreover, their operational and overhead costs are also high as compared to PCBs and FCBs. Under the circumstances, it is imperative to reduce the NPA level and operating costs of the NCBs in order to bring down lending rates in a sustainable manner. The share of the PCBs in total lending is around 27 percent, and along with the FCBs it is around 33 percent. The rest of the lending market share (67 percent) belongs to state-owned banks. It is observed that the net interest spread on the part of the FCBs is very high (as compared to local banks). Although, the high interest spread by the FCBs is usually justified by their efficient and quality customer services. The FCBs have therefore, been asked to reduce the interest spread (by reducing lending rate), which they can accommodate because of their very low NPA. It is expected that the lowering of lending price by the FCBs would force other market participants (NCBs and PCBs) to reduce their lending rates, if they want to survive the competition. This may not happen given the very small market share (6%) of the FCBs. Having such a small share, the FCBs cannot play the role determined in the market, the FCBs are accepting it. Therefore, if the objective is to reduce high interest spread of FCBs, then high lending rates of NCBs (because of high NPA, operational costs etc.) need to be reduced. In that case, the FCBs will be forced to follow the low lending rates of NCBs. Otherwise, within a market framework, administering a lower interest rate on FCBs will not be sustainable, rather will create distortions in the lending market. Moreover, given the customer structure of the FCBs, the beneficiaries of lowering of interest rate will only be a select group of multinationals and big local customers. In fine, the bank rate driven lending rate reduction approach is going to have very limited results. Classified Loan and Large Loan The Bangladesh Bank revised the “Large Loan Rules” with respect to classified loan of the banks in January 2002. The rule prescribes that the banks with net classified loan of up to five per cent will be allowed to sanction a maximum of 56 percent of the total loan and advances as “large loans”. Earlier, with a comparable classified loan (

<5 percent), a bank could lend up to 80 percent to large loan category. The banks with net classified loans between five percent and ten percent can now lend 52 percent of their portfolio as large loans against the previous allowable limit of 70 percent. The banks with net classified loans between 10 and 15 percent can lend up to 48 percent as against the previous 60 percent of their portfolio. For the next slot of up to 20 percent, the allowable large loan is 44 percent instead of the previous 50 percent. Surprisingly, the worst-performing slot with over 20 percent net classified loans does not suffer because of the new policy. They retained their current 40 percent loan limit. This has given rise to the apprehension that the new rule will effectively restrict the lending growth of the banks. While the good banks with low classified loans have been punished, the worst performer has been left untouched by the new rule. Although the concerned circular does not provide a definition of “large loan”, it is generally understood that a large loan deal with an amount above Taka 10 million. The term “narrow bank” refers to a bank which only invests deposits in highly marketable liquid assets such as treasury bills. The Bangladesh Bank has also directed the commercial banks to reduce their amount of large loans to fit into the new slab. According to the existing rules, banks have to seek permission of the central bank for approval for any loan exceeding 15 percent of their capital. The new rule is expected to contain the credit risks of a bank within a reasonable range, prohibit the tendency of concentrating bank resources in a few hands and encourage a bank to give loans to small and medium sized projects (SMEs) for diversified industrial development. Though from the point of view of limiting the credit risk exposures of the banks having a higher level of classified loan, the new rule is justified. However, to consider large loans as risky loans (by the new rule) is not reasonable. Moreover, for the matter of increasing the volume of lending to the SME sector, this sort of supply-side policy is not adequate. As various studies have indicated that for efficient resource allocation to productive sectors (e.g. SME and agriculture), the demandside problems such as collateral requirement, procedural complexity, high sunk cost, inability to fulfill loan conditions, etc. must be adequately addressed in the reform programme. In fact, under both directed lending (before 1990) and deregulated lending (after 1990) regimes, the demand-side factors were not considered, consequently resource allocation suffered. The new Large Loan Rules of the Bangladesh Bank seems to be similar to what we call “narrow banking”2, which has been suggested as a solution to the problems of high non-performing assets. While, on the one hand, the long-term measures aimed at improving the viability of problem banks (having a high level of NPAs) should be initiated, as an interim measure to arrest any further deterioration in asset quality such banks could be placed under narrow banking regime. This would imply restricting the incremental resources of these institutions only to investments in high quality marketable securities of nominal risk with matching maturity and liquidity needs of their deposit liabilities. From the above point of view, the Bangladesh Bank’s rules linking between NPA and size of loans is not appropriately designed as the large loans are mostly illiquid. It is also to be mentioned that the narrow banking only addresses the issue of increment; it does not tackle the problem of “overhang” (i.e. advances which have already become NPA) Loss Incurring Branches of NCBs and DFIs For the matter of running the banks on commercial basis, the concerned authorities have decided to merge/rationalise continuously loss incurring branches of the NCBs and the DFIs. It has been decided that the branches which are incurring losses continuously for the last five years and having no potentiality of becoming profitable in future, will be merged with another nearby branch. At this moment, there are 806 branches (of the NCBs and DFIs) which are incurring losses continuously for the last five years. The merger/rationalization programme of the loss incurring branches will be conducted at three phases. However, it has also been decided to keep at least one branch within five kilometer radius of the present branch location, giving preference to intra-bank merging, and in case of interbank merging – BKB and RAKUB should be preferred. Importantly, the surplus manpower of the merged branches would be absorbed in other branches of the same bank. It is estimated that around 200 branches cannot be merged because of non-existence of any other branch within five kilometer radius. After the successful implementation of the branch rationalization programme, it is expected that at least 500 branches of the NCBs and DFIs would be closed down. From the perspective of improving efficiency and reducing loss, the branch rationalization programme is definitely a step in the right direction. However, this is also true that in a branch banking system, it is not the “profit and loss” of individual branches, rather the aggregate financial viability of a bank which matters most. If profit making is the only criteria for keeping a bank in business, then possibly we need to close down most of the state-owned banks which are effectively in red for the last so many years. Admittedly, the state-owned banks do not operate strictly within the market-based principle given the large set of welfare activities they are induced to pursue. Thus, it is not usually supported that they wind up their business altogether. The position paper on branch rationalization programme indicates that the branches which have been selected for merger have no potent of becoming viable in future. However, it is not clear how the decision that the loss incurring branches (which they are going to merge) will never be viable in future has been arrived at. Was there any attempt to improve the viability of those branches? What was the nature and scope of that effort? Rather, what we have observed that the rural branches (most of which are loss incurring) have not been given appropriate attention since the inception of the First Round (1991) of financial sector reform, which may be considered as one of the reasons for their gradually becoming nonviable. In case of the “problem banks” of the private sector, it has been observed that because of intensive care and control of the central bank, most of them have already graduated from the problem status. In fact, this sort of nursing and care was not taken in case of loss incurring rural branches of the NCBs. As of July, 2001 there were 3612 and 1296 branches of the NCBs and PCBs respectively, the ratio of (PCB and NCB) being 1:2.8. Because of closure of 500 branches, the proportion of branches between PCBs and NCBs would stand at 1:2.4. The merger/rationalization of the identified branches will reduce the financial/branch network of NCBs and DFIs by 10 percent. The CPD Task Force Report (2001) on Financial Sector observed that the proportionate share of rural banking has declined after the adoption of banking reform measures. The share of rural banking is expected to further decline because of closure of 500 loss incurring branches, as most of these are expected to belong to rural areas. The government must have taken into consideration the impact of winding up a significant portion of its financial infrastructure on its other economic objectives. The position paper on branch rationalization also argues that the banking business should run on the basis of commercial viability and guided by sound and prudent policies. No one will contest this proposition, though we know that under different circumstances in the 1970s and 1980s, the NCBs and DFIs were asked to expand branches having total disregard to their commercial viability. Furthermore, even at the time of denationalization of Uttaraand Pubali, the BKB was forced to take over the loss-incurring branches of these two banks. Unfortunately, now the NCBs and DFIs are being blamed for having so many loss incurring branches. It is too often forgotten that efficiency is to be judged in relation to objectives set of management, not in relation to objectives (such as profit maximization) that are believed to be desirable in themselves. What is most interesting that while the branches are being closed down, the surplus manpower is being retained. This is possibly being done to reduce the resistance to the proposed measure. One wonders whether such an approach will at all have any sobering impact on the aggregate financial viability of the concerned banks. It may be recalled that in 1993, another branch rationalization programme of the NCBs was undertaken. To this end a committee was formed headed by a Deputy Governor of the Bangladesh Bank with the MDs of the NCBs as members. The committee decided to close/merge 106 NCB branches out of 997 loss incurring (consecutively for three years) branches. The rest 891 branches were not to be closed for either socio-economic reasons or for the need to run treasury operation of the government. Some of them were targeted for improving their financial viability. The experience of 1993 rationalization programme has not been adequately analyzed. Specially, it would have been very useful for us to know the current status of those 106 merged branches (if they are at all merged!). What happened to those 891 branches, whether they could be upgraded to commercially viable position. Financial loss of the branches is the “effect”, not the “cause”. Since the Bangladesh Bank has categorically denied any sort of external pressure for the branch rationalization programme, one is curious to know whether it has gone by the revealed priority, consulted the earlier branch rationalization experience (1993) and adopted some revival programme (like the problem bank approach) before straightway closing/merging so many branches at a time. Recovery of Loan At this moment, the biggest problem of the financial sector in Bangladesh is huge loan default. Because of default in repayment, it is not only putting adverse impact on profitability and liquidity, but also raising the cost of lending substantially. Again, due to increase in cost of lending, good borrowers are affected and in some cases, they have been influenced not to repay bank loans. Huge default constitutes a demotivating factor on the part of banker for making loans on their own. International banking operations of the domestic banks are at stake because of their erosion of capital base due to loan default. Therefore, in terms of priority, NPA problem should have been given most importance, instead of any other thing. Diverse factors have precipitated the loan default problem in Bangladesh: lack of loan screening skill, lack of supervision and accountability on the part of bank management, mellifluence of political and other vested group, high loan price, volatile economic environment, corruption and unethical activities on the part of concerned stakeholders etc. For the recovery of default loan, the main hindrance at this moment is existing legal framework and its lengthy procedures. The CPD Task Force Report (2001) argued that the problem of loan recovery cannot be addressed only by undertaking legal reform, issues like ethical standard and accountability of the concerned individuals, the overall law and order situation and quality of politics of the country are also involved in the process. For the matter of resolution of problem loans, CPD in 1997 and subsequently the BRC in 1999 have recommended to articulate and implement a sound “Recovery Policy” by the NCBs, form an Asset Management Company (AMC) and establish specialised loan work-out department in each bank. Very recently, the Ministry of Finance (along with the Bangladesh Bank, NCBs and DFIs) has initiated a move to set a guideline to write-off bad loans of the banking system. Possibly the process is yet to be completed. In the meantime, the Bangladesh Bank has announced a uniform incentive package for recovery of classified loans for the four NCBs. According to the new incentives package, an NCB staff will receive seven percent of the loan for helping the bank to recover it, which remained unrealized for seven years or more and has already been labeled as “bad debt”. In case of recovery of bad debts that remained unrealized for three to seven years, the staff would get six percent of the amount, while (s)he will receive five percent of the amount as incentive for realizing other bad loans. Besides, a bank staff would get four percent in case of realization of “doubtful loans”. The incentives would be given on yearly basis upon closure of a loan account. The incentive packages would not be applicable if a branch fails to slash five percent of classified loans of the previous year. As a policy measure, incentive schemes for loan recovery should be thought of only as an interim/short term measure. In the medium term, the incentive scheme is fraught with “moral hazard” problem. To evolve a sustainable policy package in this respect the government may think of the proposals put forward by the BRC mentioned earlier (e.g. creation of AMC and loan work-out department). Delegation of Power and Responsibility between Board of Directors and the Management In February, 2002, the Bangladesh Bank issued a circular delineating the responsibility and accountability of the members (including the Chairman) of the Board of Director and Managing Director (MD) of the NCBs and DFIs. In fact, this sort of guidance was in place for both NCBs and PCBs since 1996. However, the further amendments and reallocation of power between the Board and the Managing Director (through issuance of a new circular) indicates the seriousness on the part of government/Bangladesh Bank to run the NCBs efficiently. The new policy has endowed the Board with the responsibility of formulating and approving the business goals, target, strategies, income-expenditure policies, loan policy etc. as well as monitoring the progress of implementation of the policies periodically (at least quarterly). One very significant departure of the new policy relates to delegation of loan sanctioning power to the MDs to the extent of 7.5% of capital without taking approval from the Board. However, the Board is also responsible for approving the banks’ budget (within government stipulated framework), employment and transfer policy, training policy, business risk management policy etc. The Board is also empowered to monitor the internal control system of the bank and constitute a special audit team. The Board is required to submit an analytical report on the business performance of the bank for the government’s consideration. The Managing Director will perform his duty within the financial and administrative authority as delegated by the government and the Board. The MD will also ensure compliance of Bank Company Act and other regulatory frameworks and remain accountable for achieving the business targets. With a view to increasing the management efficiency of the NCBs, both the BRC and CPD Reports have underscored the need for delegating adequate power to the Boards, stopping the interference of the Ministry of Finance and strengthening the internal control mechanism in NCBs. In case of the PCBs, the CPD Task Force highlighted the need to protect the management of PCBs from the illogical interference and influence of their Board Members. The new policy of delegation of power to the management should be viewed in the context of the broader framework of corporate management structure. In such a structure, both responsibilities and accountabilities of all management tiers (like Board, top management, middle management etc.) are determined. From that point of view, the accountability of the Board is not explicitly determined in the new policy. According to the new rule, the MD will be accountable to both Government and Board, i.e. the CEO of the NCBs will continue to suffer for “dual loyalty”. In spite of delegating a lot of power to the Board, the Ministry of Finance still holds sufficient power for the matter of controlling the NCBs (in terms of budget approval, purchase policy, construction, accountability of MD etc.). It can only be expected that in course of time, gradually the other essential powers will also be devolved to the Board. Considering the composition and quality of the Board members of the NCBs, one may draw attention to their capability of formulating a well-designed banking policy and strategy, especially risk management policy, keeping in mind the challenges emanating from competitive globalized banking sector. The CPD Task Force argued for nomination of those in the NCB Boards, who have social acceptability and efficiency beyond doubt. The BRC has suggested to form a Banking Sector Management Selection Committee (BSMSC) for proposing the names to the appointing authority, for posting them to key banking positions including Chairman and Board Member. The present government till date has decided to do without it (i.e. BSMSC) with consequent implications for the recent appointments to the NCB Boards. Cash Reserve Ratio The recent liquidity crisis of the banking system which manifested in the call money rate going up as high as 50 percent has adversely affected the PCBs – especially the “third generation” PCBs, i.e. those licensed in the last quarter of 1990s. Before the liquidity crisis, the present government questioned the viability of the new PCBs and asked all government offices to withdraw their deposits from these PCBs, which are not yet five years old. Because of this government decision, the new PCBs were already under liquidity pressure. In this context, the central bank’s decision of keeping the Cash Reserve Ratio (CRR) only in local currency (that too just before Eid, when normally huge deposits are withdrawn by depositors) instead of local and foreign currency put the PCBs under heavy liquidity pressure, resulting in steep rise in call money rate. The concerned Bangladesh Bank officials are inclined to look at the phenomenon as the weakness of the fund management system in the PCBs. However, the market participants maintain that they were neither consulted nor given adequate time to deal with the revised regulatory decision. In this connection, it may be noted that the timing and extent of tightening of prudential regulations will have to take into account the cyclical factors in the economy. At the same time, adequate notice would need to be provided to market participants to enable them to be fully prepared to meet the changing prescriptions. Finally, intense consultations process in detailing the prudential regulations would be necessary so that prudential regulations are introduced at an appropriate pace in order to reach the desired objectives. The unviability of the PCBs (“third generation”) is yet to be established; according to the published data, they are performing well. The present government might be thinking that the number of licensed commercial banks has exceeded the “optimal” number, which might lead to turn some of the new PCBs into problem banks. Possibly for this reason, the government earlier declared that no further license would be provided for establishing new banks. It is true that the creation of problem banks should be preempted at the very beginning (that is, at the time of licensing) through a very strict, influence-free and neutral analysis of the new bank applications. From the above point of view, suggestion of the BRC in regard to transfer of authority from Ministry of Finance to Bangladesh Bank for providing new banking license, is very correct, provided the central bank is capable of undertaking professionally competent and influence-free analysis of new bank applications. The present government can take necessary action in this regard. Concurrently, a concrete “exit policy”, to be governed by the Bangladesh Bank, should be in place as early as possible. This will not only help to restrict establishment or conduct of banking business with ulterior motives, but also facilitate restructuring of the financial sector through merger, acquisition, and liquidation. Recommendations The recent policy measures seem to have focused on improving both “quantity” and “quality” of banking investment (lending) through reduction of bank rate and lending interest rate (for quantity) and revision of large loan lending rules (for quality). Concurrently, the concern for profitability/efficiency has possibly prompted the government to undertake policies like branch rationalization and functional demarcation between the Board and the management. For the stability of the financial system, the government has also expressed concern regarding the status of the third generation PCBs. However, it appears that the policy measures are yet to address many of the priority issues of financial sector reform. It is reckoned that without creating an “enabling environment” and strengthening of “prudential and supervisory structure”, functional/ economic expansions and efficiency gains of the banking system cannot be sustained. Both the aspects, may be addressed simultaneously, but the latter (i.e. economic and efficiency gains) in the absence (or inadequacy) of the former (i.e. prudential and supervisory structure) would be an “accident waiting to happen”. Though the former, in the absence of latter, may be acceptable from the safety and soundness point of view of the banking system, but cannot be afforded by an economy like Bangladesh because of its retarding impact on economic growth. The policy measures taken so far are tilted towards economic expansion and efficiency gains, nothing tangible has been done, till date, towards strengthening the prudential and supervisory structure and hastening the creation of enabling environment. The issue of ensuring competitive market has been approached in an administered manner, rather than increasing the efficiency of NCBs. The NCBs have not been brought under effective oversight of the Bangladesh Bank. There is no headway in regard to solving the perennial problems of huge NPA, provisioning and capital shortfall. The issue of enhancing the efficacy of the legal enforcement system remains unattended. The inactions or delay in actions in this regard may be construed as political foot-dragging. Under such a situation, the economic and efficiency measures will not ensure a competitive and robust banking system; even it may not stop back-sliding of the sector. Therefore, remaining mindful of the reform experiences of the First Round, taking note of the recent policy measures and being cognizant of the unattended weaknesses of the system, the Next Round of the reform actions should have dual focus: (i) Addressing the “unfinished agenda” of the First Round, and (ii) Developing the next generation reform measures relating to expansion and diversification of the financial sector. In this connection, some of the immediate measures which may constitute the Next Round of financial sector reform in Bangladesh have been presented below. i) Strengthening the Regulatory-Supervisory Base of the Bangladesh Bank – Like the PCBs, the NCBs must also be made accountable to the Bangladesh Bank for regulatory and business compliance. – Both the Board and the MD of the NCBs should remain accountable to the Bangladesh Bank. – The dilemma of subordination of the “regulators” (the Bangladesh Bank) to the “owners” (the government in case of the NCBs) needs to be removed. – Introduce “Exit Policy”. Both Entry (licensing of new banks) and Exit policies are to be handled by the Bangladesh Bank in a free, fair and transparent manner. – Increase the oversight capability of the Bangladesh Bank. – Develop a time-bound programme for adoption of “Core Principles for Effective Banking Supervision”, as suggested by the Basle Committee on Banking Supervision, by the Bangladesh Bank. ii) Improving the Financial Viability of the NCBs For ensuring competitive banking, the first and foremost requirement is to improve the efficiency of the NCBs, given their large market share. In this regard, the NCBs are required to improve their capital position, reduce NPA and operational costs. As of December, 2001, the NCBs were suffering from huge capital shortfall – to the tune of Tk. 1303 crores. In terms of percentage, their capital ratio is only 4.24% of total risk-weighted assets. Among the PCBs, only a few first generation PCBs and two privatized NCBs are burdened with capital shortfall. – If fresh capital cannot be injected by the government to the NCBs, then they may be allowed to raise capital (supplementary) by issuing security paper in the market. – The fixed assets of the NCBs may be also reassessed to reflect their current market price. iii)Addressing the Problem of Debt Overhang By any standard, debt overhang problem of the banking system in Bangladesh, especially for the NCBs, is very severe. The total classified loans, as of December 2001, amounted to about Tk. 23,600 crores. While classified loan of the banking system has as a whole reduced over the last six months (June – December, 2001), but the same for the NCBs, albeit marginally, has increased (from Taka 12,202 to 12,227 crores). The classified loan of PCBs has been reduced by Taka 450 crores during this period. In terms of percentage, by the end of 2001, the classification rate of the loan portfolio of the whole banking system (including the DFIs) stood at about 31.5% as against more than 37% recorded for the NCBs. The following measures may be suggested for addressing the problem: – Asset Management Company should be immediately launched. – Review the experience of the Bankruptcy Court and Money Loan Court for necessary expeditious amendments. – Create “Loan Recovery Policy” as an integral part of Loan Policy of the banks. – Create “Problem Loan” handling department in all banks. – Bad debt of the state-owned enterprises (SOEs) to the NCBs should be settled through direct budgetary allocations (as was partly done in case of jute industries and other “sick industries”). iv) Dealing with the Provisioning Shortfall The provisioning shortfall for the whole banking system increased from Taka 3,887 crores to Taka 4425 crore over the period June-December, 2001. The NCBs account for about 88% of this shortfall. The private banks which are suffering from provisioning shortfall belong to the first generation PCBs. – A clear policy needs to be articulated for the NCBs with a view to meeting the provision shortfall through appropriation of pre-tax profit. Strict application of the proposed policy may also act as a stimulus for loan recovery. v) Creation of a Financial Restructuring Authority The problems of the NCBs (and the DFIs) are huge and multifarious. There

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August 7 2018

‘BD’ Tourism: FC Earner & Image Builder

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‘BD’ Tourism: FC Earner & Image Builder

 Tourism industry can earn forign currency and also can create country image.

Written by: Jobayer Hossain,

 Deputy Registrar, Darul Ihsan University

He can be reached at Cell: 01911-956357,

E-mail: jobayer786@yahoo.com

Tourism is considered as the world’s largest and rapidly growing industry of modern business world. It has a vital influence on economic development of a country. Bangladesh is a new tourist destination on the map of the world. Bangladesh has enormous potential to develop tourism because of its attractive natural beauty and rich cultural heritage. Tourism can add value in the Bangladesh economy if proper marketing plan and strategy can be built and implemented for this purpose. However, this industry fails to reach its goals due to inadequate marketing practices. This paper aims to show the present scenario of tourism industry in Bangladesh, identifies the possibilities and suggests helpful measures accordingly. We also suggest that the government should formulate a ‘Tourism Policy’ immediately for the development of this industry. Both public and private level investment is required in the tourism sector and regional cooperation can bring benefits for Bangladesh. SWOT Analysis of Tourism Development in Bangladesh. Strengths · Bangladesh is unique for its natural resources. · We have the largest sea beach in the world. · Bangladesh is renowned for its archaeological and historical places. · We have unique natural beauty and greenery. · A nation famous for hospitality. · Rich cultural heritage and religious harmony. · Bangladesh can be reached by air from any part of the world. Biman, the Bangladesh Airlines connects Dhaka with about 30 major cities of the world. · We have the accommodation facilities available throughout the country. Ruposhi Bangla, Radisson, Westin and Panpacific hotel chains are in operation in the capital city. Weaknesses · Tourism sites are not properly explored, promoted and managed. · Lack of investment. · Low quality services. · Lack of safety, security and hygiene. · Lack of infrastructural development. · Visa requirement and complex visa procedures. · Absence of sales plan and public relation activities. · Lack of private initiatives in tourism development. · Bangladesh cannot offer tourist products and destination packages exclusively to local and foreign tourists. · As a result, tourists have to go back to their home with low level of satisfaction. · The number of supply chain member in the tourism industry is not sufficient to build up a strong base. · Small number of tour operators, inefficient national airlines, and insignificant role of travel agencies. · Shortage of professional guides. · Cost of some tourism components like the star and standard hotels, food items, package tours and river cruise programs are much higher than those of neighboring countries like India and Nepal. · Lacking of promotional and marketing activities of tourism by both public and private sector. Opportunities · Due to globalization, scope for distribution of information and communication media. · Scope of making the tourist spots more attractive. · Research and development to attract more tourist and making favorable tourism policy. · Development of tourism culture. · Arrangement of international events like World Cup Cricket. Threats · Political instability of the country. · Harassment by the police and brokers in the airport. · Language barrier of the people of the country: differences in dialects. · Conservative social and religious systems. · Strong competition within the region, barriers to overcome the image crisis of the country. · Lack of awareness among the mass people regarding the benefits of tourism both locally and internationally. · Illegal hunting and fishing in Sundarbans create loss of valuable wildlife. · Absence of sufficiently trained lifeguards in the beaches to save the tourists in case of emergency. · Shortage of sufficient accommodation, food and beverage services and other amusement services. · Tourists presently hold misconceptions about Bangladesh as a tourist’s destinations. Foreigners now know Bangladesh as a country of poverty, beggars, flood, political unrest and corruption. · Absence of proper tourism policy. Considering the above analyses the following suggestions are made for the improvement of the tourism industry in Bangladesh: · Positive image of our tourism industry must be expressed by our diplomats, ambassadors, consulars representing Bangladesh in different countries of the world. Bangladeshi representatives abroad can act as overseas office for the wholesale tour operators who conduct inbound tours. · Billboard, leaflets, brochure, magazines and other promotional materials can be displayed in different places in home and abroad. There should be a permanent photo gallery in all our Embassies. All Embassies website should be developed with tourism information including service providers contact information. · Local people have to be informed about the attractions rich in history, culture, and heritage. · Different beaches, rivers etc. have to be facilitated with various activities like river cruise, boating, beach volleyball, fishing, etc. along with boatel based food and accommodation especially in the Sundarbans area which is the largest mangrove forest in the world. · Adequate safety and security of the tourists should be ensured to remove negative image. · Full-fledged tourism training institutes have to be established in a number in different regions so that they could produce skilled professionals to meet the needs and demand of the tourists. · Adventure tourism like trekking, hiking, mountaineering, hunting in different hilly areas must be established by building up different clubs and organizations. · To build more eco-park, safari park and wildlife sanctuary especially in Sundarbans, Hill tracts and different potential areas like DulaHazra and Madhabkunda. · Tourism facilities and services like accommodation, food and beverage, entertainments, travel agents, tour operations, shopping malls, supermarkets, transporters have to be established in large numbers of international standard in different tourist areas by public and private sectors. · Unexplored area like Parkirchar, Cheradip, Sandeed, and Hatia must be taken into consideration to explore properly and establish all tourist facilities there for development of tourism. · The existing formalities should be made easy to get Bangladesh visa so that the foreigners get interests to visit Bangladesh. Visa on arrival may be considered. · Tourism fair can be arranged in an adequate number at home and abroad to inform the latest updates of our tourism products, services and overall tourism industry to attract the tourist. · Government can formulate long term and short term master plan with support from private sector, for the overall tourism development by generating interest for the investors and commercial organizations. · Tourism in educational curriculum is to be initiated; subjects should be introduced in the High School level. · Bangladesh Parjatan Corporation, Bangladesh Biman and Civil Aviation Authority should be working in partnership for the overall development of tourism in Bangladesh and also for promoting tourism abroad as per their areas of operation. · Tourism Call Centers may be introduced by the Government to keep potential tourists informed about the tourism products, facilities and services available all over Bangladesh. · Infrastructure should be developed specially for tourist areas. All tourist areas should be fully secured. · A large number of visitors come in Bangladesh for business purposes other than tourism purpose. To attract such visitors to visit Bangladesh tourist destinations through marketing of our tourists attractions, effective promotion, recreation and entertainment. At present world tourism industry appeared as a competitive and promising sector. It is not only that tourism sector earns foreign currency but also tourism creates image of the country and cultural diversification. The country, having tourism potential, must be conscious in developing market offering and marketing mix. Bangladesh has lacking in this regard which need to be overcome through proper marketing planning. Natural, ecological, historical, cultural and other form of tourism based tourism industry of Bangladesh has huge potentials to develop. The country has its potential to differentiate its product for its uniqueness. As tourism is mostly service oriented, business professionals are essential for successful operations. Bangladesh Parjatan Corporation, though, offers short term and vocational courses but highly educated and well known persons are very essential as faculty member. Recently, University of Dhaka and some other private universities opened Department of Tourism and Hospitality Management. This will definitely encourage creating skilled manpower in the tourism sector and as a result new generation may use innovative ideas for capacity building and opportunities to attract tourists in the country. Government should extend these types of opportunities. Government of Bangladesh, different concerned ministries and the industry itself should take necessary measures. They should concentrate their efforts on the development of peripheral products, relocation of necessary facilities, improvement of domestic transport networks, development of professionally skilled human resources, arrangement of necessary security measures, creation of good image of the country. If all these measures, marketing strategies along with policy measures are coordinated, tourism sector in Bangladesh would make a positive result.

 

Press Release PRC Budgetary Proposal FY 2013-14 2
August 6 2018

Budgetary Proposals for 2012-2013

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Budgetary Proposals for 2012-2013  

by Prof. Dr. Akbaruddin Ahmad Chairman

Policy Research Centre (PRC)

Introduction: The impact of the economic downturn in Europe and USA has impacted the Bangladesh Economy. Bank borrowings by the Bangladesh government have increased substantially. The growth in revenue collection was less than the growth in public expenditure. The deficit financing in respect to the budget was met largely through bank borrowings. Bangladesh Bank continued with its credit squeeze for the unproductive sector. There has been a pressure on the balance of payments. Taka depreciated against the US dollar that has made imports of goods and services more expensive in the local market. Low and middle income group people have been hard it by the increase in price of essentials. Substantial rise in the subsidy management by the government has caused a financial mismatch in the economy. Foreign direct investment (FDI) has shrunk for the current fiscal that is caused a setback for rapid economic growth. Financial Pressure: The massive import of fuel oil to run the rental power station has caused the fuel import bill to rise from US$ 3 billion to US$ 7 billion. Import subsidies for the agriculture sector and price support schemes have put pressure on the government revenues. The overall increase in the cost of construction materials and the implementation of the annual development plans has faced financial constraints. Foreign aid utilization has been very slow and inadequate because of bureaucratic issues. Fund availability to implement social safety net is putting additional financial pressure. Employment generation program for the poorest that will add additional financial pressure. Government enterprises have generated dividend and profit much below expectations. Budget deficit may remain at present 5% of GDP, though the financing of this deficit has become major issue. Original borrowing estimate was Tk. 18,957 crore for the financial year ending 2012. The borrowing has, however, surpassed this amount by TK. 9000 crore to TK. 27,900 crore. Fiscal Issues: (1) Income Tax: The tax exemption limit currently stands at Tk. 1,80,000. This slab may be enhanced to Tk. 2,50,000 for all male assesses. This slab may, however, be increased to Tk. 300,000 for women and disabled persons. The logic behind this proposed slab is the enhanced cost of living and to give recognition to the female and disabled persons. Minimum tax payable may be enhanced to Tk. 3,000 from the current Tk. 2,000. Loss of Government Revenues: The creation of a position in the Ministry of Finance for monitoring Transfer Pricing and Money Laundering issues that accounts for loss of government revenues of around US$ 2 billion annually has been a step in the right direction. This will help monitor such issues that can undermine government policies to restrict unethical practices. Capacity building by allocating manpower and resources will be required for successful implementation of this program. Persons untaxed or those submitting inaccurate tax returns should be encouraged to follow appropriate methods that will ensure non-harassment by the tax officials. Budgetary Proposals for FY 2012-2013 Page 3 Black Money to be Whitened/Legalized: It sounds unethical to implement this proposal for whitening of black money and undisclosed income. In the current context where FDI and general investment has slowed down, it is worthwhile to allow undisclosed wealth to be legalized through a payment of 10% to 15% tax. Such persons should give an unconditional undertaking to insist the whitened money in production sectors of the economy including the share markets. Farming Sector: This includes agriculture, horticulture, fish firming, poultry and allied activities which as a whole should be treated as a major thrust sector. Apart from two agricultural banks, the commercial banks including the foreign banks must enhance agricultural financing operations under a framework to be determined by the Bangladesh Bank. This will ensure sufficient availability of funds at the hands of the farming community. The financing arrangements will ensure enhanced agricultural productivity that will generate wealth for the farmers and collectively for the nation that will ensure sustained availability of food crops for the general masses. Government subsidies for the agricultural sector should continue for the next 5 years till such time as the agricultural sector becomes resilient. The input subsidies should be distributed in a manner that is transparent and effective and comes in the form of direct assistance for the farming community. High yielding food grains and flood and drought tolerant varieties of rice is required with advanced technological initiatives to make the country self-reliant in the agricultural sector. Adequate budgetary allocation for research in this sector need not be overemphasized. Cold storages are required for storage of potatoes and seeds in appropriate areas that has yielded bumper production. Budgetary allocation for these purposes are required on priority basis. Women farmers’ efforts to boost agricultural product including fish, fruits and vegetables are important aspects for self employment and income generation. This will help in export diversification with targeted markets that have a large number of Bangladeshi immigrant workers in areas concentrated in the Middle East, Europe and USA. Financing should be made available through agricultural credit schemes at a substantially low interest rate. Income from the agricultural sector should be completely tax free and should include feed manufacturing units, poultry, fisheries, horticulture, agro-based industries and all allied activities. Investment made in research in the agricultural sector should be made tax free. This will encourage entrepreneurs to invest in technology-based agricultural units. Tax holiday for at least 10 years may be considered for all agro-based units. Information and Communication Technology: i) Entrepreneurs should be given the incentive for zero tax for all ICT companies involved in software developments, research, marketing, development and exports. ii) 15% VAT charge for use of internet services may be reduced to 5% to ensure wider coverage. Import duty on computers, spare parts and accessories may be reduced to zero to encourage wider use of ICT services for enhancing efficiency and productivity. Budgetary Proposals for FY 2012-2013 Page 4 iii) Hitech-park at Kaliakoir initiated by the government is required to be completed. Adequate fund allocation for this project should be made in the next budget. Small and Medium Enterprises (SME): i) Substantially increased allocation is needed for the Equity Entrepreneurship Fund (EEF) to cover all labor intensive sectors. ii) Import duty structure on machinery and equipment should be brought down to zero for both export oriented and industries targeted for the local market. iii) The government may allocate from the budget at least Tk.500 crore for SME purposes to be disbursed through nominated commercial banks under the supervision of Bangladesh Bank at an interest rate below 7%. This will adequately boost this sector. Energy and Power Sector: i) Inadequate power generation has become a major obstacle for rapid development. Government should prioritize on medium (100-200MW) and large (500 MW) base load power plants instead smaller oil based rental and quick rental power plants to shed off subsidy burden and to resolve the power crisis. ii) To make power generation cost effective, coal based power plants need to be set up. So coal policy to be enacted without delay. iii) Rural electrification can be met with bio gas. iv) BAPEX should be given adequate allocation for exploration of on-shore gas. v) Cross-border electricity import would be the correct strategy to ensure long term energy security. vi) Power tariff structure at the consumer level may need some adjustment for the overall benefit of the economy. vii)The existing tax exemption on renewable energy, equipment and services should continue. viii) Infrastructure development for imported gas and its distribution network shall need budgetary allocation. ix) BPC fuel storage capacity to support oil based power plants needs to be enhanced for which budgetary allocation is required. x) Hydro power generating capacity in Bangladesh is minimal compared to Nepal and Bhutan. Emphasis may be given for cross border trade from these two countries and the possibility to import gas from Myanmar through direct pipeline should be considered. Budgetary allocation for these areas may be considered. Budgetary Proposals for FY 2012-2013 Page 5 Road Communication: i) Cost of construction and maintenance of roads and highways is relatively higher in Bangladesh on account of heavy rainfall. Major highways are required to be developed into four lanes and the quality of roads be enhanced to bear additional load of larger vehicles of up to 15 tons. ii) Higher budgetary allocation for affective road maintenance and management is required to ensure efficient communication system. iii) Traffic congestion presently faced by the general population is getting out oaf control. Concerted efforts are required to allocate resources for traffic planning, management and coordination. The present loss of time by commuters if computed and quantified in monetary terms can be an eye opener for the government. Poverty Alleviation: i) Despite of annual growth rate of 6 to 7% a section of population still remains ultra poor and living below the poverty line. The government needs to identify the poorer segment of the society in different geographical locations and allocate funds for the safety net programs that should be in excess of TK. 20,000 crore for the budget year 2013. Railway: i) In order to partially solve traffic congestion in major cities of Bangladesh, the facility available with Bangladesh Railway (BR) needs to be enhanced. A review of the railway train fare structure fixed in 1992 needs to be reviewed. This sector needs major budgetary allocation for improvement of the BR system. ii) Railway connectivity with the bordering states of India will boost trade and commerce. This will require substantial funds allocation for infrastructural development of the BR system. Sea/River System: i) Transportation by steamers can be a cost effective solution for the general masses and goods movement. Budgetary allocation for the dredging of the heavily silted river system is essential to ensure efficient riverine communication. ii) The Chittagong and Mongla ports require further development to handle larger volumes importexport business. With the present growth rate these two sea ports will require larger budgetary allocation. iii) Chittagong port facilities may be further upgraded to allow it to operate as an Entrepot to Budgetary Proposals for FY 2012-2013 Page 6 become an important hub for the south Asia region to boost import/export and transshipment business. Civil Aviation Authority of Bangladesh (CAAB): i) Bangladesh airlines cannot operate flights to the USA on account of CAAB being downgraded to category 2 from category 1 by US Federal Authority. The capacity building of CAAB shall require additional budgetary allocation. ii) The present international airports in Dhaka-Chittagong and the proposed Cox’s Bazar international airport will require substantial funding to promote regional and international tourism and economic hub. Industry: i) On account of the global recession, high inflation rate, depreciation of the US dollar, high interest rate on borrowings and general credit squeeze, the industry sector in Bangladesh is likely to face challenges for 2012-13 .The national budget should initiate steps to stimulate the industrial sector. ii) The import-export policy that expires in 2012 is likely to be replaced by a more dynamic 3 years trade policy which should take into consideration the projected GDP growth. iii) Initiatives for export diversification both in terms of product and market. iv) Additionally, the trade policy may be in general to focus on the future of the Chittagong port as a regional hub for trade and commerce and to facilitate its activities as an Entrepot like Singapore and Dubai. v) Bangladesh embassies around the world particularly in the major economic growth areas need to be sensitized to act as a catalyst to obtain Foreign Direct Investment (FDI) and export orders for our products and services. In this respect, the role of Bangladesh embassies is essential for image building also for the inbound tourism sector. Tourism Sector: i) The tourism sector could be the next RMG sector with massive growth prospects. Budgetary allocation for infrastructural development cost to boost the tourism sector in Bangladesh for both local and foreign tourists is an important proposal. ii) Cox’s Bazar and Kuakata sea beaches need to be upgraded to attract larger number of tourists both from home and abroad. iii) Tour operator companies should be given tax-free import of vehicles, equipment required for the tourism industry that includes motels, resorts, hotels etc. Budgetary Proposals for FY 2012-2013 Page 7 iv) In-bound tourism from various affluent countries around the world can provide substantial revenue generation provided world class facilities are set up in indentified tourist destinations within Bangladesh. v) A separate fund may be allocated to be managed by the Bangladesh Bank and distributed through the banking channel to provide low interest bearing loan to the companies operating in the tourism sector. RMG, Textiles and Leather: i) Budgetary allocation is needed to expedite the completion of garment palli that will help relocate factories from the Dhaka city. Government may fund for constructing dormitories for industrial workers. Food-rationing facilities also may be taken into consideration for industrial workers. ii) The backward linkage textile industries shall require support so that they can be competitive in this sector. iii) VAT should be reduced for some utility items. iv) Adequate allocation for realizing “Leather Industry City” is needed to expedite the project. v) In respect of industrial pollution government needs to allocate funds for the ministry of Environment for their capacity building. For monitoring and legal enforcement work environmental laws may be enacted. Jute: Jute mills should be brought under the purview of agro-based industries as recommended by the Jute Commission. For R & D activities for the jute sector budgetary allocation should be made for conducting research for high quality jute seeds and jute fibers. Government may consider to set up a special Fund for skill development of jute workers. Budgetary allocation may be increased for jute research. Jute mills need to be rejuvenated by giving loans at low interest rate. Ship Building: i) Bangladesh Bank may take initiative to introduce alternate way for endorsement of Payment Guarantee with a view to reducing cost imposed on the manufacturers by the ship buyers that provide payment guarantee duly reconfirmed by international banks. ii) Government may consider a special zone for ship building industry with infrastructural and logistics support. A comprehensive policy for ship building is necessary to provide policy guidelines for the entrepreneurs. Budgetary Proposals for FY 2012-2013 Page 8 Light Engineering: i) Under the public private partnership (PPP), a separate park to be established for the Light Engineering Industrial units. ii) A special fund may be created to provide loans at a reduced interest rate for the entrepreneurs operating under the Light Engineering Category. Pharmaceuticals: i) The pharmaceutical industries have gained a good reputation with a number units producing world class medicines for the home and export markets. Fund allocation is required to complete the balance 50% work of the Active Pharmaceutical Ingredient (API) Park. ii) Funds should also be allocated for arranging world class storage facilities for life saving drugs and vaccines at the international airports. Stock Exchange: i) To support large infrastructural activities the government may introduce “Special Bond” to attract foreign and non-resident Bangladeshis. ii) To streamline the stock exchange operations a capacity building of DSE, CSE and SEC is required for professional skills development of various levels of operational staff and executives. iii) Necessary laws may be passed for the demutualization of the two stock exchanges to enhance transparency and to prevent insider trading. Income Tax Net: i) In order to increase the number of tax payers in the country, the deputy commissioners of all the districts in collaboration with the NBR officials must act as a catalyst to encourage businessmen and professionals including medium and large traders to enroll themselves and obtain TIN certificates. This will enhance the revenue generating capacity of the NBR. ii) The tax authority must provide a user friendly interface with the prospective tax payers throughout the country. The new tax payers including the old tax payers should be offered certain government privileges to attract them to pay their income tax voluntarily through a hassle free system. In this connection, IT services should be obtained to expedite tax collection efficiently and increase the number of tax payers to generate higher volume of income tax revenue for the government. Budgetary Proposals for FY 2012-2013 Page 9 Use of Solar Power: Solar Panels for Irrigation Purposes and Villages do not cover b y the national greed should be encouraged. Import duties and VAT may be reduced to zero to encourage use of solar/renewable energy. Real Estate: To cater to the need of low and middle income groups VAT, income tax and registration fee for apartments constructed outside the Dhaka city limits may be reduced by 50%. This will encourage people to commute from greater distances to attend offices and business within the Dhaka city limits. This will enable the poorer section of the society to live in houses that are affordable in cleaner and healthier environment. Transportation: Duty structure for the transportation sector particularly on buses for mass transit may be reduced by 50% to allow people of low and middle income group safe and comfortable journey. Duty on cars up to 1600 cc should be reduced by 50% to assess middle income group affordable vehicles.

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