Keystone Quarterly REVIEW - Keystone Business Support … · · 2014-04-28In FY 2013, Titas Gas...

Continued in pg. 20

Upazila Elections: A Missed Opportunity

Even though Upazila Parishad (UZP) Elections are local affairs, they garnered national interest this year

after the unsatisfactory Parliamentary Election on 5th January, with the voters looking eagerly to exer-

cise their democratic rights to vote; something many of them could not do during the Parliamentary

Election, when 153 out of 300 seats were won uncontested.

UZP elections were held in 5 phases, between 19th February and 31st March. The first 2 phases of the

election were relatively peaceful, with scant reports of voting irregularity and both parties agreed that

voting had been free and fair. BNP gained a substantial lead in both Chairperson’s and Vice Chairper-

son’s races in the first phase, and consolidated their lead in the second phase. BNP’s ally, Jamaat, sur-

prisingly, put up a good performance in both the phases. JP struggled, and won

Shortfall in Revenue Collection

During the first 7 months of FY2013-14, National Board of Revenue (NBR) collected BDT 585.6 billion as

revenue, against the target of BDT 692.3 billion, a deficit of BDT 106.7 billion (15.5 percent of target).

Last year, over the same period, there was a shortfall of 4.5 percent. Even this small deficit could not be

met and NBR failed to achieve its revenue collection target of FY 2012-2013, by 3.6 percent, for the first

time in 4 years. Since no drastic change in tax policies are to be implemented in FY2013-14, it is appar-

ent that NBR will not be able to cover the 15.5 percent deficit in last 5 months of this FY. As a result, the

government has had to lower the revenue target for the current fiscal year by 8.09 percent, to BDT 1.25

trillion, down from BDT 1.36 trillion.

Keystone Quarterly REVIEW

Jan-Mar 2014

Contents

Politics: the Command Post

www.keystone-bsc.com

Continued in pg. 22

Energy Policy Options for Bangladesh Pg. 1, 2-7

Upazila Elections: A Missed Opportunity Pg. 1, 20-21

Shortfall in Revenue Collection Pg. 1, 22-23

Weak Enforcement of Immigration Laws and Monitoring of Outward Remittance

Pg. 8-10

Bangladesh IT Industry Pg. 11-13

Economic Indicators Pg. 14-18

Energy Indicators Pg. 19-20

News Update Pg. 24

References and Contact Pg. 25

Economic Trends

Lead Story

Keystone is a premier consulting company that provides comprehensive solutions and intelligence for businesses and organizations.

Volume 7

Energy Policy Options for Bangladesh

Energy is a perennial and tricky issue for eco-

nomic development. Abundant energy resource

was not enough to trigger growth in Nigeria, nor

did it lead to adequate electrification. However,

South Korea, for example, developed while rely-

ing on import to meet 97 percent of its energy

demand. The divergent experience of Nigeria and

South Korea shows that access to domestic ener-

gy resource is neither a sufficient nor a necessary

condition for development of Continued in pg. 2

Keystone Quarterly Review


a nation. Bangladesh has set forth the moderately ambitious goal of attaining middle income and high

Human Development Index (HDI) status by 2021. Ensuring energy security for welfare and develop-

ment is one of the key objectives. The challenge is to overcome short- and medium-term energy shortag-

es while simultaneously ensuring long-term energy security.

Overview of the Energy Sector

Energy Resources of Bangladesh1

i) Natural Gas is the primary energy resource of Bangladesh. As of March 2014, 22 gas fields consisting

of 92 wells are in operation, producing 2,291.1 millions of cubic feet per day (mmcfd) of gas and 5,387.2

oil barrels per day (bbld) of condensate. Eastern part of the country hosts majority of existing gas fields.

3 State Owned Enterprises (SOEs) account for approximately 45 percent of total production and the rest

are produced by International Oil Companies (IOCs). Gas transmission and distribution is handled solely

by the SOEs.

Current demand of gas in Bangladesh exceeds

current supply. Potential demand of gas, in-

cluding unmet demand, is estimated at 1,147.7

billions of cubic feet (Bcf) per annum, at pre-

sent, and is expected to reach 1,306.6 Bcf by

2015. Current gas reserves are expected to

meet the country’s demand only up to 2019.

Figure 1 shows the gas sector master plan

forecasts of proved, probable, and possible gas

supply scenarios against projected demand,

up to 2025. The shortfalls in gas supply in

2025 for the proved, probable, and possible

reserves are expected to be 13.1 trillions of cubic feet (Tcf), 8.5 Tcf, and 4.6 Tcf respectively.

Petrobangla estimates suggest that the country would require 58.2 Tcf of gas to meet its demand till

2050. According to United States Geological Survey, there is a possibility of undiscovered reserves of

32.1 Tcf. No new commercially viable gas field has been discovered in recent years. In 2012, only 3 out

of 12 blocks offered for exploration received bids from IOCs. Petrobangla signed 2 Production Sharing

Contracts (PSC) on March, 2014 with Australian oil and gas company Santos, and Singapore-based Kris

Energy, to explore oil and gas in shallow water blocks SS-11 in the Bay of Bengal. On October 2013, San-

tos shut down its operation in Sangu, the only operational offshore gas field of Bangladesh. Earlier in

2009, French oil giant Total had abandoned their exploration rights after discovering large offshore re-

serves that they deemed to be commercially unviable. Prospect of importing gas from Myanmar seems

bleak with no development in talks that begun in 2006, while China is already importing from the tar-

geted gas fields.

In FY 2013, Titas Gas Transmission and Distribution Company

Limited (TGTDCL) accounted for 63 percent of total gas distri-

bution in Bangladesh. Figure 2 shows sector-wise gas con-

sumption of TGTDCL. Power generation accounts for approxi-

mately 55 percent of TGTDCL`s gas consumption, industrial

use accounts for 23 percent of TGTDCL gas, and 4.8 percent

was used in fertilizer production. In addition, 11.6 percent of

gas was used by the domestic sector, and 4.8 percent of gas

was used as CNG fuel in transportation sector.

The current price of gas is well below its opportunity cost and gas revenue would be more than 9 times

higher than the current level if gas was priced at the average of India and Pakistan’s price. The sector-

Figure 1: Expected Domestic Gas Demand &Supply Scenario (2005-2025)

Source: Gas Sector Master Plan

Figure 2 Sectoral Composition of TGTDCL`s Gas Consumption FY 2012-2013

Source: TGTDCL



-wise consumption weighted average price of gas in Bangladesh was approximately USD 1.9/m3 in

2011. Average price in Pakistan, using the Bangladeshi consumption weight, and 2011 Pakistani gas

tariff, would have cost USD 4.43/m3, and the corresponding figure for India would be USD 9.53/m3. In

addition, changing gas prices would also optimize consumption of gas.

ii) Coal reserve of Bangladesh is estimated to be 3.2 billion tons in 5 different mines. Recovery rate of

coal varies according to choice of technology and method of mining. Assuming a modest recovery rate of

30 percent, the available reserve will translate to 0.96 billion tons of coal, an energy equivalent of 22 Tcf

of natural gas. Barapukuria coal mine is the only coal mine currently in operation, with production of

0.4 million tons from July, 2013 to December, 2013. No new coal mines are scheduled to be in operation

any time soon, primarily due to political concerns. Coal import is yet to begin in meaningful scale and

faces daunting infrastructural challenges.

iii) Petroleum products account for a fourth of total commercial en-

ergy use in Bangladesh. The sector is almost entirely dependent on

imports. Figure 3 shows the year-wise import of refined and crude

oil from 2009-2013. Total imports of refined oil increased from 2.7

million ton in 2009 to 4 million ton in 2013. Import of crude oil

reached 1.2 million ton on 2013, while 4,852 tons of lube oil were

imported in 2012. Transportation and communication sector is the

largest user of petroleum products accounting for about 44 percent

of all use. Power and agriculture accounted for approximately 24.5

percent and 19.3 percent of petroleum product usage in 2012-2013.

iv) Renewable Energy In addition to traditional resources, several alternative and renewable energy re-

sources are at disposal of Bangladesh. Hydro power has an estimated maximum capacity of 500 MW.

Micro, mini, and pico hydro power plants2 may cater to the needs of remote and hilly areas, as there is

limited scope of ‘run-of-the-river’ power plants in southern regions of the country. Solar based power

has large potential both in terms of rural electrification and capacity expansion. Only about 0.15 watt/

m2, out of total 208 watt/m2 available solar energy in land area, is utilized in Bangladesh. Developments

in installation of Solar Home Systems (SHSs) have been commendable. The target of 3 million SHS by

2015 has been doubled to 6 million units. Despite this, 61 million people belonging to the poorest seg-

ment of the country do not have access to any electricity. The country can therefore benefit from solar

lanterns, pico, and nano solar PV homes and grid systems to extend electricity for lighting and charging

cell phone batteries in remote areas. In addition, 8.6 million m3 of biogas, potential to produce 300 MW

of electricity from rice husk, and 350 MW from cattle waste based biogas power plants are also availa-

ble.

Energy Commodities of Bangladesh3

Electricity Per capita electricity generation of Bangladesh was 321 KWh in 2013. Neighboring countries

such as India (684 kWh) and Sri Lanka (1,073 kWh) had much higher per capita electricity consumption

by 2011. Generation capacity was 10,341 MW in April 2014, with private sector contributing about 50

percent of generation in FY2012-13. 39,322 circuit Km of transmission line and 288,787 km distribution

line, providing 14.2 million connections, providing electricity coverage to 62 percent of Bangladeshi

population. The corresponding figures for India and Sri Lanka crossed 70 percent mark in 2010. System

loss has decreased from 28 percent (2003) to 14 percent (2013) of total transmission and distribution

(T&D). But there is further scope for improvement. Most of the addition to grid network has been low

voltage systems to support new connections. Technical investments in transmission and distribution

are lagging behind the level of investment in power generation.

In spite of large capacity additions in recent years, Bangladesh faced chronic power shortages through-

out 2013. Peak demand of 8,250 MW occurred in the month of April against a peak monthly average

Figure 3 Petroleum Product Import (2009-2013) (in millions of tons)

Source: TGTDCL



generation of 6,500 MW, occurring in July. The highest electricity generation was recorded on 30th

March, 2014, at 7,356 MW. Given the recent economic growth, expected growth, and capacity addition

of the country, power shortage is likely to persist in the near future.

Gas still remains the primary energy source for electricity, commanding

a share of about 78 percent of fuel input in power generation, whereas

furnace oil accounts for 14.6 percent of fuel input in electricity genera-

tion. Coal, hydro, and diesel accounted for 3 percent, 2.3 percent, and 2

percent respectively in the fuel mix of FY2013 (Figure 4). Shortage of

gas is posing serious problems for capacity utilization of power plants.

Seasonal as well as morning-evening variation of electricity demand

poses a policy challenge in power sector. The gap between peak de-

mand in April 2013 and bottom demand in December 2012 was 5,359

MW (Figure 5). Since electricity is non-storable, these variations in demand have direct implications for

cost of generation and the type of plants that can be used. Currently, large coal and gas-fired power

plants serve as base load power plants, and expensive liquid fuels are used to generate electricity at

peak hours.

Overcoming the Primary Fuel Constraint in

Power Generation: Matching electricity demand

and supply in short, medium, and long-term at an

affordable cost is the challenge for energy sector

in Bangladesh. As estimated in PSMP 2006, the

opportunity cost of not having electricity was

more than BDT 35/KWh. On the other hand, aver-

age cost of electricity generation was BDT 6.7/

KWh in FY2013. PSMP 2010 forecasts of power

sector peak demand and expected generation

(based on growth targeted in outline perspective

plan 2010) and corresponding shortages for

2015-2030 are shown in Table I. The peak de-

mand for electricity would range between 8,232-

10,283 MW in 2015, 10,255 – 17,304 MW in

2020, and 18,282 – 33,708 MW in 2030. Till date, maximum generation has been 7,356 MW. Even with

the planned capacity additions, minimum shortage of 34 percent of demand will prevail till 2030.

More than 75 percent of electricity generation in Bangladesh comes from gas. Gas supply is expected to

start decreasing from as early as 2015 and exploration and development of new gas field has been stag-

nant in the past few years due to lack of enthusiasm of IOCs in gas exploration. An immediate task of the

government would be to develop BAPEX’s own technical capability to estimate and assess reserves of

gas both off and in-shores and remove barriers to offshore exploration.

PSMP 2010 plans to make coal a major base

load fuel in Bangladesh. 29 and 21 percent of

electricity is planned to be developed by do-

mestic and imported coal by 2030. Thus, fu-

ture coal demand is going to be significant.

Table I summarizes this.

Government has stayed away from extraction of domestic coal in recent times. In light of dwindling gas

supply and high costs of generation using fuel oil and imported coal, domestic coal still presents the

most realistic possibility of ensuring energy security at affordable cost for Bangladesh. The government

has to figure out solutions to mining method, and environmental damage, and resettlement of affected

Figure 4 Fuel Mix for FY 2013

Source: TGTDCL

Figure 5 Typical Demand Curve FY 2012-2013

Source: BPDB

Table I: Expected Peak Demand, Supply and Shortage (2015 – 2030)

Source: PSMP 2010 and Keystone Calculations

Year Peak De-mand (MW)

Genera-tion (MW)

Shortage (MW)

Shortage (In %)

2015 10,283 6,170 4,113 40.0

2020 17,304 10,382 6,922 400

2025 25,199 15,749 9,450 37.5

2030 33,708 21,910 11,798 35.0



people. High population density of Bangladesh posses a problem, but proper communication with stake-

holders and prudent management of local political elements may mitigate differences between needs of

the broader nation and needs of local population.

Major challenge towards power

generation using imported coal

is coal transportation. Bangla-

desh lacks necessary infrastruc-

ture to import and distribute

required amounts of coal for

power generation. Infrastruc-

ture facilitation through building deep sea port and dredging of inland waterways leading to designated

power plant sites has to be given top priority by the government. Financing of coal based power plants

remains a challenge. Small coal fired power plants are economically less viable because they are less

energy efficient and have high fixed costs associated with developing coal handling facility and mini-

mum order quantities for competitive coal purchases from international markets.

Increasing Base-load Generation Capacity: Enhancement of base load generation capacity has re-

ceived little attention in recent past. Only 4 of the 58 power plants commissioned between 2009 to Oc-

tober 2013 have a capacity exceeding 150 MW. Progress of other base load projects has been very slow.

Operation of large coal based power plants, expected to be commissioned in 2014, are likely to be de-

ferred by more than 5 years. Exacerbating gas supply limits its usage as a future base load fuel. Nuclear

power project has not shown any development beyond planning phase. To ensure power security at

affordable costs, more resources have to be channeled towards developing base load capacity and nec-

essary steps have to be taken to reduce time lag in implementing base load project.

Promoting Renewable Energy (RE): RE may turn out to be the difference between energy crisis and

energy security of Bangladesh. The country has significant potentials in terms of solar energy, hydro-

based energy, wind energy, and biomass. Major advantages of solar are that it is environment friendly

and can reach off-grid areas. SHSs reduces burden of transmission and distribution costs. Solar irriga-

tion and pico/nano systems can reduce kerosene expenses for both household and government.

Moreover, sale of SHSs and pico/nano systems increase decentralization of decision to consumers of

electricity. Further development of solar power can be achieved by promoting R&D, providing innova-

tive loan schemes, and feed-in-tariff for installing solar powered systems. The country needs to step up

its assessment and development of micro, mini, and pico hydro power in context of electrification of

remote areas in hilly regions of the country. Furthermore, government has to popularize the idea of in-

vesting in biomass and rice husk based power plant.

Burden of Increased Power Generation Cost: Figure 6 shows the

average electricity generation costs have increased nearly TK

2.36/KWh in FY2008 to TK 6.70/KWh in FY2013 in the period. The

main reason behind such an increase is extensive use of rental

power plants which represents 32 percent of capacity addition

since January 2009. Subsidy on rental power plants in 2011-12

accounted for about 44 percent of the total subsidy to the power

and energy sector. Rental power plants are less fuel efficient and

generally make use of expensive liquid fuel oils. The situation has

been exacerbated with adoption of Supply of Power and Energy (Special Provision) Act-2010 that grant-

ed government the authority to bypass existing laws of land and tendering process.

The result of the whole process has been violation of ‘least cost expansion’ principle with generation

costs of rental power plants being 9-13 times more than the generation cost in public gas-fired power

Table II: Expected Peak Demand, Supply and Shortage (2015 – 2030)

Source: PSMP Study

Net Generation [GWH] Coal Consumption [1,000t/y] Year

Total Total Imported Coal Domestic Coal Imported Coal

2015 54,047 2,306 0 792 0

2020 90,950 12,931 16,075 3,795 6,517

2030 190,752 66,286 35,130 19,023 14,335

Figure 6 Average Generation Costs (in TK/KWh)

Source: BPDB



plants. The country has to phase out the use of rental power plants. Competitive tendering process has

to be reinstated to ensure transparency, efficiency and cost effectiveness in power sector.

Energy Pricing: The case of Bangladeshi energy sector is a prime example of resource misallocation due

to mispricing. Gas price provided to power sector is about a fifth of neighboring countries. Advocates of

gas and electricity subsidies cite access to power, energy, and affordable transportation that these sub-

sidies provide to disadvantaged people. However, BBS estimates suggest that except kerosene, majority

of beneficiaries of subsidies in energy commodities and power belong to upper-middle and rich class.

i) Gas Pricing The danger of over-subsidizing energy sector is that it encourages sub-optimal use of re-

sources by both private and public sector. Most gas-fired power plants in Bangladesh uses steam tur-

bine technology (30 percent efficiency), whereas almost all power plants in India make use of combined

cycle power plants (60 percent efficiency). According to an ADB working paper,, aggregate welfare loss-

es from removing price support for gas can be entirely avoided with energy efficiency gains of 1 percent.

Economic developments can be further promoted by following Hartwick’s rule of investing gas revenue

on public infrastructure to increase productivity. Public sector fiscal revenues may increase by as much

as 60 percent by 2030 if the government decides to remove subsidy from gas and invest the revenue in

infrastructure development.

ii) Electricity pricing needs to reflect both its economic value and cost of production. In contrast to an

average cost of BDT 6.7/KWh, the bulk tariff was BDT 4.70/KWh in 2013. At current prices, the govern-

ment is expected to make a loss of BDT 61.13 billion in FY2014. The electricity production receives ad-

ditional implicit subsidy through below opportunity cost pricing of gas. In order to better manage polit-

ical risks of tariff hike, government may also look into innovative pricing strategies such as marginal

cost pricing, use of cross subsidization among various consumer categories, etc.

One option for the government would be to price electricity on a cost basis and create discount slabs

that keep effective tariff rates at desired levels. This can act both as a medium of communication as well

as a basis of marginal cost pricing. Many experts have been calling for separate billing for air condition-

ers (ACs). BPDB estimated that about 2,000 MW of electricity has been used in powering air condition-

ers in FY2013. Welfare effect of separate market-based tariff for electricity used in ACs would be much

more positive if the generated revenue is invested in power sector development.

Demand Side Management: The Energy Audit Cell of the power division estimated that national annual

natural gas savings due to 5 percent improvement of efficiency of boilers would lead to a gas saving of

18.2 BCF, based on 2006-2007 gas production and use in boilers. In addition, there is considerable room

for electricity conservation through demand side management in areas such as installation of intelligent

motor controller, separate billing system for ACs, and standardization of local and imported domestic

and commercial electrical devices and equipment. To accelerate energy saving through demand side

management, Draft Energy Conservation Act of Bangladesh has to be enacted and implemented as soon

as possible.

Regional Electricity Trade: Bangladesh inaugurated its electricity trade in October, 2013 with energy

imports from India. The SAARC region has tremendous hydro potential. Estimated regional hydropower

capacity is 300,000 MW. India has hydro power potentials of about 150,000 MW. Nepal and Bhutan also

has significant hydro-power potentials. Bangladesh and other SAARC countries may look into options of

joint exploitation of hydric resources. Infrastructural challenges such as lack of adequate transmission

system are major impediments to regional electricity trade. Bangladesh, along with India and Pakistan,

has to play a more proactive role in developing infrastructure for regional energy market integration.

Transmission and Distribution (T&D) System: T&D of electricity has not kept pace with accelerated

capacity addition and emerged as the limiting factor to rural electrification. Long distances from grid

substation, small conductors and lack of adequate high voltage transmission and medium voltage distri-

bution line resulted in frequent system overload, poor voltage profiles and high technical losses in rural

T&D. Large investments are necessary to construct medium voltage distribution line and high voltage



transmission lines with suitable sub-stations in order for additional electricity to reach rural consumers.

Along with making use of donor funds, the government has to look into options that can encourage pri-

vate participation in investing in T&D systems.

Improvements in Generation Efficiency: There has been a steady deterioration in generation efficiency

in past few years. Even though daily peak generation increased from about 3,800 MW in March 2009 to

about 5,400 MW in January 2014, generation efficiency fell during this period, from about 70 percent to

about 53 percent, indicating that incremental additions in installed capacity has not yielded the ex-

pected increase in power generation.

Developments in International Policy Environment and Energy Market: According to IEA estimates,

energy demands would double by 2050 leading to a high possibility of increases in prices of fossil fuels.

There is no way to fully isolate the country from rising fossil fuels costs. However, the country can look

into management options such as maintaining an optimum inventory of petroleum and go into joint-

ventures in mining projects to minimize its exposure from international price shocks.

Needed Developments in the Energy Sector

A multi-faceted and simultaneous approach involving public sector and private sector is necessary if

Bangladesh wants to move from current energy crisis and prepare for high levels of energy demand in

near future. Developments necessary for a healthy energy sector in future are:

(i) Ensuring coal and gas supply in power generation by removing political deadlocks in domestic coal

mining, speeding up development of infrastructure for importing coal and rejuvenation of offshore gas

exploration; (ii) Phasing out rental and quick rental power plants and simultaneously enhancing base-

load capacity; (iii) Aligning energy and power prices to their opportunity costs; (iv) Making provision of

electricity for 60 million un-served population through solar energy, especially through solar lanterns,

pico PV grid, and other decentralized electricity distribution mechanism; (v) Expansion in use of solar

energy for economic purposes, such as irrigation pumps, rice husking, saw mill, and ice factories in rural

areas; (vi) Continue and strengthen efforts to create regional energy market along with pursuing joint

exploitation of SAARC hydro resources; (vii) Upgrading and extending rural T&D system- with support

from private participation, if possible; (viii) Consider joint-ventures in mining and developing an opti-

mum petroleum inventory; and (ix) Increasing efficiency in utilizing generation capacity of electricity to

harness full benefits of capacity addition.

Several institutional reforms are necessary if Bangladesh wants to prepare for upcoming energy chal-

lenges rather than plan actions on an ex post facto basis. Necessary developments in the institutional set

up include:

(i) Following ‘Least cost expansion’ strategy in electricity generation, transmission, and distribution

through competitive and transparent procurement; (ii) Long-term strategic planning has to be grounded

on reality so that sudden reversals in planning perspectives, such as the shift from plans to export gas in the

late1990s to plans to import gas from Myanmar by 2006, are not repeated; (iii) Developing public sector

technical capacity of assessing gas reserves to reduce dependence and information asymmetry with

IOCs is essential to ensure proper long-term strategic planning; (iv) Enacting and implementing ‘Energy

Conservation Act’ as soon as possible; (v) Reducing time lag in planning, evaluating, and implementing

projects; and (vi) Corporatization of Palli Bidyut Samities.

End notes:

1 Energy resources are defined as anything that can be used to produce energy commodities such as electricity, pe-

troleum products; etc. Energy resources include natural gas, coal, crude oil, hydro, biomass, solar, etc.

2 Mini, micro, and pico hydro plants are defined as hydro plants with capacity in range of 100 kW to 1 MW, 5 kW to

100 KW, and less than 5 KW respectively

3 Energy commodities are processed energy resources such as processed gas and coal, electricity, refined petroleum

products, etc, that can be used to provide energy services such as lighting, motive power, etc.

Note: Data sources are listed in page 25


Bangladesh, with its abundant supply of labor, is one of the largest

net exporters of labors in the world. Since the mid-1970s, the

country has exported approximately 7 million workers to more

than 140 countries. According to the Migration Policy Institute

(MPI), Bangladesh ranks 5th on the list of labor exporters after

India (1st), and China (4th). As a result, emigration (migration

from Bangladesh) is a widely discussed issue in the policy circles.

However, the other side of the coin, immigration (migration of

foreign workers into Bangladesh), have been relatively overlooked.

Bangladesh is among the top 50 destination countries for migration of workers in the world, ranked at

33rd. According to data collected by United Nations, Department of Economic and Social Affairs (2013),

at September 2013, Bangladesh was home to approximately 1.3 million migrants from all over the

world. Table I summarizes the number of migrants to and from Bangladesh over the years. Even though

Bangladesh is a net exporter of labors, immigration figures have increased substantially over the last

few decades, with 36.2 percent growth from 2000 to 2010.

Figure 1 graphs the number of immigrants to Bangladesh from various countries, in 2013. The diversity

of foreign workforce in Bangladesh is apparent. According to data collected from MPI and UN, the larg-

est number of immigrants comes from Myanmar, followed by China, and Indonesia. There are also a

large number of immigrants coming in from India and Pakistan, but that aspect is not present in figure 1

since majority of workers from neighboring nations come via illegal channels.

Broadly defined, there are two types of migration – the migration of skilled workers (mainly working in

the service sector), and migration of unskilled workers (mainly working in the primary or secondary

industries). Workers in the former group come from all around the world and usually immigrate

through the legal and formal channel. The latter group is predominantly migrants from neighboring

Cloud in the Horizon Weak Enforcement of Immigration Laws and Monitoring of Outward Remittance

1990 2000 2010 2013

Immigrants to Bangladesh 881,617 987,853 1,345,546 1,396,514

Growth rate (%) - 12.05 36.21 3.79

Emigrants from Bangladesh 5,635,489 5,695,075 7,510,310 7,757,315

Growth rate (%) - 1.05 31.87 3.29

Table I Estimates of Migrant Stock, 2013

Sources: United Nations Population Division; Department of Economic and Social Affairs

Figure 1: Number of Immigrants in Bangladesh, 2013

Source: United Nations, Department of Economic and Social Affairs (2013)


countries, most of who on arrive via illegal and informal channels. For a LDC such as Bangladesh, with a

fragile economy and persistent unemployment, illegal immigrants (and to some degree, even some

avoidable legal migrants) and their subsequent outward remittances could pose a problem to the coun-

try and its people.

Impact of Skilled Labor Migration

Immigration of a skilled workforce potentially adds value to the economy as they may bring in addition-

al and differentiated skills and know-hows, unknown to the local labor force. This sharing of knowledge

and exposure to foreign norms foster a culture of learning and synergy, benefitting the economy. How-

ever, hiring foreign workers, despite the availability of local workers of comparable education level,

jeopardizes the latter group’s employment opportunities. In USA, for example, there are strict laws stat-

ing that the employers must actively attempt to recruit local workers to fill a position. US employers

must also ensure that their foreign employees’ actions will not negatively affect job opportunities, wag-

es, or working conditions of the native workers. As a result, immigration to developed countries com-

plements the local workers rather than threatening them. On the contrary, in Bangladesh and other

LDCs, the reverse is the norm. According to the Economist Intelligence Unit (EIU), approximately 47

percent of the country’s graduates were unemployed in 2012, which is the highest in the region (7.8

percent in Sri Lanka, and 28 percent in Pakistan). This is, to some degree, due to preference shown to

foreigners in the job market, but also due to Bangladesh’s lack of professional educational institutions,

to train local graduates for the manufacturing, ICT, leather and development sectors. This affects the

economy in two ways: by shrinking the local labors’ employment opportunities, and by promoting a

higher outflow of remittance.

Impact of Unskilled Labor Migration

Majority of the unskilled immigrants are either from the eastern states of India or Rohingyas from My-

anmar. These workers usually do not have any work permits. They resort to informal work to supple-

ment humanitarian assistance (in case of Rohingyas) and engage mainly in primary industry activities

such as those of day laborers, fishermen, salt and brick factory workers, et cetera. Since they work ille-

gally, they are willing to work for low wages and that depress the local wage rate, making it difficult for

the local workers to compete. Furthermore, by introducing the concept of expectation into any neoclas-

sical model of migration, we can see that greater employment of migrants leads to even greater migra-

tion, and hence, greater unemployment (mostly of local workers, in case of Bangladesh).

Outward Remittances

Bangladesh ranks 8th amongst the remittance receiving countries, and 99th amongst the remittance

sending countries. A considerable sum of remittance-inflow into the country is being channeled out of

the country due to lack of skills amongst the local workers. According to the Migration and Development

Brief 2012 (World Bank’s Migration and Remittance Unit), Indians residing in Bangladesh remitted ap-

proximately USD3.7 billion in 2011 and USD4.08 billion in 2012, whereas Pakistanis in Bangladesh re-

mitted USD35 million in 2011, and USD40 million in 2012. What is never mentioned in the policymaking

circles is that Bangladesh is India’s 5th largest source of remittance, after Saudi Arabia and the UK, ac-

cording to Sliconindia News. It is estimated that over 500,000 Indians are currently residing in Bangla-

desh. This amount is expected to increase in the coming years. Moreover, this is only the official figure;

the actual figure is likely to be much higher. Thus, although large number of illegal migrants moving

from Bangladesh to India is often highlighted, the true scenario is not as unilateral as it is portrayed.

From Table II, in the next page, it can be seen that the remittance inflow has increased by 29 percent

from 2010 to 2012 (Table II), whereas the outflow of remittance has increased by 31.2 percent in those

two years. While the increasing inflow of remittance is widely discussed, the outflow of remittance is

generally overlooked. The increasing level of remittance outflow is rather alarming since it indicates



that local labor is being replaced by foreign labor, further worsening the country’s unemployment sce-

nario. Providing skills training can help reverse this trend while at the same time help tap into some of

the outflow of remittances.

Although Bangladesh Bank maintains a robust database on remittance inflow, with details of monthly

remittances received from each destination country, available data regarding outflow of remittance is

not as comprehensive. It is vital to properly document the illegal immigration to, and outward remit-

tance from, Bangladesh.

Existing Policy for Foreign Employment

The existing policies regarding employment of foreign nationals state that foreign nationals with

monthly earnings less than USD500 will not be allowed to work in industrial firms of complete foreign

ownership or joint ventures. Moreover, while hiring foreign workers, private enterprises have to apply

for a work permit from Bangladesh Board of Investment (BOI). Similar to the Malaysian and US policy

for hiring foreign nationals, in Bangladesh, foreigners can only be hired if the local workers lack the re-

quired skills. The existing policy also imposes a quota on the number of foreign employees at no more

than 5 percent in the industrial sector and 20 percent in the commercial sector of the total employees,

including top management personnel. Foreign nationals can initially be employed for a two-year period

which may be extended on the basis of merit. However, BOI imposed a five-year-limit on foreigners

working in the commercial industries, in 2007, in an attempt to promote more local employment. Thus,

policies on immigration and hiring of foreign workers do exist but they lack proper implementation.

Recommendations

In order to benefit from migration of skilled workers and avoid the negative impacts of illegal migration

and excessive outward remittances, the country needs to focus on the following areas:

Strict enforcement of the existing policies on hiring of foreign nationals;

Stronger controls on the country’s border so as to stop illegal immigration of unskilled workers;

In the short-run, promotion of local workers by developing skills programs to better match skills of

job seekers with employers’ requirements through initiatives such as SEIP, STEP, TVET, etc. In the

long-run, greater focus on improving the quality of local education system by allocating more on R&D

thus reducing the need for foreign workers; and

Maintenance of a detailed database on outflow of remittance to each country, by Bangladesh Bank.

The government should also create an immigrant-profile, allowing better targeting of R&D invest-

ments in various skills development areas.


2010 2011 2012

Remittance to Bangladesh (USD billion) 10.68 12.07 14.07

Growth rate (%) - 13.01 16.57

Remittance from Bangladesh (USD billion) 3.148 3.7 4.12

Growth rate (%) - 17.53 11.35

* Remittance data is disaggregated using host country and origin country incomes from each year and estimated migrant stocks from 2010

Table II: Estimates for Remittance using Migrant Stocks, Host Country Incomes, and Origin Country Incomes*

Sources: Bilateral Migration and Remittances; the World Bank



Silver Lining

The inception of the computer industry of Bangladesh was in

1984, when Bangladesh Computer Council (BCC) was formed un-

der the Ministry of Science and Technology. The government has

taken both short and long-term measures (Vision 2012, Digital

Bangladesh) to support the ICT industry and due to significant

expansions in the past decade, the Information Technology (IT)

sector is now considered as the ‘thrust sector’ of Bangladesh.

The size of the IT market, excluding telecom in Bangladesh, was estimated to be USD 300 million in

2012. The IT and software export industries derive their earnings from both the domestic and interna-

tional market. There are over 1,000 registered software and Information Technology Enables Services

(ITES) companies in the country; around 60 percent of these companies are focused on the domestic

market, while the rest are focused on the international market.

Domestic Software Market Scenario

Majority of the local IT companies are focused on the banking and financial segments (including capital

market, leasing, insurance, and monetary flow indexes). Even though central banking is dependent on

foreign software, many local IT companies are also developing, executing, and maintaining software,

which are being increasingly implemented by the leading banks, insurance companies, and exporters of

readymade garments, knitwear, pharmaceuticals, and leather sectors. A complete branch-banking soft-

ware, Infinity Banking Solutions (IBS), locally developed by Desktop, is currently running successfully at

848 branches of state owned commercial

banks and private commercial banks.

There are 6 IT firms listed in Dhaka Stock

Exchange. Revenue data is available for 3

firms and is shown in table I.

International Market

The software industry of Bangladesh has turned into a suitable outsourcing harbor, since many Ameri-

can and European countries are shifting their focus on Bangladesh for its low-cost IT services due to

increase in costs in traditional IT outsourcing centers such as India, China, Brazil, etc.

In 2012-13, the revenue of the IT industry is estimated at USD400 million; including USD 101.63 million

by software export and USD 135 million from ITES. Figure 1 shows the export performance of last 5

years.

Notably, Bangladesh software and ITES export performance consistently exceeded export targets from

the year 2010 to 2013. It achieved a growth of 30.2 percent between 2009 and 2013. Figure 2 shows the

annual revenues of the top 5 export companies of Bangladesh, between the years 2010 and 2011.

Bangladesh IT Industry

2010-2011 2011-2012 2012-2013

Agni Systems Limited 140 160 102 (31

Dec, 2012)

BD COM Online 172 201 254

ISNL 57 60 43

Table I: Revenue (in BDT million)

Source: Dhaka Stock Exchange

Figure 1: Export performance of ICT services in the last five years (USD million)

Source: Export Promotion Bureau

Figure 2: Annual Revenue of the top 5 IT/ITES export compa-nies of Bangladesh( in USD million)

Source: Exporter Directory, 2012


ITES exports include medical transcription, GIS services, data warehousing, and mining. There are over

160 registered software and ITES exporting companies in Bangladesh, not counting freelancers. The

number of software-export destinations had increased from 30 countries in 2011 to 60 country in

2012.

Factors Contributing to the Growth

The growth of the Bangladeshi IT industry has been driven by good export trends in recent years as well

as the growing IT automation demand in domestic market, as local demand has been led by large auto-

mation projects by telecom, banking sector, and export oriented garments/textile industry. Apart from

formal corporate outsourcing/off-shoring, a number of informal outsourcing initiatives have been taken

by young IT professionals/entrepreneurs, who secure foreign clients through online marketing schemes

such as V worker, Freelancer, O desk, etc. These small-scale individual initiatives, taken together, con-

tribute significantly to employment generation and export earnings in the Bangladeshi IT industry. The-

se informal outsourcing initiatives often avoid formal channels and may therefore be responsible for the

under-reporting of software and ITES exports.

Comparison with Neighboring Countries

The progress of Bangladeshi software industry recent years still pales in comparison to India’s yearly

earnings from their software industry alone, which is in billions of dollars. India’s software industry

earnedUSD62.6 billion in the year 2012-2013. India’s outstanding achievements and steady increases in

the IT sector can be linked to the fact that India has much lower cost of internet bandwidth, and a large

reserve of graduates proficient in technical subjects and English-speaking skilled IT professionals. Ac-

cording to World Bank database, ICT service exports earning were USD 95.9 billion for India, USD 1.3

billion for Pakistan, USD 932.6 million for Sri Lanka, USD 713.8 million for Bangladesh and USD 383.6

million for Nepal in 2012.

Figure 3 shows the ICT service ex-

ports expressed as a percentage of

GDP of Bangladesh and other neigh-

boring countries. In 2012, India’s ICT

service exports contributed 5.2 per-

cent to its national GDP, compared to

Nepal (2 percent), Sri Lanka (1.57

percent), Bangladesh (0.61 percent),

and Pakistan (0.58 percent). The im-

pressive growth of the previous dec-

ade, if maintained, will allow Bangla-

desh to quickly close this gap with

neighboring countries, and catch-up.

Strengths of Bangladesh ICT Sector

A major strength for Bangladesh in the ICT sector lies with its relatively high young-population base.

Over 34 Percent of the population is in the age group of 15-34 years, which is favorable for Information

Technology-Business process outsourcing (IT-BPO) industry. Bangladesh Association of Software and

Information Services (BASIS), and other institutions, are providing training to IT professionals, and has

started a campaign to inspire the young population to become IT professionals. Another benefit lies in

the flexibility of the Bangladeshi ICT companies in obtaining additional skilled labor when a project

scales up. Furthermore, low cost is another big advantage. According to a member of Bangladeshi ICT

exporting company, Bangladeshi ICT companies offer their products and services at much lower prices,

as opposed to other ICT offshore destinations.


Figure 3: ICT service exports (Bop, current US D) expressed as a percentage of the national GDP (current USD)

Source: The World Bank Database


Measures Taken by the government of Bangladesh (GoB) to Promote the ICT Sector

The following initiatives have been taken by the GoB in order to expand and develop the ICT sector:

All software and ICT Service companies, including those under foreign ownership, have been exempt-

ed from paying income tax until 2015.

Government sponsored long-term equity fund and short-term working capital financing are offered to

ICT companies.

A special hi-technology and software park is being built at Kaliakoir to facilitate the development of

all infrastructure needed by companies that outsource activities. Furthermore, the GoB has estab-

lished the Bangladesh Hi-Tech Park Authority to operate the hi-tech park.

The internet bandwidth price has been reduced from BDT 75,000 per megabit per second (Mbps) in

2007 to BDT 4,800 in 2013. The telecom ministry is considering reducing the price further, to BDT

3,000 per Mbps.

In September 2013, Bangladesh finally installed the much needed backup for the lone undersea cable

for terrestrial connectivity with commercial operation.

Prospects of the IT Industry

In 2011, over 20 local IT companies had obtained ISO certification, and a number of companies were in

the process of acquiring Capability Mature Model Integration (CMMI) certification, and at least 6 compa-

nies had achieved CMMI level 3. These developments in the ICT sector occurred mainly due to the

launch of online banking, introduction of currency transfer through mobile network, and launch of 3G.

Connectivity and technological parks are the two new infrastructure areas that have emerged recently.

About 57 percent of the Bangladeshi software companies are involved in government sector IT projects.

This indicates that the government is potentially the biggest client for the software industry, with the

national IT policy guideline allocating up to 5 percentage of annual development plan (ADP) and 2 per-

centage of revenue budget, for IT. Another positive sign is the rapid growth of its mobile banking sector.

The main target of mobile banking, also commonly known as mobile financial service (MFS), is to reach

the rural , unbanked communities of Bangladesh with financial services. At the beginning of 2013, there

were only 3.6 million MFS users, which increased to 13.2 million by the end of December 2013, with 12

percent growth per month. MFS revenue grew considerably at a rate of 1650 percent from April 2012-

13, and a further 295 percent from April 2013-14.

Main Challenges

Despite showing promises of growth, the IT industry of Bangladesh has been hindered by several fac-

tors over the past decade. Some of these challenges associated with our IT industry are :

Lack of proper and reliable telecom infrastructure: The major constraints are lack of uninterrupted

electricity supply and internet service. Limited number of software technology parks is also a reason.

Marketing development: Due to consumers’ lack of confidence in local IT products and services, half of

the IT market is occupied by foreign IT companies, causing the market visibility of domestic IT com-

panies to become low. Initiatives have to be taken by both the government and the private sector to

increase its visibility in the overseas market.

Limited human resources: There is a shortage of skilled IT professionals with technical background in

the IT industry, because IT training programs can be quite expensive. This problem can be easily

solved if the government of Bangladesh decides to invest in the training of our IT graduates.

Other problems include high internet bandwidth price; inadequate branding as a global off-shoring

destination; low access to finance; poor project management skills and low cyber security.

If the constraints are removed, 1 percent of Bangladesh’s total GDP will come from the software and IT

services sector, and over 150,000 IT and software professionals will be working in the IT industry with-

in the next 5 years.




1. Real Sector

Economic Indicators

Month Inflation % (P-2-P) [Base Year 1995-96]

Food Inflation % (P-2-P) [Base Year 1995-96]

2013 2014 Change 2013 2014 Change

March 7.74 7.55 (0.02) 8.3 8.96 0.08

February 7.87 7.44 (0.05) 8.34 8.84 0.06

January 7.38 7.5 0.02 7.21 8.81 0.22

GDP growth has been steady during the

past decade. However, in FY 2012-13 the

growth rate decreased slightly. In FY 2013

-14, a growth rate of 6.3 percent, was

forecasted initially, but later Bangladesh

Bank revised the growth rate down to 6

percent. Multi-lateral agencies like World

Bank and ADB estimated the growth rate

to be even lower, around 5.4 percent and

5.7 percent respectively. Per capita in-

come has been increasing steadily due to

decline in the population growth.

Inflation (p-2-p) decreased slightly from 7.5 percent in January to 7.44 percent in February but then increased to 7.55 per-cent in March.

Food inflation increased from 8.81 percent in January to 8.84 percent in February and then further increased to 8.96 percent in March.

Inflation

Credit to Public and Private Sector

Month Current Account Balance (USD million- latest 12 months)

[converted from BDT to USD using monthly average exchange rate]

2012 2013 % Change

December 3,105 2,230 -28.2

November 2,576 2,689 4.4

October 2,263 1,892 -16.4

Current Account Balance Trade Balance

Month Trade Balance (USD million- latest 12 months)

2013 2014 % Change

March (6,295) (8067) *estimated

-28.15

February (6,844) (7,785) -13.75

January (7,397) (7,908) -6.91

Import Coverage Ratio



Annual Trends of Selected Macroeconomic Indicators: FY 2006-07 to FY 2012-13 (in %)

Fiscal Year GDP Growth Export Growth Import Growth Foreign Aid Remittances FDI Inflows

FY 2007 6.4 15.69 16.35 4.01 24.49% 6.46

FY 2008 6.2 15.87 26.17 26.43 32.39% -3.03

FY 2009 5.7 10.31 4.16 -10.39 22.42% 24.96

FY 2010 6.1 4.11 5.41 20.60 13.40% -4.95

FY 2011 6.7 41.49 51.48 -20.25 6.03% -14.67

FY 2012 6.3 5.93 -1.49 19.68 10.24% -14.01

FY 2013 6.03 11.22 -7.06 37.02 12.59% 9.15

2. Financial Sector

Interest Rate Spread

Month

Interest Rate Spread

2012/13 2013/14 Change

February 5.06 5.33 -0.27

January 4.99 5.13 -0.14

December 5.06 5.05 0.01

Repo and reverse repo rate stands at

7.25 percent and 5.25 percent respec-

tively after Bangladesh Bank imple-

mented a downward revision by 50 ba-

sis points effective from 01 February

2013. The weighted average yield on 91

-Day T-bill rate has decreased to 7.26

percent in March 2014 from 7.41 per-

cent in December 2013. The weighted

average call money rate in the interbank

market hovered around 7.1 percent in

the first quarter of 2014.

Loan-deposit ratio in scheduled banks

increased to 101.5 in January 2014 from

100.7 in December 2013. Surplus li-

quidity that mounted in banks during

political turmoil and dull business situa-

tion are now being disbursed among

interested entrepreneurs. The ratio is

expected to increase further in coming

months if political stability is restored.

Bangladesh Bank Interest Rates

Loan to Deposit Ratio

In December 2013, interest rate spread

was 5.06 percent, slightly higher than rec-

ommended level of Bangladesh Bank (less

than 5 percent). In January 2014, it de-

creased to desired level of 4.99 percent,

but again increased to 5.07 percent in

February.

Economic Indicators



Contribution to Broad Money Growth

Broad money (M2) growth increased by

18.74 percent in January 2014, com-

pared to the increase of 15.56 percent

in December. Broad money growth in-

creased mainly from higher net foreign

assets that registered 36.36 percent

growth in January, 2014. However, pri-

vate sector credit growth has remained

week In January, 2014, the growth rate

was 11.07 percent compared to 14.83

percent during the same period of pre-

vious fiscal year.

DSE General Index Monthly Closing

DSE update DSE has discontinued publishing DGEN index from August of 2013 as its flawed computation provided

misleading information about the market. Effective from January 28, 2013, the DSE introduced two new

indices DSEX and DS30. DSEX reflects 97 percent of total market capitalization while DS30 reflects 51

percent of total market capitalization. Hence, from now on, DSEX will be used for DSE market update.

Dhaka Stock Exchange Broad Index (DSEX) started increasing in January 2014 after the national elec-

tion. In February, a new DSE board was formed with 7 independent directors, 4 directors elected from

bourse’s existing shareholders and chairman as per the amended demutualization act 2013. This result-

ed in a downward trend of the DSEX, from mid-February, because the investors took a cautious stance

as indicated by the decreased market price-earnings ratios in March. Trading activity became sluggish,

as the market adjusted to the new changes. From the last week of March, DSEX once again started im-

proving. At the end of March, DSEX value was 4,491, up by 205 points (4.7 percent) and DS30 value was

1,603, up by 137 points (9.3 percent) from the end of previous quarter. Fuel & power, pharmaceuticals,

food & allied, and cement sector performed the best in the quarter but financial sector remained de-

pressed.

CSE update Chittagong Stock Exchange (CSE) showed trends similar to DSE, with the prime index, CSCX ending the

quarter at 8,704, up by 327 points, or 3.9 percent, from the beginning of the quarter.

Economic Indicators

Jan14 Feb14 Mar 14

Financial Sector 14.82 14.16 12.50

Manufacturing 25.92 28.45 28.16

Services & Miscel-laneous

16.28 15.94 15.70

Overall Market 16.74 16.91 15.89

Table I: Price Earnings Ratios of DSE

Sources: DSE & Keystone Estimates



3. External Sector

Woven Garments Export

(USD million) Knitwear Export

(USD million)

Month 2012/13 2013/14 % Change 2012/13 2013/14 % Change

February 979.71 1,229.98 25.54 811.24 1,048.87 29.29

January 1,147.64 1,195.20 4.18 944.96 1,045.83 10.67

December 1,042.68 1,049.64 0.61 908.93 915.76 0.75

Monthly Export Growth

In February, 2014 country's export earn-

ings witnessed a negative growth of 13.23

percent from January 2014. However,

compared to the same period of last fiscal

year export earnings increased by 6.36

percent. Some high value items like wo-

ven garments, knitwear, Frozen food and

leather posited a positive growth. Raw

jute, jute goods and agricultural products

are among the items that experienced

negative growth in the same period.

Monthly Import Growth

Import payments have increased by 16.52

percent in July-January period of FY 2013-

14 compared to the corresponding

months of FY 2012-13.

Import LC openings also increased by

13.34 percent during July-January of FY

2013-14 compared to the same period of

previous fiscal year.

Regional Export and Import

Growth of woven garments and knitwear

export were severely stunted in December

and January due to month long political

unrest and violence. However, in February

2014 as political turmoil settled down,

both exports registered significant growth.

Economic Indicators



Month

Remittance (USD million)

Foreign Currency Reserves (USD million)

Exchange Rate

BDT/USD BDT/INR

2013 2014 %

Change 2013 2014

% Change

2013 2014 %

Change 2013 2014

% Change

March 1,229.36 1,275.5 10.84% 13,971.1 19,608.0 40.35 78.15 77.68 -0.60% 1.43 1.27 -11.19%

February 1,163.18 1,164.3 2.66% 13,848.3 19,150.5 38.29 78.85 77.75 -1.40% 1.47 1.24 -15.65%

January 1,326.99 1,260.8 8.64% 13,076.5 18,119.1 38.56 79.20 77.75 -1.83% 1.49 1.25 -16.11%

4. Fiscal Sector

Revenue Through NBR (Million USD)

The National Board of Revenue (NBR)

failed to meet its revenue collection tar-

get of FY 2012-13 by BDT 40 billion.

During the first 7 months of FY2013-14,

the revenue collection was BDT 107

billion short of target set for the period.

The government had to revise down the

revenue target for the current fiscal

year by 8.09 percent, to BDT 1.25 tril-

lion.

Fiscal Indicators

In the budget of FY 2013-14, revenue as

percentage of GDP was estimated to be

around 14 percent. However, the target

is not likely to be met due to shortfall in

revenue collection, revised down reve-

nue target and losses incurred during

political unrest. Budget deficit may also

increase due to shortfall in revenue col-

lection.

Monthly Remittance Growth

Remittance receipts in February regis-

tered a negative growth of 6.94 percent

due to falling manpower export, politi-

cal unrest and sluggish investment cli-

mate However, in March 2014, remit-

tance increased by 8.72 percent as the

business activities began to move after

the national election. However, man-

power export from Bangladesh has been

declining progressively as no new job

market was created overseas.

Economic Indicators



From November’13 to April’14, the percentage share of installed capacity of electricity generation has- Increased from 2 percent to 19 percent, for HFO based generation, as Furnace Oil based generation

has been re-categorized as HFO. The percentage share of power generation from natural gas and power import remained un-

changed.

From December’13 to April’14, the percentage share of generation capacity- By IPPS has increased from 16 percent to 17 percent. By BPDB has decreased from 39 percent to 38 percent.

Energy Indicators

Monthly Fuel Import (Million USD and % Change)

Month Crude Oil Petroleum Products

2012/13 2013/14 % Change 2012/13 2013/14 % Change

February 0 78.43 - 245.4 288.31 17.48

January 79 86.36 9.4 476.9 171.19 -64.10

December 0 81.42 - 223.1 85.38 -61.73

November 165.6 0 - 349.0 24.79 -92.38

Gas and Coal Production

Gas (MMCM) Coal (M. Ton)

January’14 1,992 149,785.60

December’13 1,924 153,533.81

November’13 1,924 140,918.08

Primary Energy

Low opening of LCs in second half of 2013 led to a significant fall in monthly import of petroleum products in Nov`13- Jan’14 period compared to Nov’12– Jan` 13. However, fuel import started showing signs of recovery prior to irrigation season.

Power

Electricity Generation, Demand and Loadshed and No. of Plants in Operation

Month

Plants in Operation (Avg.)

Peak Demand (MW)

Peak Generation (MW)

Maximum Loadshed (MW)

Total Generation (MkWh)

2012/13

2013/14

Change 2012/

13 2013/

14 Change

2012/13

2013/14

Change 2012/

13 2013/

14 Change

2012/13

2013/14

% Change

February 82 83 1 5500 6294 794 5140 6294 1154 623 0 -623 2889 2497 -13.57

January 71 88 17 5214 5934 720 5214 5934 720 305 0 -305 2457 2588 5.33

December 69 80 11 5100 5658 558 5093 5658 565 260 0 -260 2559 2441 -4.60

November 67 92 25 5200 6031 831 5174 6031 857 250 0 129 2502 2755 10.10

The plants in operation was the highest in November’13 and lowest in February’14. The peak demand decreased in December-January, during the winter and increased again in Febru-

ary. However, no load shed was experienced till February.



Energy Indicators

SHS installation in January-March 2014 decreased significantly compared to that in 2013.

Monthly installation of Biogas plants for the same period has increased compared to that in 2013.

Renewable Energy

Politics: The Command Post

only 2 Chairperson’s seat over the 2 phases. Even though AL was trailing BNP by a large margin at this

point, AL government earned praises from various quarters of civil society for maintaining democratic

integrity and letting polls go ahead without resorting to large scale violence and intimidation.

However, the third phase of voting saw an escalation of violence, with allegations of vote-rigging, poll

station capture, ballot-box snatching, and illegal stamping, made against AL. Election Working Group

(EWG), a network of 29 civil society organizations, reported 258 incidents of violence from 54 Upazilas

and 143 incidents of voter intimidation. In 90 cases, EWG members were not allowed to observe vote

counting and 87 incidents of violation of electoral laws were made. At least 4 people were killed in elec-

tion related violence, and many more were injured. AL managed to close the gap from BNP, but BNP

retained their lead in both the races. JP continued to struggle, as they failed to win a single Chairper-

son’s seat in this phase of voting. Election Commission (EC) and AL government maintained that voting

had been free and fair.

Election related violence and intimidation peaked during the fourth phase of voting, with at least 7 dead

and over 200 (including a dozen policemen) injured. There were reports of snatched/stuffed ballot box-

es, polling station capture, and clashes with law enforcements agents. The fifth phase saw decline in

violence, compared to the previous 2 phases, but allegations of voting irregularities were wide-spread.

Overall, AL took the lead in the Chairperson’s and Vice Chairperson’s race. Both EC and AL government

maintained that election had been free and fair. The total number of seats won by political parties, over

the five phases, is given in table I. The phase-wise voter turnout rate hovered between 61 percent and

64 percent.

Continued from pg. 1 Upazila Elections: A Missed Opportunity

Total 2.89 million Solar Home Systems have been Installed to date.

Monthly Installation of Solar Home Systems (SHSs)

More than 34,076 Biogas Plants have been installed to date.

Monthly Installation of Biogas Plants

Table I: Number of Seats Won by major Political Parties*

Sources: Daily Star; Dhaka Tribune; BDNews

AL BNP Jamaat JP Others

Chairperson 225 157 35 3 35

Vice Chairperson 338 289 155 16 107

*Some of the numbers will increase as withheld election results are published


Figure 1 and Figure 2 shows the cumulative trend in seats won over the 5 phases of UZP election. For

Chairperson’s seat, BNP had a large lead after the first 2 phases and a moderate lead after the third

phase. However, we see a rapid trend-reversal after this point, with BNP winning just above a third the

number of Chairperson’s seats in the last 2 phases, compared to AL. Similarly, for Vice chairperson’s

seats, BNP had a substantial lead after the first 3 phases, and a moderate lead after the fourth phase.

However, BNP won just over a fifth the number of Vice Chairperson’s seat, compared to AL in the fifth

phase. AL has justified this by claiming that they had experienced a surge in popularity in recent times,

which has led to such a sharp preference-reversal of the country. However, a mere 6-week period is un-

likely to have led to such a dramatic shift.

What transpired in the final three phases of Upazila Parishad election has gone some way to vindicate

BNP’s decision to boycott the 10th Parliamentary Election without a neutral caretaker government. Fur-

thermore, it can be argued that AL has missed an opportunity to demonstrate to the people of the coun-

try that they stand for democracy. Furthermore, the country witnessed a total abdication of responsibil-

ity by the EC. The latter failed to properly discharge its constitutional obligations, with its chairman con-

veniently seeking shelter abroad during a critical time, when he could have provided a proactive leader-

ship. As the leading newspaper Daily Star has said, ‘The ruling Awami League has won, but it lost a gold-

en opportunity to salvage a slice of the credibility it lost in the January 5 election…the EC has received

another big blow to its credibility too.’

Furthermore, the economic cost of political instability continues to rise for Bangladesh. According to a

World Bank Development Update of Bangladesh, political instability in the last quarter of 2013 alone

resulted in value-added loss of USD 1.4 billion. With further protests from BNP and ally on the horizon,

this figure is expected to increase. Political turbulence, violence, and shut-downs of last year have al-

ready put many businesses and banks in precarious situations. Further political turmoil is going to exac-

erbate the situation. The government should cast a keen eye towards restoring the economy. Following

the completion of UZP elections, World Bank revised their growth forecast of Bangladesh from 6.4 per-

cent benchmark to only 5.4 percent. ADB too has cut their growth forecast for Bangladesh 5.6 percent,

the lowest level since FY2009. Number one on ADB’s prescribed to-do list in order to put the economy

back on track is ‘restoring political stability’. The recipe for putting the economy back on track and to-

wards political stability is holding of free and fair elections, participated by all parties, within the short-

est possible time.

Politics: the Command Post

Figure 1: Chairperson’s seats won (cumulative)

Sources: National Newspapers

Figure 2: Vice Chairperson’s seats won (cumulative)



Economic Trends

Following the revision, target of revenue collection for July

2013 to February 2014 was set at BDT 715.2 billion, against

which, BDT 684.1 billion could be collected, resulting in a

shortfall of BDT 31.4 billion. A breakdown of revenue collec-

tion for the concerned period is shown in figure 1. NBR collect-

ed BDT 209.1 billion from income tax, 3.9 percent higher than

the target. However, custom duties (6.2 percent), VAT (6.8 per-

cent), and other sources (39.2 percent) of revenue fell short of

the revised target. This situation is going to be further exacer-

bated by the export tax cuts of RMG (0.8 percent to 0.3 percent) and other products (0.8 percent to 0.6

percent). Export taxes, deducted at the source, carries little scope for evasion. According to IMF, these

tax cuts are going to result in loss of guaranteed BDT 20 billion revenue over the next 15 months.

Reasons of Revenue Shortfall: A Short-Run Analysis

Strikes, hartals, and embargoes have contributed to shortfall in customs revenue collection of NBR.

According to Bangladesh Land Port Authority (BLPA), business activities at the country’s 16 land

ports were suspended for 47 days during the 52 working days of November and December. Benapole

Port Authority’s daily average income was down from BDT 90 million to BDT 6 million. Losses in-

curred by industrial/corporate sector during political unrests have also slowed down revenue collec-

tion from these sectors. However, the adverse impact will be fully realized in the upcoming months.

Declining imports, and appreciation of taka by 2.7 percent against the US dollar, have been identified

as reasons for falling revenue collection. Letter of Credit opening against import decreased for 3

months consecutively (by 8.86 percent in October, 0.89 percent in November, and 3.2 percent in De-

cember) and import fell 0.11 percent, year-on-year, to BDT 16 billion, from 17.9 billion in the first 6

months of FY 2013-14.

Except Tobacco, all other main source of VAT failed to meet target. Collection from mobile phone

companies, second largest source of VAT, fell short of target by BDT 11.5 billion, due to political un-

rest and cut in SIM tax. Other short falls were in gas sector (BDT 6 billion), banking sector (BDT 650

million), and pharmaceutical industry (BDT 490 million), etc. VAT collection from posh hotels de-

creased by 3 percent, from the same period, due to more than 40 percent fall in occupancy rate.

Sluggish Trend in Revenue Growth: A Long-Run Phenomenon

Political unrest, month wide strikes and embargos, stagnation

of business activities, etc., are said to have caused the revenue

shortfall, which slowed down the revenue growth rate. How-

ever, the sluggish trend in revenue growth is not a short-term

or temporary phenomenon. Historic data reveals that in the

early 90’s, there was a sharp growth in revenue to GDP ratio;

from 7.6 percent of GDP in 1985-89 to 9.4 percent in 1990-94.

Reforming tax policy with introduction of VAT, reduction of

highest corporate tax rate, and reduction in slab and rate of

personal income tax resulted in the robust revenue growth.

However, no major tax reform policies have been implement-

ed since, and thus, the growth rate have not been sustained.

and tapered off gradually (figure 2). After 1995, revenue as

percentage of GDP has increased by only 0.7 percent per year,

on average. A cross-country analysis shows that Bangladesh

has the lowest revenue-to-GDP ratio compared to neighboring

countries like India, Pakistan, Nepal, and Sri Lanka (figure 3).

Continued from pg. 1 Shortfall in Revenue Collection

Figure 1: Target vs. Actual Revenue Collection (in billion BDT)

Source: The New Age

Figure 2: Periodic average of Revenue as % of GDP

Source: The World Bank

Figure 3: Revenue as % of GDP



The Way Forward

A fresh bout of tax and trade policy reforms need to be introduced.

Defeating the vicious cycle of high tax-low efficiency paradox: Theoretically, when tax rate is doubled,

inefficiency and distortion in economy quadruples. In practice, higher tax rates encourage people

towards tax avoidance and corrupt tax collectors are given greater bargaining opportunity. Lowering

tax burden may be a good idea in some cases, but the reduction should be uniform. For example, 15

percent VAT on consumer goods is high, and numerous exemptions and truncated bases provide

wider opportunity for tax evasion. Therefore, a uniform lower VAT rate of 10-12.5 percent may be

considered.

Lowering corporate tax rates and harmonizing tax system: Existing corporate tax rates needs to be

reduced in order to encourage industrialization, employment generation, increasing foreign direct

investments, and better compliance. At the same time, discriminatory policies in Bangladesh’s cur-

rent tax system need to be eliminated. For example, despite high corporate tax rate, income of the

corporate sector gets taxed twice; once as corporate income tax on the income of the company, and

again, on the same income, when distributed as dividend to the shareholders.

Preventing capital flight and abuse of transfer pricing: The high corporate tax rate acts as an incentive

for tax evasion and encourages transfer pricing and capital flight. Local and multinational companies

are evading tax by transferring tangible or intangible outputs to subsidiary and sister-concern com-

panies, by transferring dividends and profits to permanent establishments or parent companies, and

through thin capitalization. According to a study carried out by the Washington-based Global Finan-

cial Integrity in 2011, Bangladesh is losing around BDT 150 billion every year, through capital flight,

due to transfer pricing. Effective enforcement of Transfer Pricing Law 2011, along with intensive

training program for tax officials, must be undertaken as soon as possible.

Pro-poor tax policy: In Bangladesh, collection of tax revenue mainly depends on Indirect taxes (58

percent), rather than direct taxes (27 percent). To make tax policies pro-poor, more emphasis should

be given to income tax and corporate tax collection, as the incidences of indirect taxes such as VAT

are regressive in nature. Only 1.4 percent of country’s 160 million people are currently under income

tax payer unit. In order to strengthen revenue base of the country, existing narrow tax net should be

replaced with wider number of tax payers.

Curbing tax evasion: Tax evasion is persistent, in spite of significant amount of potential revenue is

sacrificed each year in the form of tax incentive. Only 1.1 million pay taxes out of 3.5 million tax pay-

er identification number. According to NBR, tax evasion and incentive cost Bangladesh BDT 400 bil-

lion a year. If this forgone revenue can be realized, it can add up to 5 percentage-point in revenue-

GDP ratio. Tax payment system with minimum inconvenience and no additional compliance cost,

automation of the tax processes, and strict penalty for tax evaders might be helpful.

Integration of shadow economy: Bangladesh has a shadow economy of around 37 percent of GDP. As a

result, the government is being deprived of huge amount of tax revenue and the country’s tax poten-

tial is not being exploited to the fullest. Implementation of policies and reforms that would encourage

incorporation of shadow economy into traditional economy is crucial in fulfilling tax potential of

Bangladesh.

Elimination of extortions: Illegal extortions/bribery by government employees and officials, law en-

forcement, political parties, etc., are rampant in Bangladesh. In addition, even Government Ministers

are now legally extorting money from business and corporations. For example, BDT 1 billion was

raised from the private sector for the upcoming T20 World Cup, and for the national-anthem world-

record attempt. Presence of such practices raise cost of businesses, lowers profits, and reduce incen-

tives to pay taxes. Therefore, such rent seeking behavior of government (except in time of national

calamities) must be eliminated for better tax efficiency.



News Update Sector News Vibe

Banking

Government plans to introduce private partnership in state owned banks through offloading shares.

The investment of banks in the government securities has increased by 43 percent as private sector entrepreneurs were reluctant to take loan due to sluggish business climate.

BDT 1.42 billion fresh scam in Sonali Bank: loan to a non-existent foreign indi-vidual.

Business

Bangladesh Bank will allow the foreign companies to get short-term external borrowing from their organizations as per foreign exchange transactions guidelines.

Bangladesh has offered on-arrival visa for the citizens of 6 Gulf countries aim-ing to boost engagement and cooperation with these nations.

BGMEA has signed a collaboration agreement with the UK-based consultant firm Impact to enhance productivity in the country’s RMG sector.

Crime Three convicted JMB leaders was snatched by a group of militants from a pris-on van while transporting them to court at Mymensingh, killing a policeman and injuring two others.

Economy

Bangladesh's foreign exchange reserves stood at an all-time high of USD 19.31 billion at the end of March, more than 38 percent higher than a year earlier.

Government approves Bangladesh Bank proposal to go for an agreement with New York based global rating agency, Fitch Ratings, to provide sovereign cred-it rating for Bangladesh

Export earning fetches USD 17,439.58 million in the first seven months in FY 2014, having a growth of 3.04 percent over the targeted amount.

Bangladesh received a foreign direct investment (FDI) inflow of USD 1.78 bil-lion in 2013, registering 37.5 percent rise from the previous year, according to provisional figures compiled by the Board of Investment.

French credit body Coface termed Bangladesh in one of its reports as one of the 10 countries that are set to take over as emerging economies.

Bangladesh to receive duty free access for Bangladeshi products in Chilean market from January 1, 2015.

Education

The Russian Federation has expressed intentions to extend academic scholar-ship for Bangladeshi students.

Government to provide English language training to 75,000 primary and sec-ondary level teachers under a program named English in Action.

Environment Alarming levels of chemical toxins found in the coastal region of Cox’s Bazar by the Department of Environment.

Healthcare Country’s first ever bone marrow transplant took place at Bone Marrow Transplant Unit of Dhaka Medical College on a cancer patient suffering from a type of blood cancer called Multiple Myeloma.

Humanitari-an

Primark, a British clothes retailer, to pay further USD 10 million as an compen-sation to the victims of the collapse of Rana Plaza.

BRAC USA raised more than USD 5 million for the Bangladesh Humanitarian Fund for the survivors of the Rana Plaza tragedy.

Information Technology

Bangladesh signs deal to join the second submarine cable network SEA-ME-WE-5 and hopes to join it by first quarter of 2016.

Politics

Country wide national election held amidst boycott by the main opposition party BNP; legitimacy of the election questioned due to low turnout and vio-lence.

Nationwide Upazila elections held in 5 phases with ruling Awami League com-ing out on top amid allegations of massive voting irregularities by Awami League backed candidates.



References

Contact


“Downsizing FY’14 Budget next month”, FE report, Fi-nancial Express.

“NBR revenue shortfall swells to Tk 10,671cr”, Jasim Uddin, New Age

“Revenue collection pace still slow in July-Feb”, Staff Correspondence, New Age

“NBR fears sharp fall in revenue collection”, Doulat Akter Mala, Financial Express

“MCCI pushes for higher tax-free income ceiling”, Star Business Report, The Daily Star

National Board of Revenue, Official Website.

Keystone Business Support Company Ltd. Suite 6C-1, Building 2, House 5A, Baily Heights Road 94, Gulshan 2, Dhaka 1212 Phone: +88 02 8836305, +880 1780 372160 Fax: +88 02 9898074 Email: [email protected] Website: www.keystone-bsc.com


Bangladesh bank official website Export Promotion Bureau official website ICT Sector Study Bangladesh, “Bridging the Gap be-

tween Dutch and Bangladeshi ICT sectors”, Nyen-rode Business University

Report on Bangladesh Software and IT Service Indus-try, “Recent Trends and Dynamics”, BASIS (Bangladesh Association of Software and Infor-mation Services)

World Bank database website


Bangladesh Bureau of statistics Bangladesh Petroleum Corporation Bangladesh Power Development Board Boropukuriya Coal and Mining Company Limited Gas Act, 2010 General Economics Division Keystone Database Newspaper Articles Power Division, Annual Report 2012-13 Power Sector Master Plan (2010) Petrobangla Annual Report FY 2012 and other published

MIS Reports Planning Commision Bangladesh (2010) Titas Gas Transmission and Distribution Company Lim-

ited World Bank. Electric power consumption (kWh per capi-

ta): Data. March 4, 2014 World Bank. Electric power consumption (kWh per capi-

ta): World Bank Databank. March 31, 2014

Economic Indicators

Bangladesh Bank Official Website Dhaka Stock Exchange Official Website Chittagong Stock Exchange Official Website Bangladesh Knitwear Manufacturers and Exporters As-

sociation (BKMEA) Official Website

Upazila Elections: A Missed Opportunity

Daily Newspapers Online Articles

Energy Indicators

Bangladesh Power Development Board Official Website Power Grid Company Bangladesh Official Website Infrastructure Development Company Ltd. Dhaka Electric Supply Company Ltd. Official Website Power Division, Ministry of Power, Energy and Mineral

Resources, GoB Bangladesh Oil, Gas and Mineral Corporation Official

Website World Development Indicators, The World Bank Boropukuriya Coal Mining Company Ltd. Official Web-

site


“High university enrolment, low graduate employment, analyzing the paradox in Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka”, British Coun-cil

“Bangladesh imposes five-year limit on foreign work permits”, workpermit.com

“Bangladesh: Analysis of Gaps in the Protection of Roh-ingya Refugees”, United Nations High Commission-er for Refugees

Board of Investment Bilateral Migration and Remittances, The World Bank Estimates of Migrant Stock (updated till 2013), United

Nations Population Division, Department of Eco-nomic and Social Affairs

Migration and Remittance Unit, The World Bank Newspaper Articles Singapore Government Ministry of Manpower official

website

Keystone Team

Contributors: Ahsan Senan; Atique, Mahnaz Aftabi; Mustafiz, Rubiya Binta; Nuzhat, Nueri; Sadeque, Sariya Sye-da; Siddiqui, Shihab Reviewers: Choudhury, Liaquat Ali; Khan, M Fouzul Kabir; Shams, Khalid

Keystone Quarterly REVIEW - Keystone Business Support … · · 2014-04-28In FY 2013, Titas Gas...

Documents

Transcript of Keystone Quarterly REVIEW - Keystone Business Support … · · 2014-04-28In FY 2013, Titas Gas...