January 05, 2008

Bangladesh among least free economies, 143rd among 157 countries

Bangladesh's economy is one of the least free in the world, according to Heritage Foundation, a right-wing American think tank.

The organisation in its Index of Economic Freedom based on 10 criteria, said Bangladesh secured 27th position out of 30 countries of Asia and the Pacific Rim and secured 143rd place out of 157 countries brought under the survey.

According to the foundation, Bangladesh's position in economic freedom appeared nearly at the bottom of the ranking mainly due to "extreme barriers to trade, excessive corruption, bureaucratic procedures, underdeveloped financial system and weak property rights."

The foundation, however, also focused on Bangladesh's positive areas of economic freedom in its 2007 assessment.

It said Bangladesh's economy was relatively free in terms of fiscal measures and freedom from the government. Monetary freedom, labour freedom, and business freedom are also relatively positive, it said.

The foundation examined openness of Bangladesh's economy based on business freedom, trade freedom, fiscal freedom, freedom from government, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom.

It said Bangladesh has extreme barriers to trade freedom and tariffs are prohibitively high. It is also weak in investment freedom, property rights, and financial freedom.

"Corruption is rampant," the Heritage Foundation said, adding that chaotic regulations and restricted market sectors also impede greater foreign investment in the country as does a haphazard and politicised approach to the rule of law.

The banking sector is plagued with similar problems, the foundation observed.

It, referring to Bangladesh's weighted average tariff rate at 55.8 percent in 2005, said barriers to trade include prohibitions and restrictions on imports, restrictive labelling requirements, and ineffectively operated customs procedures.

Referring to "widespread corruption", the think tank said, "Corruption serves as a non-tariff barrier… It [corruption] is cancerous to all other economic freedoms, this is the key area that needs improvement.”

"Starting of a business in Bangladesh takes an average of 37 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business licence is relatively simple but closing a business is difficult."

It said the overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.

Source: The Daily Star Website, January 2, 2008.

Private banks Profit shoots up 41pc in the year 2007

Despite a stagnant situation in the country's business sector, private commercial banks (PCBs) made 41 percent more profit last year compared to that in 2006 mainly by charging high interest rates on loans.

Available data of 26 PCBs, out of 30, show that the banks made a total of Tk 4,814 crore operating profit in 2007 while that of all the PCBs in the previous year totalled Tk 3,404 crore.

“High interest rates on credits is the main reason for such a huge business by the private commercial banks,” said a top banker.

He said there were hardly any expansion plans by the big business groups of the country last year, and 'we did not see any take out of big loans by any business group'.

According to Bangladesh Bank (BB) data, credit growth in commercial banks decreased by 8.01 percentage points in the first 10 months of 2007 compared to the corresponding period of 2006.

In July-October period of the current fiscal year, import of capital machinery decreased by 8.33 percent, which illustrates the downward trend in investment.

“Decrease of import of capital machinery means there were low investments in the business sector last year,” said a top official of the central bank. The PCBs and foreign commercial banks (FCBs) made the profit on very high interest rates on credits.

As per the BB data, the average lending rate of banks was 12.60 percent in December 2006 while the figure was 12.77 percent in June last year.

On the other hand, average deposit rate during this period declined. The rate was 6.99 percent in December 2006 and it reduced to 6.85 in June 2007.

The Annual Report (2006-2007) of the BB, released last week, said aggregate Net Interest Income (NII) of the PCBs and FCBs has been very high over the period 1999 through 2006.

“Overall industry NII shows a consistently upward trend. The trend of NII indicates that the PCBs and the FCBs are charging interests at very high rates on their lending as compared to the interest they are paying to the depositors,” the BB report says.

The PCBs' NII in 1999 was Tk 300 crore, which jumped to Tk 2,540 crore in 2006. In the case of FCBs, the NII in 1999 was Tk 180 crore, which jumped to Tk 820 crore in 2006

The spread (difference between interest rates on lending and deposit) is much higher in Bangladesh compared to international standard. Normally, 'spread' in banking business should be 2-3 percentage points but in Bangladesh the rate is 6-7 percentage points, and in June 2007 it was 5.93 percentage points.

BB sources said they have initiated steps to reduce the spread of banks in a bid to decrease business costs.

The PCBs and FCBs have already been asked to give a work plan on how they would reduce their spread.

Source: The Daily Star Website, January 2, 2008.

Tk 500cr Jamuna Bridge securitised bonds proposed

Investment Corporation of Bangladesh (ICB), responsible for offloading shares of government entities, recently proposed to the government to securitise Jamuna Bridge, the country's largest civil engineering project, by issuing Tk 500 crore bonds to be traded on the stock market.

Of the total amount, Tk 450 crore will be raised through issuance of bond securitisation in private and institutional placement, while Tk 50 crore will be raised from public.

Of the money to be raised, Tk 200 crore will be invested as equity for construction of Padma Bridge, while the rest of the amount will be invested in other areas such as building infrastructure and developing tourism.

Securitisation is a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment. It involves the selling of financial instruments, which are backed by the cash flow or value of the underlying assets.

As per the proposal, the JMBA will raise Tk 300 crore against the security of its future tolls receivable in the next 10 years, while Tk 200 crore will be raised against the security of JMBA's fixed deposit receipt (FDR) worth Tk 200 crore.

Jamuna Multipurpose Bridge Authority (JMBA), which supervises the operational activities of the bridge over the Jamuna River, pursued the ICB to formulate the modalities for offloading shares.

The communications ministry has also sent a letter to the finance ministry for its consent to start the Jamuna Bridge securitisation process.

Earlier the JMBA, a concern of communications ministry, has submitted the securitisation proposal, sources said.

“After getting the approval, we will start the securitisation procedures,” said a JMBA official.

The securitised bonds will be offloaded as 'approved security' so that the financial institutions can keep the bonds as statutory liquidity requirement (SLR), according to the proposal.

Welcoming the initiative, Chief Executive Officer of Dhaka Stock Exchange Salahuddin Ahmed Khan said through securitisation the country can reduce its dependency on donors to build big infrastructure projects such as Padma Bridge or Karnaphuli Bridge.

Jamuna Bridge was inaugurated in June 1998. With a length of 4.8 kilometer and width of 18.5 meter it is the longest bridge in Bangladesh as well as in South Asia. Around Tk 3900 crore was spent on construction of the bridge.

Revenue from the bridge was Tk 107 crore in 2001-02, while the income was Tk 170 crore in 2002-03, Tk 160 crore in 2003-04 and Tk 180 crore in 2004-05, according to sources. Of the income, 70 percent came from toll collections.

Source: The Daily Star Website, January 1, 2008.

Cellphone subscriptions reach 33.1m until November, 2007

The total number of mobile phone subscribers of the country's six cellphone operators has reached 33.10 million at the end of November 2007.

According to the latest update by the website of Bangladesh Telecommunication Regulatory Commission (BTRC), Grameenphone Ltd leads the subscriber mark with 16.01 million users followed by AKTEL with 6.53 million and Sheba Telecom Ltd (Banglalink) with 6.51 million.

The newcomer, Warid Telecom International LLC (Warid), was placed in the fourth position as it bagged 1.95 million subscribers followed by CityCell with 1.38 million and state-run Teletalk with 0.72 million.

The subscribers' numbers were declared by the mobile phone operators themselves, according to the BTRC website.

Source: BTRC Website, January 1, 2008.