Strengthen institutions before liberalising import: Economists

After graduation from the least development country (LDC) status, Bangladesh will face significant challenges in its export-driven development, economists have said, adding that the country cannot progress to the next level without easing its high import tariff structure.

However, they cautioned that import liberalisation should not proceed without first strengthening institutional capacity.

They made these remarks today (24 February) during a discussion at the "Conference on Recommendations by the Taskforce on Restrategising the Economy," organised by the Centre for Policy Dialogue (CPD).

CPD's Distinguished Fellow Dr Mustafizur Rahman highlighted two contrasting examples of import liberalisation – Singapore and Haiti.

"While Singapore has strong export and institutional capacity, making liberal imports beneficial to its economy, Haiti presents the opposite scenario," he said.

He warned that Bangladesh faces significant institutional capacity gaps in areas such as revenue collection, policy formulation, and implementation. "Without addressing these weaknesses, import liberalisation could be risky."

Dr Mustafizur also noted that while the average import tariff in the US and Europe is below 4%, they impose 11-18% tariffs on apparel imports. Since Bangladesh is not exporting high-value products with lower tariffs to these markets, the country must focus on strengthening its own export strategy.

Dr Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem), stated that Bangladesh lacks a coordinated and effective strategy for industrialisation and attracting investment.

He said the disjointed policies and efforts are a key reason for the failure to capitalise on the country's potential.

At the event, former Commerce Minister Amir Khosru Mahmud Chowdhury emphasised that a major recalibration of the economy is necessary. He pointed out that the government had pursued many wrong policies for a long time, focusing only on revenue.

He stressed that revenue should come from large-scale businesses in a developed private sector, not from VAT and other regulatory duties.

He also warned that without import liberalisation, export incentives would not push exports beyond a certain limit.

Zaved Akhtar, president of Foreign Investors' Chamber of Commerce and Industry (FICCI), while addressing the discussion, opined, "It is not only about import liberalisation, it is also about import substitution."

Zaved, who is also the chairman and managing director of Unilever Bangladesh, said 97% of Unilever Bangladesh's products are locally made, with only 3% being imported. 

"[Currently,] 40% of raw materials are made locally, to be 60% within the next two years as it is important to protect market share in a protectionist economy," he noted.

Zaved also proposed the formation of a national economic body comprising economists, business leaders, civil society representatives, bureaucrats, and government officials to drive economic reforms. 

He suggested that a shadow cabinet could help in shaping long-term policies and ensuring accountability.

Commerce Adviser Sk Bashiruddin referred to the widespread corruption and money laundering in the banking sector and infrastructure development during the previous government's tenure, which had put significant pressure on the macroeconomy.

He added that the main challenges now are ensuring continuous energy supply at fair prices, improving labour productivity, and enhancing logistics efficiency.

Economist Dr Mohammad Abdur Razzaque, chairman of the Research and Policy Integration for Development (Rapid), said the Ready-Made Garment (RMG) sector in Bangladesh has benefited from duty-free access to global markets, but this will no longer be available after LDC graduation.

He pointed out that by November 2026, Bangladesh is set to graduate from LDC, so it needs to analyse the costs and benefits.

He emphasised the urgent need to negotiate with the European Union to maintain this benefit even after December 2027.

He also pointed out Bangladesh's failure to establish bilateral free trade agreements and called for swift action to sign an FTA with Japan.

To reduce the pressure on the macroeconomy, Dr Razzaque stressed the need to rethink exports and remittances. He noted that among countries with a dominant population of 18-20-year-olds, only Ethiopia and Pakistan have lower exports than Bangladesh.

Currently, 30-40% of the government's incentives are going to companies producing goods for the local market. Moreover, 30% of revenue comes from high tariffs on imports, he said.

The economist said at present, 75% of Bangladesh's total exports depend on LDC benefits, which will no longer be available after graduation. 

Dr Razzaque highlighted that subsidies for exports will no longer be possible post-graduation. Bangladesh will have to respect intellectual property rights too, he added.

He also pointed out that since the 1990s, there have been no significant reforms in trade policy, and thoughtful reforms and actions are urgently needed.