Sustainable Investment to end Poverty: Bangladesh

Perspective

BackgroundWorld is fighting to remove

the poverty from the society. Many welfare organizations have contribution to reduce the poverty from the all over the world. World Bank is working with a motto on “Our Dream is a World Free of Poverty” for its 142 client countries. The main objective of the World Bank motto is to end the extreme poverty in the next generation.

According to the objective, World Bank launched different development project all over the world. Initially, Millennium Development Goal with the 8 unique goals was fixed to reduced poverty in 2000 for next 15 year. The time line is tent to finish. Different lagged behind countries have achieved few goals.

According to the progress report of MDG, in 2012, 12.7 percent of the world’s population lived at or below $1.90 a day which was 37 percent in 1990 and 44 percent in 1981.

If we consider in number, in 2012, 896 million people lived on less than $1.90 a day, compared with 1.95 billion in 1990, and 1.99 billion in 1981.

SDGThere is a clause that every OECD will provide 0.7% of their total GDP. Recently World Bank has coined the new goals called Sustainable Development Goals. In this menu, world will fight for zero poverty people within the 2030. There are different goals where most of them are focused on the zero poverty. In SDG, every country should remove the poverty and income inequality by its own domestic financing.

Sequence of Goals

Sequence of SDG goals to ensure zero Poverty

If we take proper steps regarding environment the two goals of sustainable Land and Marine life security and use will be ensured. Sustainable Pure drinkable water and industrial development goals will follow the previous environmental development goals. Sustainable city and communities and energy for all will be ensuring immediately. If we do this in a income as well as supply-demand equality basis and ensure the a descent growth, poverty will remove gradually from the society. Zero poverty in society will ensure all other sustainable goal like Health, Education, well being, zero hunger, social justice and zero gender discrimination.

Global PartnershipThough World Bank, emphasize on domestic financing to achieve the all the sustainable development goals. There are 50 least Developed and 51 developing countries in the world. The developing countries have been trying to develop their socio economic infrastructure but LDCs have badly needed of global partnership for their sustainable development. Bangladesh is one of the less develop country in the world.

Present Domestic and Global Financial

Sources of Bangladesh

and Recommendation

Present Scenario of the Development Finance in Bangladesh (Cont.)

Total Debt Domestic and External in billions and debt share of GNI, 2005 to 2015

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

0

5

10

15

20

25

30

35

Total Debt External debtPublic debt External debt stock to GNI (%)Taka %

Present Scenario of the Development Finance in Bangladesh

Revenue, ODA, and borrowing/debt are the main sources of development finance by the government of Bangladesh.

It can be seen from the figure that all of these resources have been increasing over time with a dip in performance for some flows in 2013/14.

Borrowing and revenue are the biggest sources of financing for Government. Currently borrowing is at 18% of GDP and revenue as a share of GDP is around 10 %, ODA is about 2 %.

Outside of the public sector, the most important development finance flows are: private investment 23.3 billion USD in 2014 and Remittances standing at 14 billion USD in 2014.

Use of ODA in Bangladesh

ODA Diagnostic

ODA Improved alignment of commitments, allocation and

disbursement of ODA through better management by ERD and line ministries.

Manage the reduction in the time it takes to approve and implement ODA projects through ERD and line ministries.

Achieving LMIC status may result in less concessional terms for borrowing from ODA donors in particular from international development banks. A strategic plan taking into consideration related debt management issues can be considered

Fast track implementation of the PFM reform project. A reduction of perceived fiduciary risk associated with ODA will accelerate commitments and disbursement. In particular requires improvement of the procurement system to manage leakages and sub-standard tendering processes in line with international best practice

Under the new Partner Policy Framework promote the use of as an aid modality supporting Bangladesh. Budget Support is fully aligned to national priorities and is given once in the budget cycle to help budget smoothing

RevenueAccording to the 7th FYP

Total revenue to be raised from 10.7% of GDP to 16.1% by FY20

Efficiency of the Public Sector

Efficiency of the Public SectorAccelerating Private sector Development

Climate Change Finance

Private sector is supposed to account for 78% of 31.9 trillion taka under the 7th FYP

Accord high priority for adopting and implementing the Climate Fiscal Framework

PPPFiscal Incentives: There are provisions permitting PPP investors

to benefit from various fiscal incentives (for e.g. reduced import tax on capital goods, various tax holidays) to reduce the cost of implementing the project and to enhance viability of project

Special Incentives (Non-Fiscal): Any specific project may get special incentives or other non-fiscal incentives to support the implementation of policy objectives or to enhance the ease and efficiency of delivering the project. These may include exemption from specific provisions related to insurance regulations, banking regulations, foreign exchange regulations etc.

Viability Gap Financing: A budgetary fund to provide financial subsidy for PPP projects that have high socio-economic value but are not sufficiently commercially viable to be delivered on a PPP basis. Up to 30% of the total project cost can be subsidised either as part of a capital contribution during construction or in the form of annuity payments during operation

PPPA PPP Technical Assistance Fund with an initial endowment of

approximately US$ 12m will be established to provide early stage project development funding support to sanctioned PPP projects. The PPPTAF will help defray the cost of professional consultants and advisors needed to assure the government achieves appropriate risk allocation in PPP projects and pre-develops projects to a standard that attracts maximum interest from investors and lenders

The Bangladesh Infrastructure Finance Fund Limited, or BIFFL, was incorporated by the Ministry of Finance in 2011 to provide long-term financing in local currency to infrastructure projects that meet BIFFL's investment criteria. BIFFL seeks to attract investment from both institutional and retail investors (including non-resident Bangladeshis and overseas foreign workers) to provide an alternative savings/investment vehicle in the Bangladesh market. BIFFL is managed independently following objective investment criteria.

Inclusive Business FinanceThe initial BB target for all banks and financial institutions was Tk240

billion (USD3billion) in SME loans for 2010. The target for 2012 was nearly two and half times the original at Tk590

billion (USD7.37 billion). BB has also initiated subsidised programmes with specific foci, such as

agriculture and women - with a target of Tk138 billion (USD1.725 billion) for the former in the financial year to 30 June 2012; and Tk10 billion (USD125 million) for women entrepreneurs in 2013.

Bangladesh Bank has set the SME loan disbursement target at over Tk1,00,000 crore through all the commercial banks in the current year 2015. 

The target is 16.35% higher than the earlier target of Tk89,000 crore for the year 2014. 

The largest lender to SMEs by far is IBBL, followed by BRAC Bank. Others with an SME focus include Sonali Bank, Eastern Bank and Mutual Trust Bank (MTB)

Public Private partnership (PPP)

Domestic Philanthropy and NGOS

Remittance

Remittance

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015 (May)

0

2

4

6

8

10

12

14

16

11.6512.85

14.46 14.23 13.87

Remittance US$ billion

FY 2011

FY 2012

FY 2013

FY 2014

FY 2015 April

0100200300400500600700800No. of Workers Abroad

Remittance and Bangladesh expatriates are a key source of investment since at present majority of the remittance is used for consumption purpose, land acquisition and construction of homes.

Investment ClimateBangladesh is one of the top exporters of readymade garments to US & EuropeRisk factors for FDI are the minimum in BangladeshBangladesh never posted negative economic growth during the past 30 yearsBangladesh has ‘never defaulted in its debt repayments, nor asked for its rescheduling Bangladesh has an open, market based economy led by a vibrant and innovative private sector which provides the main stimulus to its growthBangladesh is a homogeneous country with no religious, ethnic or other forms of cultural conflictsBangladesh is one of the largest contributors to UN peacekeeping forces and missions and the records of the forces have been exemplary and laudable

Foreign Direct Investment (FDI)Sustainable development can remove the poverty from

the society, in this regards foreign direct investment (FDI) plays a vital role in sustainable development.

Many schools of thought emphasized on the flows of FDI could fill the gap between desired investment and domestically mobilized saving.

Additionally, FDI may help the host country to break out of the vicious cycle of underdevelopment.

Many scholars widely believe that the benefits accrued from FDI may include the acquisition of new technology, employment creation, human capital development, contribution to international trade integration, enhancing domestic investment, and increasing tax revenue generated by FDI

FDI Policy FrameworkThe National Industrial Policy, 2010 of Bangladesh

recognizes:a.Private sector is treated as the engine of

growth b.No upper ceiling for foreign investors or

performance requirementsc.100% foreign equity is allowedd.All industrial sectors are open for foreign

investors for investment except 4 reserve sectors for the government.

e.Equal treatment for both local and foreign investment

f. Export oriented industries are given top priority

Taxation n BDStatus Rate Corporate Tax: (on net profit)

Publicly Traded Company 25%Non-Publicly Traded Company 35%Bank, Insurances, Financial Institutions

(listed)40%

Bank, Insurances, Financial Institutions (not listed)

42.5%

Merchant Banks 37.5%Cell Phone Company (40% if listed ) 45%

Cigarette producing companies 45%Personal taxes (Based on defined income slabs) 10%-25%

RecommendationBangladesh has some individual opportunity to develop its socio economic infrastructure. Socio-Economic indicator is also very favorable of

Bangladesh.Both Official Development Assistance and FDI inflow of

Bangladesh are positive.Bangladesh Govt. has successfully implemented two

Poverty Reduction Strategy Paper. Bangladesh has been trying to reduce its poverty rate by

its own way. But if it has some other development assistance from the out side it would be more fuel in this journey.

Domestic and foreign investment area should be increased.

Reference World Bank DataBangladesh Bank DatabaseMinistry of Finance of BangladeshStatistaAid flow Bangladeshhttps://sustainabledevelopment.un.org/?

menu=1300