Not much good news for us in terms of investment

The budget is approaching. For planning the income, expenditure, and overall economic direction of the upcoming fiscal year, sectors like banking, investment, capital markets, and revenue are crucial. How supportive are the current economic indicators for the upcoming budget? What role do international trade policies play? And how can tax policy help attract investment? These topics were discussed by Dr M Masrur Reaz, chairman of the research organisation Policy Exchange Bangladesh, in an interview with Views Bangladesh special correspondent Saleya Sultana.

Views Bangladesh: We’re seeing healthy remittance flows, reserves are increasing positively, and the balances in the current and trade accounts are supportive—but investment remains weak. Considering all of this, how supportive are the current economic indicators for the government to prepare the upcoming budget?

M Masrur Reaz: Look, in the last ten months since the interim government took over, quite a few changes have occurred. No decisions are being made in banking, investment, energy, or industry sectors that prioritise any particular group at the cost of the sector or the economy as a whole. The return of governance in administration is a positive development.

Another point is that several decisions, long overdue, have now been made in response to current needs. As a result, many economic indicators are showing signs of improvement. One such indicator is the balance of payments. The decline in the balance of payments that we saw up until July has now been curbed, leading to a positive trend in reserves. The deficits in the current account and trade account have also decreased—this has been supported by improved export performance and remittance inflows.

The reason for strong export performance is the positive demand trend in the North American market since last year. Whether we can sustain this growth depends on how we resolve the Trump-era tariffs. In 90 days, we’ll need to determine whether we can find a permanent resolution to those tariffs.

Another issue is the ongoing energy crisis in the garment sector—how we address that will determine whether our output will suffer or not. Remittance is on a good trajectory mainly because money laundering has reduced. Due to the government's strict stance, remittance through legal channels has increased. So, we are indeed seeing positive indicators.

Views Bangladesh: The investment market is directly tied to employment, and several initiatives have been taken. How optimistic can we be about the investment index in the coming year?

M Masrur Reaz: There isn't much good news for us when it comes to investment. Just a few days ago, the report for the first quarter of the 2024–25 fiscal year on foreign investment was released, showing a 70–71% decline in investment. During that time, there were protest movements related to the July–August political upheaval. Still, we can be hopeful now since there is a government in place—although not elected, it has public support. It is creating a governance- and policy-driven environment. So, ideally, investments should increase. We need to closely observe the situation from October to March. If we see a continued decline during this period as well, that would be cause for concern.

Views Bangladesh: Will the Trump tariffs and policies imposed by various countries affect us in the coming year?

M Masrur Reaz: Bangladesh has long-standing weaknesses in attracting investment. Investors often point out several issues, including inadequate infrastructure, but particularly the challenges they face in the revenue sector (tax, VAT, customs). Although personal income tax rates have been slightly reduced in recent years, a variety of additional taxes have been introduced, and overall tax burdens remain high. There are significant challenges in tax compliance, and investors often suffer due to the discretionary powers of tax officials. However, in the last few months, the NBR (National Board of Revenue) has surprisingly undertaken several reforms. For example, the routine auditing process has been temporarily suspended. The scope of the “Authorized Economic Operator” programme has been expanded to facilitate trade, and work is underway on the National Single Window system. These are positive steps, but the overall tax policy still heavily focuses on revenue collection. While revenue generation is necessary, the tax system also needs to include investment-friendly components—especially considering the emerging opportunities in the global landscape.

Views Bangladesh: How?

M Masrur Riaz: If we want to strengthen the market further, we need to enhance local and global competition through logistics, and encourage businesses by reducing costs. In this regard, we can divert a part of tax exemptions and keep them ongoing. To achieve this, it has to be balanced based on two important aspects. We need to quickly analyze and plan whether those who have already benefited have any logical reason to continue receiving such benefits, or we should set a timeframe so others can have the opportunity as well.

Views Bangladesh: Investors are suggesting that increasing or decreasing taxes or revenues should not be in the hands of the parliament, but should instead rest with the NBR. A lot of reforms are happening, and as you’re saying governance is returning—how much do you think this practice will yield results?

M Masrur Riaz: Some matters will naturally remain with the parliament, such as economic bills or amendments. However, for matters that require quick resolution, parliament cannot always resolve them quickly due to numerous rules and regulations. In such cases, certain powers can be vested in the implementing agencies or regulatory bodies. However, this needs to be evaluated. Major issues should go through parliament, but for smaller issues or decisions, the regulator can have safeguards. There can be discussions, a public-private committee, and recommendations from that committee, which can later be approved at the board level.

Views Bangladesh: Over the past few years, we have been trying to manage inflation through the budget and monetary policies. Many say that the increase in bank loan interest rates is a reason for the reluctance in investment. This time, the budget size is being reduced. How much relief do you think the inflation target will provide?

M Masrur Riaz: The monetary policy is still in a conservative position, which is the right approach. It is a major element of the annual plan. It cannot be done in such a way that it makes managing inflation more difficult. Foreign exchange reserves and the balance of payments are in a relieving position. The budget should not be designed in a way that unnecessarily increases import demand. Therefore, there must be alignment between the monetary policy and the budget.

Views Bangladesh: Thank you for your time.

M Masrur Riaz: Thank you as well.