Reforms of economic laws needed

The interim government has decided to form six commissions to reform the judiciary, election system, administration, police, Anti-Corruption Commission, and the constitution. There is commission to work on economic laws and rules.

Bangladesh has been facing a worsening macroeconomic situation since the beginning of 2022, manifested by the decline in foreign exchange reserves and slow growth in exports and remittance earnings. The interim government's role is crucial in navigating these economic challenges and laying the groundwork for a stable economy. 

At the core of these reforms is the establishment of a fair electoral system and good governance. Reforming the four institutions related to the electoral process -- the police, public administration, judiciary, and the Anti-Corruption Commission -- is essential for free and fair elections. Additionally, the interim government feels the need for constitutional reforms to ensure the representation and interests of all layers of society and to reflect the message of the July uprising.

A committee has been formed for the preparation of a comprehensive "White Paper" on the state of economy. A key demand is to improve the ease of doing business, which would encourage more investment and result in more jobs. The biggest hurdle to the overall business environment is the fact that corruption has permeated all facets of society, posing a significant barrier to attracting local and foreign investors.

The government has formed a committee to give a report on strengthening the Anti-corruption Commission. Unfortunately, the interim government has yet to take any action to address the reform of economic laws and rules, which are popularly known as 'ease of doing business' a widely discussed study of World Bank. 

The state of economic laws and rules have been revealed by three studies of World Bank, Policy Exchange and Centre for Policy Dialogue. The World Bank Ease of Doing Business Index is based on data on proven 10 factors or indices. These factors are: (1) starting a business, (2) dealing with construction permits, (3) getting electricity, (4) registering property, (5) getting credit, (6) protecting minority investors, (7) paying taxes, (8) trading across borders, (9) enforcing contracts and (10) resolving insolvency. Bangladesh has a very poor Ease of Doing Business Index of 24.2 ranking it 140th of 150 in the global listings in the last study of WB. 

A study similar to WB study has been undertaken jointly by the Metropolitan Chamber of Commerce & Industry, Dhaka (MCCI) and Policy Exchange Bangladesh. They have prepared Bangladesh Business Climate Index (BBX). This index based on a survey in 12 sectors - (1) agriculture and forestry, (2) construction, (3) electronics and light engineering, (4) financial intermediaries, (5) food and beverages, (6) leather and tannery, (7) pharmaceuticals and chemicals, (8) housing, (9) ready-made garments, (10) textiles, (11) transportation, (12) retail and wholesale trade. They have considered 11 pillars such as(1) Starting a Business, (2) Access to Land, (3) Availability of Regulatory Information, (4) Infrastructure, (5) Labour Regulation, (6) Dispute Resolution, (7) Trade Facilitation, (8) Paying Taxes, (9) Technology Adoption, (10) Access to Finance, and (11) Environmental Regulations. The country scored 58.75 points in the Bangladesh Business Climate Index (BBX) 2023-2024, a decline of 3.21 from 61.95 points posted in 2022.

The study pointed out that the composite score 58.75 puts Bangladesh business environment in the category "Several Bottlenecks in Business Environment: Significant Efforts required." The report cited difficulties in getting licences, corruption in land offices, complications in the land registration process, weak infrastructures, electricity shortages, and VAT, tax hikes as key hurdles against running businesses smoothly.

Starting a business is difficult as multiple government agencies are engaged in the licensing process. There is also the increased cost of trade license, informal payments, and weak coordination between agencies.

In terms of access to land, the key obstacles are a high number of bank drafts required during land acquisition, corruption in the land office, and the long process of land transfers. The government can achieve this by focusing on curbing extortion at every level and removing bureaucratic tangles.

The businesses are suffering from frequent power outages, which are causing infrastructural constraints. Besides low maintenance of the sewerage system by government agencies and high cost of logistics and raw materials are the problems.

The infrastructure development be more targeted towards business competitiveness, adding that sustainable operation of infrastructure requires adequate attention. Frequent and arbitrary increases in tax and VAT rates and the complicated and time-consuming process of filing taxes are obstacles in taxation, the report said.

In this context, the report recommended simplifying the tax reporting forms, fully implementing the new VAT Law which makes the VAT refund process more efficient, and modernizing the tax administration. Availability of regulatory information, high government charges for essential utilities, businesses not given prior notice by government agencies regarding any regulatory changes and websites and guidelines are not always up to date.

When it comes to dispute resolution, businesses are facing complicated court procedures and long wait times, and shortage of manpower - especially judges and dedicated lawyers. Resolving commercial disputes is time consuming and costly. The researcher recommended boosting regulatory service quality or effectiveness of reform to improve the climate, adding that ultimately such matters depend on field level service providing government agencies. The report added that the ongoing macroeconomic challenges clearly had an adverse impact on the business environment.

The government should update commercial laws with the aim of fully digitalizing processes relating to international trade, such as issuance of invoices and signing of contracts, to reduce the scope for fraudulence and money laundering. The Bangladesh Bank (BB) has formed a task force for banking sector reform, with six experts on the financial sector as members of the taskforce. Apart from taking different measures to reform the banking sector, the task force will also publish a white paper.

The political crisis can significantly slow down economic growth. Political instability breeds uncertainty, which in turn undermines investor confidence. As a result, both domestic and foreign investors can become more cautious, leading to reduced private investment. Political instability also affects the broader economic environment by disrupting business operations and creating an unpredictable financial climate.

For the country to recover and stabilize, the interim government must prioritize political stability and the restoration of law and order. These steps are critical to setting the stage for economic recovery.

According to the Centre for Policy Dialogue (CPD)'s Bangladesh Business Environment Study 2020 report, 75% of businesses found the central bank's monitoring of banks to be inadequate. The report also noted that due to bureaucratic red-tape, policymakers need to focus on the availability and quality of government services. They are indicative of transparency, accountability, and weakness in public services. Furthermore, the report identified some administrative weaknesses in improving the business environment. 

For instance, 49% of businesses said it was difficult to challenge the existing system, 84.3% mentioned that unofficial (bribery) transactions to get government services had increased, and 70% said judicial systems were capable of being influenced.  It also mentioned a lack of corporate ethics in government institutions, illegal transfer of government funds, and inefficiency of judicial systems in resolving business disputes.

Japan External Trade Organization (JETRO) Country Representative Yuji Ando said, "Sixty-two per cent of Japan's investors in Bangladesh want to expand their businesses. However, their key hurdle is the unclear legal system of Bangladesh, so a legal reform is needed."

With the LDC graduation in 2026, Bangladesh may lose most of the preferential trade benefits from countries and blocs of its main export destinations if the country's ease of doing business index not significantly improved by that time. The ease of doing business is very much needed to reduce the cost of business as global trade and commerce become more competitive.

Prof Yunus said they will undertake robust and far-reaching economic reforms to restore macroeconomic stability and sustained growth, with priority attached to good governance and combating corruption and mismanagement.

Three studies and dialogue of World Bank, Centre for Policy Dialogue and Policy Exchange Bangladesh namely (1) Ease of Doing Business, (2) Bangladesh Business Climate Index (BBX) and (3)Bangladesh Business Environment Study 2020 findings projected that the country needs a massive reforms of business laws and policies. The present interim administration has reportedly wanted to moved fast to "reset, reform, and restart" the economy, initiate reforms in financial sectors, and fix institutions but unfortunately except reform initiative of business environment. The hope and expectation is very high from the present interim government, since they have taken up massive reform program of the state for electoral, human rights and administrative reforms and why not the reforms of economic laws and rules.

The writer is a Former Non-Government Adviser, Bangladesh Competition Commission, Legal Economist & CEO, Bangla Chemical

Source: Daily Observer