COMILLA UNIVERSITY

Course Title:
Development Theory & Bangladesh Economy
Course Code: 311
Assignment on-
Bangladesh Economy

Submitted By-
MD. AKRAM HOSSAIN
REG. NO: 11806010
DEPT. OF AIS
COMILLA UNIVERSITY

Submitted to:
SHAILY DAS (Lecturer)
Department of AIS
Comilla University

Date of submission: 10-08-2020

 TABLE OF CONTENT

SL. NO. TITLE PAGE

01. Structure of Bangladesh economy 03-05

02. Characteristics and salient features of 06-07

Bangladesh economy

03. Change in the economic structure 08-10

over the time

04. The nexus between the different 11-15

elements of business environment
existing in Bangladesh and her
economic performance

05. Change in business environment in 16-20

the light of recent policy changes

06. Reference 21

2
Introduction: The economy of Bangladesh is a developing market
economy. It's the 39th largest in the world in nominal terms, and 30th
largest by purchasing power parity; it is classified among the Next
Eleven emerging market middle income economies and a frontier market.
In the first quarter of 2019, Bangladesh's was the world's seventh fastest
growing economy with a rate of 7.3% real GDP annual growth.
Dhaka and Chittagong are the principal financial centers of the country,
being home to the Dhaka Stock Exchange and the Chittagong Stock
Exchange. The financial sector of Bangladesh is the second largest in
the Indian subcontinent. Bangladesh is one of the world's fastest growing
economy.

Economy of Bangladesh:
Dhaka, the financial center of Bangladesh
Currency: Bangladeshi taka (BDT, ৳)
Fiscal year: 1 July – 30 June
Trade-organizations:
SAFTA, SAARC, BIMSTEC, WTO, AIIB, IMF, Commonwealth of
Nations, World Bank, ADB, Developing-8
Country group: Developing/Emerging, Lower-middle income economy
Statistics Population: 162,650,853 (2020 est.)[3]GDP
$347.991 billion (nominal; 2020 est.)[4] $860.916 billion (PPP; 2020
est.)[5]
GDP rank: 39th (nominal, 2019)30th (PPP, 2020)
GDP growth: 7.9% (17/18) 8.2% (18/19e)1.6% (19/20f) 1.0% (20/21f)
GDP per capita: $2,173 (nominal, FY20)[7] $5,453 (PPP, 2020 est.)
GDP per capita rank: 143rd (nominal, 2019)137th (PPP, 2019)
GDP by sector: agriculture: 14.23%industry: 33.66%services:
52.11%(FY18)
Inflation (CPI): 5.5% (2020 est.)
Population below poverty line:
20.5% in poverty (2019)[10][11]
58.3% on less than $3.20/day (2020f)
4% living in extreme poverty (2020)

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Gini coefficient:
32.4 medium (2016, World Bank)
Human Development Index:
0.614 medium (2018)[16] (135th) 0.465 low IHDI (2018)
Labor force:
69,706,733 (2019)[18] 55.8% employment rate (2017)
Labor force by occupation
agriculture: 40.6%industry: 20.4%services: 39.6%(2017 est.)
Unemployment:
Overall 4.2%Male 3.1%Female 6.7%(2017 est.)[21]
Main industries:
Textiles, pharmaceutical products, electronics ship building automotive
bicycle, leather, jute, glass, paper, plastic, food and beverages, cement, tea
rice, natural gas and crude petroleum iron and steel.
Ease-of-doing-business rank:
168th (below average, 2020)[22]External Exports
$40.53 billion (July 2018- June 2019) $36.66 billion (July 2017-June
2018)
Export goods:
Textiles, Garments (2nd largest exporter in the world), Leather & Leather
Goods, Pharmaceuticals and Textiles, Garments (2nd largest exporter in
the world), Leather & Leather Goods, Pharmaceuticals and other
Chemical products, Ceramic Products, Bicycles, Jute and Jute Goods, IT,
Agricultural Products, Frozen Food (Fish and Seafood)

Main export partners:

European Union 58.2% United
States 16.3% Japan 3.1% Canada 3.0% India 2.4% A
Australia 1.9% China 1.9% Southeast Asia 1.6% Others 11.6%

Imports:
$55.44 billion (July 2018- June 2019) $54.46 billion (July 2017- June
2018)[25]
Import goods:
Textiles and Textile Articles, Machinery and Mechanical Appliances,
Electrical Equipment, Mineral Products, Vegetable Products, Metal &
metal products, Chemicals & Allied Products, Vehicles & Aircraft

4
Main import partners:
China 21.5% India 12.2% Singapore 9.2% E uropean
Union 6.2% Hong Kong 5.5%Other 45.3%

FDI stock:
$14.62 billion (31 December 2017 est.)[27] Abr oad: $369.6 million
(31December 2017 est.)

Current account:
−$5.322 billion (2017 est.)

Gross external debt:

$50.26 billion (31 December 2017 est.) Public finances

Public debt:
33.1% of GDP (2017 est.)

Budget balance:
−3.2% (of GDP) (2017 est.) Revenues $24.36 billion ( ৳2.05 trillion)
(FY18)[28]Expenses $62.28 billion (FY 2019-20) 5,23,190 cr T aka

Foreign reserves
$36.14 billion (June 2020) (51st)

5
Characteristics and salient features of Bangladesh economy:
Bangladesh is the developing country among the third world countries.
She has huge population of hers about 16.42 crore. The country has a lot
of barriers but she has some positive scopes to enhance the economic
development. The features of the Bangladesh economy are as follows:
1. Low per capital income
2. Dependence on agriculture
3. Lack of industrialization
4. Lack of proper capital
5. Lack of Education
6. Lack of technological knowledge
7. Lack of skilled entrepreneur
8. Lack of skilled manpower
9. Underutilization of natural resources
10. Wide-spread unemployment
11. Production of primary products
12. Dependent on foreign trade.

Elaboration of the points:

1. Low per capita income: Bangladesh has a low per capita of national
income, that is, According to Economic Review report per capita
national income of Bangladeshi people.

2. Dependence on agriculture: Bangladesh largely depends upon the

agriculture and 61% people here live, directly or indirectly, on the
agriculture.

3. Lack of industrialization: Bangladesh is not enriched well with natural

resources but she has a large number of populations which can be used to
produce more goods with a cheaper investment.

4. Lack of capital: Every Bangladeshi has a credit from birth so it is clear

that Bangladesh has not enough capital to invest into some sectors.

5. Lack of Education: The literacy rate is the education rate and the
educated people in Bangladesh are rare actually. Sothe huge lack of
education facilities, school, college and universities education does not
expanded into its own shape.
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6. Lack of technological knowledge: Bangladeshi people have no wide
technological knowledge. As a result, they are suffering from different
types of problems such as they don’t know how to use modern equipment
because they are not well-educated.
7. Lack of skilled entrepreneur: People of Bangladesh income less as a
result they save less as well as they invest less because the vicious cycle
of poverty is acute here. So simply there is little chance to invest in a
sector. Political unrest, unfavorable social and religious environment,
unfavorable socioeconomic infrastructure and narrow mentality do not
encourage an initiator or investor to invest.
8. Lack of skilled manpower: Bangladesh has a large number of
population about 16 crore but she has a trouble of skilled population, that
is, there is less people who are skilled well. Bangladesh has a manpower
of about 4.95crore. Among them 3.74 manpower are male and the rest
1.21 crore are female (according to Bangladesh Economic Review report
2012). People have no knowledge about modern production system,
technological knowledge and people here are really illiterate and
uneducated so they cannot make themselves as skilled manpower.

9. Underutilization of natural resources: Bangladesh has very limited

natural resources of its own namely Natural Gas (32.6 Trillion Cubic Foot
approximately), hard rock, uranium (in Cox’s bazaar sea beach), silica
sand, White clay, Chinaclay, salt, atomic minerals, coals etc. knowledge
about the new production system as a result they become unemployed and
another problem is ego-problem which hampers the accessibility of lower
position in the organization.

10. Production of primary products: Bangladesh produces the primary

products which are agro based and which is limited in amount. So, it is
difficult to build up an establishment and carry on the industry only for
the limited raw materials.

11. Dependent on foreign trade: Bangladesh is largely dependent on

foreign trade and commerce and the country has not sufficient materials
for the development of the nation. So Bangladesh depends on the foreign
remittance, import trade and the like. To sum up, it may be said that the
country has some vital characteristics of its own economy. These features
of the country prevails the country as a developing country.
7
Change in the economic structure over the time:
Introduction: Bangladesh is now at a historical crossroads. 2016 will be
crucial for deepening and widening the Bangladesh economy. For this we
need to bring changes in our foreign and economic policy as well as our
regulatory system. Politics, for long, has been a bane to our growth. Yet it
is recognized that politics is the grease that can ease growth. Our
politicians now need to act with great wisdom without any pettiness. If
the past is any proof, Bangladeshis have suffered greatly because of the
narrow and partisan approach of politicians to growth. 2016 should be
different. We must ensure that politics is turned to a possibility of growth
and prosperity.

Overview:
As the sun starts setting on 2015, it is perhaps time to give a look at how
well Bangladesh fared economically this year. The country abounds with
sceptics and political doomsayers. And yet there seems to be chinks of
light penetrating the opaque glass that surrounds these doom mongers.
2015 saw complex political turmoil in Bangladesh. There were also
structural constraints that soured economic growth inside the country.
Moreover, 'global volatility' also presented a threat to the country. People
began the year with dread and a sense of hopelessness. Yet as days passed,
the country witnessed macro-economic stability. This spurred the
country's GDP growth and reduced poverty. This year the country stepped
into the low middle income status, shedding for all practical purposes the
least developed economy status. This was more than a generational
change and we started to regain our confidence as we pulled out of the
economic morass.
But challenges do remain; these challenges include political uncertainty,
infrastructure deficits such as poor roads, ports and airports as well as a
poor service sector. Regulatory obstacles also bedevil growth planners.
Yet, neither the government nor the people of Bangladesh seem to be
disillusioned. The nation worked hard to ensure capacity utilisation. This
pushed various sectors to concentrate on investments. As a result, internal
investments gradually picked up. Employment figures were on the
increase. About 1.3 million jobs were created and added to the economy.
This also helped to depress inflation and by the end of the year, prices not
only stabilised but also reduced. The fall in international commodity
prices, especially cost of petroleum products, added to a stable economic
growth.
8
The increased participation of women, thanks to widespread education for
girls over the past few years, also gave substance to form. The most
striking part of all of this is that a job friendly growth momentum is
starting to be visible within the country. There are several other areas
where the Bangladesh economy is doing well. Significant is the
improvement in the balance of payments situation despite the deficit in
the current account. The reason lies in continuous injection of foreign
exchange in the economy, due to increased foreign remittance every
month by Bangladeshis working abroad. The figures could be close to
$1.5 billion each month. Add to this the induction of foreign exchange
earned by exports, especially readymade garments.

Bangladesh shot up to be the second largest exporter of readymade

garments in the world, following only China. Of course the government
must be credited for having a consistent fiscal policy. This has allowed
macroeconomic stability in the economy. The relentless search for new
markets for our readymade garments around the world has also spiked the
economy. However, do not forget that the recent fall in international oil
prices could have brought greater dividends to the economy. But the
government in order to recoup its past losses due to heavy subsides given
to national oil suppliers continues, for the moment, to charge exorbitant
price for petroleum supplies. This has put inordinate pressure on people's
domestic budget.
2016 promises to be another critical year for the Bangladesh economy.
This time the government needs to increase the annual GDP growth from
an average of 6 percent per annum to about 7.5 to 8 percent in order to
reach the status of a middle income country. But this means greater
investment in order to create better and more jobs. More women need to
be inducted in jobs and business organisations through training
programmes. Institutional barriers need to be reduced so that more and
more young women can join the labour and entrepreneur market. At the
same time, the country needs to shift from agriculture to higher
productivity industries as well as the service sector. Simultaneously,
Bangladesh needs to pilot its demographic growth so that it does not lose
its demographic dividend. Induction of more women in the workforce will
allow Bangladesh to continue with this dividend.
The year ahead will be challenging, as the economy needs to attract large
scale private investments in its industries and the service sector. Special
Economic Zones is the need of the day.
9
The government has therefore proposed to set up 100 such zones. But this
means that an excellent regulatory environment needs to be created. It has
to ensure financial sector accountability as well as exchange rate
flexibility. When this is on the way, the government has to ensure
connectivity both within and outside the country. Recently, the
government penned agreements with India, Nepal and Bhutan to ensure
better connectivity by land and sea where feasible. But such connectivity
needs to be established with China as well as Myanmar.

Challenges for growth and employment creation:

Bangladesh economy has undergone significant structural changes over
the last four decades. The share of agriculture in GDP has declined from
over 60% to less than 20%, while the relative significance of industry
(including manufacturing), currently estimated to be 28% of GDP, and
service sectors has increased substantially. The composition of the
manufacturing sector during the 1990s and 2000s has become
increasingly readymade garments (RMG) oriented. Driven by the
expansion of the RMG industry, the share of employment in the
manufacturing sector in Bangladesh rose from 9.5% in 1999–00 to 16.4%
in 2013. As found in all low-income countries, the unemployment rate
does not accurately capture deficiencies in the labor market (the rate was
just 4.3% in 2013). Rather, the majority of workers are found in informal
employment and suffer from under-employment. Gender disparities
persist despite the rise in the share of female workers. In summary, robust
economic growth in Bangladesh has been associated with both positive
trends and persistent employment challenges such as lack of
diversification, poor working conditions, low productivity, and a high
degree of informality. Against this backdrop, this paper analyzes the
nature of structural transformation in Bangladesh and elaborates on the
major challenges for future growth acceleration and employment creation.

10
The nexus between the different elements of business environment
existing in Bangladesh and her economic performance:

Introduction:
Better business environment in a country depends on number of factors:
• Institutions, infrastructure, macroeconomic stability and health &
primary education
• Higher education and training, goods market efficiency, labor market
efficiency, financial market sophistication, technological readiness and
market size
• Depending on the level of economic development, countries need to
identify factors which should get priority and should set strategies
accordingly
• Countries at factor-driven stage : Institutions, Infrastructure,
Macroeconomic Stability and Health and Primary Education
• Countries at efficiency-driven stage: Higher Education and Training,
Goods Market Efficiency, Labor Market Efficiency, Financial Market
Sophistication, Technological Readiness and Market Size
• Countries at innovation-driven stage: Business Sophistication,
Innovation
• Countries at factor-driven stage are usually the low-income economies
which suffer in improving basic requirements for businesses
• Institutions, infrastructure, macroeconomic stability and health &
primary education
Different elements of business environment in Bangladesh:
Natural environment: Bangladesh is demographically natural disaster
country. Each year its face several natural disaster like earthquake,
cyclone, river erosions and so on.
Economic environment: Economy of Bangladesh is always fluctuating.
Due to inefficient economic strategic plan Bangladesh economy is most
of the time fluctuate.
Political environment: The political environment of Bangladesh is
unstable due to political violence and communal riots.
Technological environment: Bangladesh is is not advanced in
technology use and produce.

From the above discussion, we saw that different environment existing in

Bangladesh are not properly nexus among them and her economic
performance is not very good.
11
A business environment for a developed Bangladesh
In the journey of progress, we are aiming for a developed Bangladesh by
2041. Only 22 years are left. We have to increase capita income to the
level of more than US$ 12,000 from $ 1,751 (FY 2017-18, BBS) and
many other steps need to be taken. The honorable Finance Minister said
that the per capita income in the country will also increase to US$ 1,909
at an Executive Committee of National Economic Council (ECNEC)
meeting on March 19, 2019. He also added that Bangladesh's Gross
Domestic Product (GDP) is set to grow by 8.13 per cent-the highest ever
in the country's economic history-in the current fiscal year (FY2018-
19). The minister mentioned that "the macro-economic performance of
the country is very good, which will contribute to achieving the robust
GDP growth". He added that the production of the agriculture and
manufacturing sectors were "also very good", while the export
performance was "robust", leading to healthy per capita income and the
GDP growth. It has been forecasted that the investment to GDP ratio will
stand at 31.57 per cent-of which 8.17 per cent will come from public
investment and 23.40 per cent from private sector investment.
Additionally, the government will give more incentives to the private
sector to encourage their engagement in mainstream economy.

Not only the per capita income but also the other aspects of a developed
country such as high standard of living, high rate of literacy and quality
education, pollution free environment, green GDP, green tax, improved
communication infrastructure, sophisticated and modern port operations,
high and speedy railway networks, human resources and cultural
development and many issues need to be properly addressed. We need a
strong and investor-friendly business environment to that end. A number
of assessments and projections have been very encouraging about our
business environment. Bangladesh has enjoyed robust growth for the past
decade and, given its inherent strengths, especially a vibrant private
sector, strategic geographic location and a large pool of inexpensive
labour, the prospects for continuation of such growth are relatively good.
World Bank has already observed that Bangladesh has a track record for
growth and development despite frequent natural disasters, fuel, food
price and global financial crises and other challenges.

12
Bangladesh was referred by Goldman Sachs (December 2005) as part of
the 'Next Eleven' emerging markets. The other countries in this list
include Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines,
Turkey, South Korea, and Vietnam. JP Morgan (2007) included
Bangladesh as a 'Frontier Five' country with impressive economic and
investment potential while the other countries in this list included
Vietnam, Nigeria, Kazakhstan, and Kenya. Bangladesh is on the growth
trajectory where poverty was reduced by nearly a third whereas life
expectancy, literacy and per capita food production have increased
significantly over the past two decades. South Asia's largest shopping mall
in Bangladesh is a testament to recent economic growth. Foreign Direct
Investments (FDIs) are giving Bangladesh a much needed boost to
become a persistent performer in the world economy. Bangladesh
operates eight exporting zones nationwide which allow for 100 per cent
foreign-owned ventures to operate. The Economist Intelligence Unit
(EIU) has forecasted that real GDP of Bangladesh will expand at an
average annual rate of 6.30 per cent, as it will be continuously supported
by the steady expansion of private consumption and investment.
Foreign investors are allowed up to 100 per cent equity participation and
all industries are open for private investment (exceptions are defense and
armaments; nuclear energy production; forestry; currency printing,
railways and air transport). The vast population of Bangladesh, with a
large consumer market (young with rising incomes), is positive about
private consumption. A strategic geographic location (located between
South Asia and South East Asia) in the vicinity of India and China, as
well as having low cost labour, makes Bangladesh a potentially attractive
destination for foreign direct investment. The Foreign Private Investment
Act provides legal protection from nationalization and expropriation, and
guarantees the repatriation of capital and dividends. Bangladesh is a
founding member of the South Asian Association for Regional
Cooperation (SAARC, along with among others India and Pakistan) as
well as the South Asian free trade area (SAFTA).
Though financial markets are underdeveloped, forecasts have assumed a
steady increase in the size over the coming ten years, with higher
availability of credit, stronger capital markets and further extension of
micro-financing schemes. Bangladesh's business environment indicator is
gradually nearing that of India, and the infrastructure ratings of both are
comparable. In order to sustain its growth in export commodities and FDI,
Bangladesh should remain competitive by offering attractive investment
incentives. 13
Low literacy levels and an underdeveloped infrastructure are holding the
country back from reaching its full potential. Bangladesh still faces many
bottlenecks in its trade and investment climate. Besides placing
Bangladesh in the list of 'Next Eleven', Goldman Sachs also categorized
Bangladesh as a country with broad-based weaknesses. Indicators that
helped improve Bangladesh's ranking in the Global Competitiveness
Index include the adequate state of infrastructure, adequate access to
finance, low level of corruption and political stability. Despite various
odds Bangladesh has seen an average more than 6.5 growth annually,
making it an investment destination with huge potential, also because
government policy is gradually being geared towards improving the
business environment. One of the biggest short term challenges for
Bangladesh is to improve the supply of electricity.
In order to stimulate rapid economic growth of the country, particularly
through industrialization, the government has adopted an 'Open Door
Policy' to attract foreign investment to Bangladesh. The policy provides
an overview of fiscal and non-fiscal incentives. The following have been
playing an important role at attracting foreign investments:
* STRATEGIC LOCATION OF BANGLADESH-With access to
international sea and air routes, the location of the country is ideal for
global trade.
* ADVANTAGEOUS TRADE AGREEMENTS- Most Bangladeshi
products enjoy complete duty and quota-free access to countries of the
European Union, Japan, USA, Australia, and other developed countries.
* ATTRACTIVE BUSINESS & INVESTMENT CLIMATE-Bangladesh
has a rapidly growing domestic market and, with nearly 170 million
people, there is obvious potential for a further increase in domestic
consumption.
* YOUTH AND AMBITION-Bangladesh has a vast workforce. A
growing segment of this workforce is skilled while others are semi-
skilled. There is an abundant supply of disciplined, easily trainable and
low-cost workers suitable for any labour-intensive industry.
* LANGUAGE-Although Bengali is the official language, English is
widely accepted as a second language.
* NATURAL RESOURCES-Bangladesh is endowed with an abundant
supply of natural gas, water and fertile land.

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*THE BANGLADESH EXPORT PROCESSING ZONES-The BIDA is
responsible for attracting investment into Bangladesh and to ensure that
investors receive the necessary assistance. The Bangladesh Export
Processing Zones Authority (BEPZA) is the official organ of the
government for promoting, attracting and facilitating foreign investment
within different Export Processing Zones (EPZ). An EPZ is defined as a
territorial or economic enclave, through which, goods may be imported
and manufactured and reshipped with a reduction in duties and/or
minimal intervention by customs officials. The primary objective of an
EPZ is to provide special areas where potential investors can find a
congenial investment climate, free from cumbersome procedures. An EPZ
provides: Plots/factory buildings in custom bonded area, infrastructural
facilities, administrative facilities and fiscal & non-fiscal incentives.
The Open Door Policy aims to boost inward foreign investment with a
number of tax holidays (5-10 years depending on location). Eight export
processing zones EPZ's are already in operation where 100-per cent
foreign-owned ventures are allowed to operate and are given equal
treatment as local enterprises.

15
Change in business environment in the light of recent policy changes:
Introduction: The economy of Bangladesh has experienced significant
shifts in trade, fiscal, industrial, agricultural and financial policies over
last two decades. Bangladesh is significantly dependent on external
resources and at the behest of the World Bank and the International
Monetary Fund, Bangladesh adopted a set of structural adjustment
policies that impacted on all sectors of the economy and every aspect of
the short- and medium-term economic management.
In this recent decade, Bangladesh fall in several problems because of
improper policy making. Such as, higher budget (deficit), Govt. borrows
from bank huge amount, Defaulted loans etc. These are illustrated below:

Proposed budget; FY-2019-20

Proposed budget; FY-2020-21

Above pictures show that, In Bangladesh budget policy there are a large
amount of deficit which led to govt. borrows also huge. For this reasons,
Bangladesh fall in historically bad loan situation .

16
Work on enacting the draft law is going on at bullet speed given the
escalating trend of default loans in banks, said four officials of the
government and the central bank involved with the process.
Until September last year, default loans in the banking sector stood at Tk
116,288.31 crore, up 23.82 per cent from nine months earlier.
“Our first objective is to enact a full-fledged law within the quickest possible
time. But it will take at least six months more to make the PAMC functional,”
said a Bangladesh Bank official on condition of anonymity as he is not
authorized to speak to media.
PAMCs have been deployed in a handful of countries with the view to
bringing down default loans. But the result has been mixed.
South Korea and Malaysia saw the greatest success with the model, with their
recovery rate being 46.8 per cent and 58 per cent respectively. The recovery
elsewhere is less than 30 percent.
It is the success of the two countries that have encouraged the government to
form the PAMC, the BB official said.
The company will kick off its operation with an initial paid-up capital of Tk
5,000 crore. “The amount of paid-up capital will be increased from time to
time. If required, funds will be raised by way of issuing bonds in the capital
market,” according to the draft act.

17
The PAMC will be allowed to ink agreement with both local and foreign
institutions in order to increase its capital and funds.
The Asian Development Bank has already showed its interest in providing
financial support to the government in setting up the PAMC.
The Manila-based development lender has already given different types of
technical support to the government to this end.
“We will be happy to provide financial support if the agency receives
proposal from the government,”
Manmohan Parkash, country director of the ADB, said in a conference on
November 26 last year.
The PAMC will take over the default loans, including collaterals such as
lands and industrial plants of defaulters.
An official of the finance ministry said the government has yet to prepare a
business model for the PAMC. “Different methods are now being
considered,” he said.
The company may take the default loans off the banks’ hands in exchange for
special bonds that would have certain maturity, enabling the lenders to keep
provisioning for bad loans.
In some cases, the company will restructure the mortgaged assets and
industrial plants after taking over those from banks.
The restructured assets will be sold to local and foreign investors by
arranging an auction, the official said, adding that the PAMC will even sell
the default loans directly if there is interest.
Besides, advisory support will be given to clients so that they will not face
any trouble by holding the toxic assets.
In order to make the PAMC vibrant, a secondary market for default loans will
be created, where people would be allowed to buy and sell default loans, the
official said.
As per the draft act, the government will form the board of directors of the
PAMC comprising of 13 members, of which 12 will come from the different
government agencies and the rest from the Federation of Bangladesh
Chambers of Commerce and Industry.
The tenure of the board will be three years and a member will hold his/her
directorship for a maximum of two times in a row.

18
The central bank will be empowered to monitor the PAMC’s operation and it
will prepare regulations on how the company will run as well.
The PAMC, which will enjoy tax rebate facility on its income, will be
allowed set up a number of branches in different parts of the country.
The company could invest its income in profitable sectors like banks and non-
bank financial institutions.
Annual financial statement of the PAMC will have to be submitted to both the
government and the central bank.
Experts -- and the immediate past finance minister -- welcomed the move
cautiously: its success rests on ensuring corporate governance.
“I think the PAMC can improve the situation. It depends on how the company
decides which asset it will take and in what condition,” AMA Muhith, former
finance minister, told The Daily Star in an interview earlier this month.
If the PAMC does that stringently, there is no chance of banks exploiting it
and dumping their bad assets on it.
“At the same time, banks whose assets are being taken over PAMCs, those
banks must be punished in another way,” Muhith added.
The government should amend all financial sector related laws such as
Banking Companies Act 1991, the Money Loan Court Act 2003 and the
Bankruptcy Act 1997 before commencing the operation of the PAMC, said
Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
Habitual defaulters frequently misuse the loopholes of the acts to be kept
themselves from getting punishment, he said.
The government should clamp down on the wilful defaulters, confiscating
their passports and boycotting them socially and economically.
“The PAMC will not work out at all if the habitual defaulters continue to
enjoy impunity for their delinquency,” Hussain said.
Fahmida Khatun, executive director of the Centre for Policy Dialogue,
echoed the same.
She said the draft act for the proposed PAMC mentioned that 12 out of 13
directors will come from government organisation, which is not a good idea
at all.
“The financial regulators have showed frustrating performance in improving
governance in the sector in recent years. So, how will they operate the PAMC
properly?”

19
The government should consider academicians, economists, representatives
of civil society and the private sector for the formation of the PAMC’s board
of directors, Khatun said.
“It is a good step beyond doubt, but the initiative will not be successful if
governance cannot be strengthened,” said Syed Mahbubur Rahman,
managing director of Mutual Trust Bank.
Default loans may go up further if both lenders and borrowers think that they
will be able to transfer their toxic assets to the PAMC.
“So we have to implement our rules and regulations strictly to sidestep such
situation.”
The standard of collateral taken by banks is not good at all.
“So how the PAMC will fix the valuation of the collaterals is an important
issue,” said Rahman, also an immediate past chairman of the Association of
Bankers, Bangladesh, a forum of managing directors of banks.

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 Reference
Economic development- Todaro & Smith
https://www.researchgate.net/publication/
https://www.Britannica.com
https://www.academia.edu/19868979/Bangladesh Economics
https://www.Wikipedia.com/bangladesheconomy
https://www.thedailystar.net

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