Bangladesh needs 2nd phase of trade policy reforms: PRI

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

"Too frequently, while talking about services exports, we refer only to non-factor services, such as ICT, shipping, insurance, banking, tourism, education, etc. It is high time to recognise the major development and poverty reduction role of remittances, which constitute export of factor services for Bangladesh ," said PRI Chairman Dr Zaidi Sattar at a webinar titled "Boosting Bangladesh's Trade Competitiveness" on Tuesday.

If the last fiscal year's remittance earnings of $24.7 billion are included as the exports of factor services, the country's total exports in FY21 would amount $69.6 billion, of which $38.8 billion are from goods and $6.1 billion from non-factor services, the senior economist pointed out, calling for modernisation of tariff regime to strengthen competitiveness in the pre- and post-LDC era.

Since exports of factor services are highly responsive to exchange rate adjustments – that is to say depreciation triggers higher remittance inflows – having the proper exchange rate is a must for both goods and services exports, he noted.

"Time is ripe for a forward-looking trade agenda that goes beyond tariffs to include factor and non-factor services exports,"  Dr Zaidi Sattar, also said, adding digital technologies, climate-related reforms 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 tremendous export success over the decades, the PRI chairman said the success built on concentration in readymade garments adds vulnerability to the whole economy from future shocks if the exercise cannot be replicated in non-RMG sectors.

"The first phase of trade policy reforms is now over. It is a national imperative to launch the second phase of trade policy reforms because 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 business by improving trade facilitation are among other measures needed to support export competitiveness and diversification, Dr Zaidi Sattar noted.

At the webinar, two senior economists at macroeconomics, trade and investment of the World Bank – Dr Nora Diheli and Dr Csilla Lakatos, presented a keynote.

Bangladesh managed to benefit from its low labor cost and potential access to markets in advanced economies and exports led growth, which was triggered mainly by readymade garments, according to the paper. 

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

"Tariff modernisation is important for Bangladesh if it wants to continue the current export growth, so naturally what we find is product diversification is needed," he also said.

The average tariff rate is 18.8%, which is more than double of China's, while it is 7.5% in Vietnam and 7% in Thailand.

Dr Csilla Lakatos said about 300 hours are needed for documentation in Bangladesh for exports as a para tariff barrier.

Rizwan Rahman, president at Dhaka Chamber of Commerce and Industry, said, "We are talking about export diversification. But all export sectors are not getting equal benefits."

For example, garment factories get a bond licence with a three-year validity, while leather and others get the same for only a year.

Besides, non-RMG sectors face hassle and their production gets stopped because of harassment following expiration of the licence every year, he noted.

He also said it is important to sign free trade agreements and preferential trade agreements with different countries to deal with the challenges after LDC graduation.

Commerce minister Tipu Munshi said, "Our exports are on an upward trend. In the first six months of this year, we have 28% growth. We are working on a number of sectors, including pharma, leather, agro, and ICT industries, for export diversification."