A K Azad, a prominent business leader and former president of the Federation of Bangladesh Chambers of Commerce and Industry, has highlighted serious concerns about Bangladesh’s economy, which he attributes primarily to rising defaulted loans.
While the government claims these loans total Tk 182,000 crore, Azad estimates that the figure could exceed Tk 500,000 crore.
He criticized the lack of accountability in the financial sector, where influential individuals misuse loans without contributing to the country’s development.
This has exacerbated social disparities and eroded trust in the financial system.
As chairman of Ha-Meem Group, one of Bangladesh’s largest apparel manufacturers, Azad called for the establishment of a banking commission to enhance discipline and accountability within the sector.
He also emphasized the need to digitize the National Board of Revenue to improve tax collection and foster a better investment climate.
Azad asserted that a lack of accountability in the banking sector allows powerful entities to siphon off funds to developed countries. Despite the government’s figures on defaulted loans, he maintained that multiple organizations indicate a far larger problem.
He noted that certain individuals have received substantial loans from both private and public banks, often with special approval from Bangladesh Bank, yet these funds remain uninvested in the country.
Reiterating the necessity of a banking commission, Azad argued that such an entity has long been needed to instill discipline and enhance accountability at Bangladesh Bank.
He warned that without transparency and accountability in the financial sector, Bangladesh’s economy will struggle to recover, hindering job creation.
‘Some individuals are siphoning off the hard-earned money of the public through loans they do not repay,’ he stated.
With these misappropriated funds, they are launching businesses, purchasing homes and cars, and enjoying lavish lifestyles abroad. This not only illustrates the scale of financial misconduct but also highlights the detrimental impact on Bangladesh’s economy, as these diverted funds could otherwise support local investments and job creation.
Criticizing the provision allowing the whitening of undisclosed money at a 15 percent tax rate, A K Azad argued that the budget for the financial year 2024-25 incentivizes loan defaulters who misuse large bank loans, while legitimate businesses and investors face a burdensome 25 percent tax rate.
‘Each irregularity leads to another, creating a cycle of misconduct that undermines accountability and integrity,’ he stated.
According to Azad, these violations exacerbate the situation, making it increasingly difficult to restore order and trust within the financial system.
He recommended granting greater autonomy to Bangladesh Bank and reducing the finance ministry’s influence over banks, emphasizing that this separation of powers is essential for enforcing discipline in the banking sector.
An independent central bank, he argued, would be better positioned to implement regulations effectively, enhance accountability, and promote a healthier financial environment, ultimately restoring public confidence and fostering economic growth.
Azad pointed out that the culture of defaulted loans exacerbates social disparities, creating an uneven playing field in the marketplace.
He noted that this inequality not only threatens economic stability but also erodes trust in the financial system and undermines societal cohesion.
In addition to the rising issue of defaulted loans, Azad highlighted the severe shortage of gas and electricity, increasing utility prices and the global economic slowdown as significant challenges facing the economy.
He remarked that utility prices have surged recently, severely hampering industrial production due to the lack of a reliable gas supply.
Infrastructure, he emphasized, poses a major challenge for business and investment in Bangladesh, as the country lacks reliable energy forecasts and efficient transmission systems.
Azad noted that the service industry contributes over 53 percent to GDP, while the manufacturing sector accounts for 35 percent, with the growth of the service sector heavily reliant on manufacturing.
He stressed the need for transparent and accountable policies in both the financial and energy sectors to ensure sustainable economic growth.
‘Our gas reserves will be depleted by 2030, and we face uncertainty about the future. Therefore, we need major energy projects that enable private sector investors to align their plans with a comprehensive energy strategy,’ Azad stated.
Bangladesh’s economy is heavily export-driven, with lower and middle-income consumers in the United States and European Union being the primary markets for its goods.
However, Azad noted that the apparel sector, the country’s leading export, has experienced negative growth as inflation and rising interest rates, fueled by the Russia-Ukraine conflict, have significantly increased the cost of living in these markets.
He pointed out the challenges facing the industry, mentioning that his factories have seen an 11-cent decline in prices per piece compared to last year.
‘Apparel exporters are struggling to maintain operations as production costs continue to rise due to increasing utility prices, while global buyers are lowering unit prices,’ he said.
Explaining the current situation, Azad noted that the government had doubled utility prices under the promise of providing an uninterrupted supply; however, gas supply has remained nearly suspended, resulting in daily power outages of 6 to 7 hours for factories.
To sustain production, manufacturers have been forced to rely on diesel generators, which significantly increase production costs. This combination of rising costs and decreasing prices presents a critical challenge for the apparel sector.
He further detailed the state of the manufacturing sector, stating that imports of capital machinery have declined by 25 percent, while imports of industrial raw materials decreased by 22 percent as of May 2024. This indicates a reduction in domestic investment and a decline in demand for finished goods.
Azad mentioned that the government borrowed Tk 450,000 crore from banks in the recently concluded financial year and has targeted an additional Tk 137,000 crore in the current financial year. Meanwhile, the total amount of foreign loans has reached $100 billion, reflecting a growing dependency on borrowing.
‘If we do not invest these loans in productive sectors such as energy, the economy will be at risk of a severe crisis,’ Azad warned. Without strategic investment, he cautioned, the country could face significant challenges that undermine economic stability and progress.
He also pointed out that in the budget for FY25, the government set a revenue collection target of Tk 480,000 crore. However, the chairman of the National Board of Revenue indicated that achieving this target would be impossible without strong political will.
This underscores the need for decisive action and commitment from the government to enhance revenue generation efforts and address potential obstacles in increasing the tax-to-GDP ratio, Azad asserted.
Citing various incentives announced by India, he noted that the neighboring country has unveiled attractive packages for investors in six states: Bihar, Gujarat, Andhra Pradesh, Odisha, and Karnataka. These incentives have drawn significant interest from foreign investors, enabling them to capitalize on the opportunities presented by these investment packages.
Azad expressed concern about the sluggish pace of digitalization at the National Board of Revenue, highlighting that all operations, including VAT and income tax collections, are still conducted manually.
He warned that without automating the NBR’s operations, increasing the tax-to-GDP ratio will remain a challenge, making the budget’s target of 27 percent private sector investment unlikely to be achieved.
He emphasized that effective digital transformation is crucial for streamlining tax collection processes and fostering a favorable investment environment in the country.
Azad also highlighted the importance of developing a long-term strategy focused on investment, job creation, and building a skilled workforce to ensure sustainable growth.