Bangladesh needs 2nd phase of trade policy reforms (PRI)

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Bangladesh needs to embark on the second phase of trade policy reforms for export diversification and adopt a forward-looking trade agenda, recognizing remittances as factor service exports, according to the Policy Research Institute ( PRI).

“Too often, when we talk about service exports, we only refer to non-factor services, such as ICT, shipping, insurance, banking, tourism, education, etc. It is big time to recognize the major role of remittances in development and poverty alleviation, which constitute a factor service export for Bangladesh,” PRI Chairman Dr. Zaidi Sattar said on Tuesday during a webinar titled “Boosting Bangladesh’s Trade Competitiveness”.

If last fiscal year‘s remittance income of $24.7 billion is included in factor services exports, the country’s total exports in fiscal year 21 would be $69.6 billion. including $38.8 billion in goods and $6.1 billion in non-factor services, the senior economist pointed out. calling for the modernization of the tariff regime to enhance competitiveness in the pre- and post-LDC era.

Since exports of factor services are very sensitive to exchange rate adjustments – i.e. depreciation triggers higher remittances – having an appropriate exchange rate is essential for exports of goods and services, he noted.

“The time has come for a forward-looking trade agenda that goes beyond tariffs to include exports of factor and non-factor services,” Dr Zaidi Sattar also said, adding digital technologies, reforms related to climate as well as flexible thinking on regional cooperation, foreign direct investment and free trade agreements will help boost competitiveness.

Doing nothing will be too costly – a loss of competitiveness in the future, he warned.

Referring to Bangladesh’s huge export success over the decades, the PRI Chairman said success based on concentration in ready-to-wear garments increases the vulnerability of the whole economy to future shocks if the exercise cannot be replicated in non-RMG sectors.

“The first phase of trade policy reforms is now complete. It is a national imperative to launch the second phase of trade policy reforms as LDC graduation will take place in 2026,” he said.

Maintaining a flexible exchange rate, attracting export-seeking foreign direct investment and reducing the cost of doing business by improving trade facilitation are among other measures needed to support export competitiveness and diversification, Dr. Zaidi Sattar.

During the webinar, two senior macroeconomics, trade and investment economists from the World Bank – Dr. Nora Diheli and Dr. Csilla Lakatos, gave a keynote address.

Bangladesh was able to take advantage of its low labor costs and potential access to markets in advanced economies and exports led the growth, which was triggered mainly by ready-to-wear garments , according to the document.

Dr. Nora Diheli said that exports have contributed to the country’s remarkable growth by creating jobs by reducing ownership over the past decades, but at this point the ratio of exports to GDP in Bangladesh is less than 15%, which is very low compared to other countries at a similar level of development.

“Tariff modernization is important for Bangladesh if it is to continue the current export growth, so naturally what we are seeing is that product diversification is needed,” he also said.

The average duty rate is 18.8%, more than double that of China, while it is 7.5% in Vietnam and 7% in Thailand.

Dr. Csilla Lakatos said that around 300 hours are required for documentation in Bangladesh for exports as para tariff barrier.

Rizwan Rahman, President of the Dhaka Chamber of Commerce and Industry, said, “We are talking about export diversification. But not all export sectors benefit from the same advantages.

For example, garment factories get a bond license valid for three years, while leather and others get the same for only one year.

In addition, non-RMG sectors face problems and their production is halted due to harassment following license expiration every year, he noted.

He also said that it was important to sign free trade agreements and preferential trade agreements with different countries to face the challenges after the withdrawal of LDCs.

Trade Minister Tipu Munshi said, “Our exports are on an upward trend. In the first six months of this year, we have seen 28% growth. We are working on a number of sectors, including the pharmaceutical, leather, agro and ICT industries, for export diversification.”

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