- Basic data
- Public finances and the state budget
- Banking system
- Tax system
In 2021, the Bangladeshi economy gradually recovered from 2020, when it was significantly affected by the coronavirus pandemic, with negative effects mainly on the export of clothing products and unemployment. Bangladesh is now the 41st largest economy in the world and the second largest in South Asia. In 2021, its economy saw 6.9% GDP growth. Per capita income rose to $6,610 in the same year. Inflation remains at 5.6%, which is below the average for South Asian countries, according to the Asian Development Bank. As a result of sluggish exports, Bangladesh’s trade deficit widened significantly to US$2 billion in 2021 from US$ 1 billion in 2020. Check ebizdir for economical facts of Bangladesh.
The government is currently guided by the 8th Five-Year Plan (2021-2025), which includes seven strategic themes: labor-intensive, export-oriented growth, agricultural diversification, dynamism of domestic small and medium enterprises, modern services sector, ICT-based business and foreign employment. The plan also emphasizes mitigating the risk of climate change and sustainable urbanization. The 8FYP aims to achieve 8.5% GDP growth by 2025. Under the new plan, the government wants to achieve upper-middle-income country status by FY2031 and high-income country status by FY2041. The main export items include textiles and textile products, agricultural products, jute products. Major import products include petroleum and oil, precious metals and raw materials, and electrical machinery and equipment.
|GDP growth (%)||8.2||5.2||6.9||6.5||7|
|Export of goods (billion USD)||35.9||38.7||40.5||45.3||49.1|
|Import of goods (billion USD)||55||57.8||64.1||69.2||74.1|
|Trade Balance (Billion USD)||-15.9||-16.4||-25.7||-26.1||-27.3|
|Industrial production (% change)||9.2||-6.5||15||6||9|
|OECD export risk||05.VII||05.VII||05.VII||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-5.2|
|Public debt (% of GDP)||29.7|
|Current account balance (billion USD)||-8|
The fiscal deficit increased slightly to 5.4% of GDP. The current account balance is regularly reduced. Indebtedness is also relatively low. A positive phenomenon is the record amount of foreign exchange reserves. Foreign exchange reserves reached the amount of USD 44.30 billion at the end of April 2022. The balance of payments current account deficit is 2.7% of GDP. The government debt estimate for 2021 is 41.4% of GDP. Indebtedness is relatively low. The total foreign debt is almost 50 billion USD. According to the World Bank, Bangladesh is classified as a “less indebted” country. The amount of remittances is also satisfactory, reaching USD 2billion at the end of the 2020-2021 fiscal year.
According to the IMF, Bangladesh needs to continue reforms. First and foremost is the need to raise tax revenue, which is essential to increase public investment in support of poor and vulnerable people. In particular, Bangladesh should reform laws to prevent loan defaults. This will require modernization of the tax system and improvements in revenue collection, for example by simplifying the VAT rate structure. Financial sector reforms to strengthen banking regulation and supervision and improve corporate governance and legal systems are crucial. The economy will also require an increase in productive investment supported by a modernized policy framework. These reforms, combined with efforts to boost private investment and export diversification, should help create the conditions to increase the resilience of the Bangladeshi economy and support long-term,
The banking system in Bangladesh is overseen by the central bank Bangladesh Bank. There are also a total of 61 banks operating in the country, including 4 nationalized banks (Agrani Bank, Janata Bank, Sonali Bank and Rupali Bank) and 5 government-controlled banks that are professionally focused (Bangladesh Krishio Bank, Bangladesh Shilpa Bank, Bangladesh Shilpa Rin Sangstha, Bangladesh Small Industries and Commerce Bank – BASIC and Rajshahi Krishi Unnayan Bank). In addition to these banks, there are 10 foreign banks and 33 non-bank financial institutions operating in the country. Bangladesh is known for its microfinance system, which is practiced by around 600 organizations in the country. The banking system is oversaturated, very fragile, burdened by bad loans, corruption and overemployment. High interest rates and poor credit policies have a long-term negative impact on the country’s economy. The stock market is underdeveloped, approximately 200 titles with low liquidity are traded. The main stock exchanges are in Dhaka and Chittagong.
According to analysts, Bangladesh has one of the highest corporate tax rates and a complex tax system, which discourages investors. Corporate income taxes fall into eight categories. Telecom operators, banks and financial institutions and cigarette manufacturers – the main tax payers – pay a tax of 40% to 45%. Jute processors (10%) and clothing manufacturers (12%) have the lowest rate. Generally, the corporate tax rate for unlisted companies is 35% and for listed companies 25%. Chambers of commerce have been demanding a reduction in corporate income tax for several years.
From 1 July 2019, the new VAT Act applies with four main rates, which deviate from the original uniform 15%. Under the new system, the VAT rates are 5%, 7.5%, 10% and 15%. Experts criticize that the introduction of so many rates goes against the foundations of the law.
Bangladesh’s lack of revenue flow compared to the size of the economy and development work is very worrying. The tax-to-GDP ratio is one of the lowest in the world and well below others in the region.
Tax details can be obtained from http://nbr.gov.bd/.