Inflation, economic downturn, poverty, inequality top risks for next 2 years: Survey

Businesses have identified inflation, economic downturn, poverty and inequality as the top risks the country will face in the next two years, according to a new survey by the Centre for Policy Dialogue (CPD).

Conducted among the country's business executives, the survey also highlighted unemployment, energy supply shortages, and chronic disease as major societal risks.

The findings were revealed at a dialogue titled "Business Environment Reform in Bangladesh: Agenda for the Interim Government," organised by the CPD at the Brac Centre Inn in Dhaka today (17 November). 

CPD Executive Director Fahmida Khatun moderated the event attended by the country's top business leaders and economists.

One of the key findings was that corruption continues to be the primary challenge for businesses in Bangladesh. "Corruption has always been the leading problematic factor," said Khondaker Golam Moazzem, CPD's research director, during his keynote presentation.

Businesses also raised concerns about crime and illicit economic activity, public and private debt, labour and talent shortages, water shortages, asset bubble bursts, and attacks on critical infrastructure as potential risks in the coming years.

CPD conducted the study between April and July this year, before the fall of the Awami League government. Moazzem noted that the immediate future of Bangladesh's economy is highly uncertain.

Bangladesh has been grappling with high inflation over the last two years, with inflation reaching nearly 11% in October, according to the Bangladesh Bureau of Statistics.

The survey also pointed out 17 areas where corruption is evident, including inefficient government bureaucracy, unstable currency, limited access to financing, inadequate infrastructure, policy instability, poor work ethics in the labour force, and a lack of educated workers.

Additional concerns included high tax rates, complex tax regulations, climate change, crime and theft, insufficient capacity to innovate, government instability, poor public health, and restrictive labour regulations.

The study found declines in at least six indicators, including judicial independence and the quality of tertiary education.

Moazzem expressed concern, saying, "This raises concerns about the ability of the judiciary to operate free from external pressures and influence, which undermine the rule of law, lead unfair trials, and reduce public trust in the legal system."

Bribery on the rise in tax-related interactions

The report shows that bribery in tax-related interactions has risen. "Over 57% of businesses believe bribery is common in tax-related dealings, up from 47.8% in 2021," said Moazzem.

"The tax system is seen as complex and burdensome, with half of businesses reporting difficulties in compliance," he added.

Business leaders expressed their frustration with harassment and bribery related to taxes, VAT, and customs at the National Board of Revenue (NBR).

Speaking at the event, Fazlee Shamim Ehsan, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, said, "We have to pay Tk20-30 lakh in bribes each year. Since there is usually no proof of such expenses, tax officials demand fines or bribes."

After the event, Ehsan told The Business Standard, "There is no evidence that we pay bribes to various institutions. Tax officials try to disallow these expenses when we submit our tax returns. If the expenses are disallowed, we end up paying more than 30% in taxes and fines. To avoid this extra cost, we pay bribes to the officials."

Ehsan added, "Corruption is our biggest problem, and we need to focus the most on controlling it. It is the root of all other problems."

He called for reforms within the NBR, saying, "If NBR is reformed, it could help reduce corruption by half."

Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industry, said, "Our biggest challenge is corruption. If files are delayed for a week over small tasks, it causes significant damage to businesses."

He stressed the need for full automation to address the issue.

Fahim Mashroor, executive officer of Bdjobs.com, said, "Instead of talking about the ease of doing business, we need to talk about the cost of entering the business."

Zaved Akhter, president of the Foreign Investors Chamber of Commerce and Industry, highlighted some of Bangladesh's policy inconsistencies.

Referring to the inconsistent tax policy, he said, "The government reduced the corporate tax rate to 25%, but the effective tax rate rose to up to 45% due to some expense disallowances."

He also highlighted the need to protect the interests of foreign investments currently in Bangladesh.

Calls for banking, political reforms

Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry, sharply criticised Bangladesh Bank, calling it the nation's most dictatorial institution.

Mintoo, who is also a vice chairman of the BNP, claimed that the central bank's actions have seriously harmed the stability and performance of commercial banks in the country. He suggested that the first step toward reform is to restructure the central bank.

"The central bank urgently needs restructuring to end its authoritarian practices. Those most affected by these dictatorial approaches must be included in the process of forming banking policies," said Mintoo.

Mintoo also stressed the importance of political reform. "It must be prioritised above all else. Otherwise, what hasn't been achieved in the last forty years will remain out of reach in the future as well," he warned.

He added, "If corrupt individuals are the ones carrying out reforms, it will not yield any positive results."

Other speakers at the programme included Professor Lutfey Siddiqi, chief adviser's special envoy for international affairs, and Chowdhury Ashik Mahmud Bin Harun, executive chairman of the Bangladesh Investment Development Authority.