Foreign Currency

Corruption, forex crisis top headache for businesses

Businesses in Bangladesh navigated tough challenges last year due to unprecedented corruption plaguing logistics, licensing, and many service-providing activities, which in turn weakened the country’s trade and commerce atmosphere.

The business community also had to trudge through forex volatility and inefficient government bureaucracy throughout 2023. Businesses are now mostly concerned about the inadequate energy supply which is worsening day by day, inflation, and economic downturn on the horizon.

These issues pose significant risks to the country’s economy, at a time when most large and small businesses had already witnessed a significant decline in production last year.

These are the findings of a study titled “Bangladesh Business Environment Study 2023: Findings from the Executive Opinion Survey,” conducted jointly by the Centre for Policy Dialogue (CPD) and World Economic Forum (WEF), and released at a media briefing in Dhaka on Wednesday.

The WEF has collected data of 11,000 respondents of 112 economies during 2023, while their Bangladesh partner CPD conducted the study by taking opinions from 71 businessmen from Dhaka, Gazipur and Savar.

CPD Research Director Khondaker Golam Moazzem said, “A staggering 67.6 per cent of businesses complained about a high level of corruption as the top problematic factor in doing business.

“Moreover, 54.9 per cent complained about inefficient government bureaucracy, and 46.5 per cent about foreign currency instability. Those are the two other most problematic factors.”

He further said, “The severity of these top three problematic factors has increased compared to the previous years. Foreign currency instability, before 2022, ranked among the least problematic factors impeding businesses, which jumped to the top five in the last two years.”

“Corruption hinders small businesses more than the larger ones, and forex volatility is now one of the key barriers for better businesses and it is a more hindering factor for large businesses.”

The USD crisis somewhat negatively affected most of the indicators related to business at different levels. The adversity is somewhat higher in the case of international payment, followed by the cost of raw materials, opening of LCs, revenue earnings, and investment.

Several other sectors also face constraints due to the USD crisis including the import of raw materials and transportation costs. The persistent USD crisis will be a major concern for external trade and investment in the coming months.

Productions declined in 2023

The study finds that a significant number of businessmen or 28.8 per cent reported a decrease in production.

This decline in production for over one-fourth of companies during FY23 is likely a reflection of the ongoing impact of the pandemic, while 3.64 per cent of the businesses say no change in their companies’ production during the study period.

The performance of small and medium enterprises (SMEs) was poorer compared to that of large enterprises.

Bribery worsened over the years

Bribery – which are somewhat common in obtaining favorable judicial decisions, largely common in the awarding of public contracts and licenses, in connection with the imports-exports and in connection with tax payments – has worsened over the past six years.

The business performance has further deteriorated in 2023 in terms of bribes for imports and exports, and ethical standards of politicians, states the survey, adding that the public organisations where major institutional reform is required include customs, the National Board of Revenue, city corporations and judiciary.

CPD Research Director Khondaker Golam Moazzem said, “Due to expensive infrastructural development, delay in completion, and low income from projects that are less or not used by the private sector, the government is in huge public debt and is burdened with repaying the debt with low income.

The delay in completion of some of the infrastructure projects with additional expenditure has further burdened the government, he added.

Money laundering, tax evasion

Macroeconomic stability was somewhat under pressure last year, when compared to the previous year.

“Failure to implement major structural reforms, particularly in the case of revenue mobilization, financial sector, tax evasion, money laundering, faulty public expenditure and subsidy management becomes a major reason for ongoing instability,” Moazzem pointed out.

Money laundering through various channels in Bangladesh was largely pervasive – the level of perception is one of the lowest in all types of indicators concerned, he said and adding, “This portrays a failure of concerned public agencies including Bangladesh Bank, the Financial Intelligence Unit, and CID.

“An integrated financial transaction system covering banks, non-bank financial institutions, MFS, digital banks, forex dealers, capital market, central bank, NBR etc. is required to trace the track of money laundering issues.”

The government should take an initiative to set up an independent office of Ombudsman or Ombudsperson with proper legal, institutional and operational responsibilities and facilities, he added.

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