Bangladesh achieves very low overall compliance with international standards and codes, with a score of 15 out of 100 in our Standards Compliance Index. Bangladesh's compliance in all three broad categories is poor. The highest level of compliance reached under any category is "Intent Declared," and there are several standards that either lack independent assessments or have earned a "no compliance" rating. Bangladesh does not subscribe to the Special Data Dissemination Standard, but it has taken several measures toward meeting the basic requirements of international transparency codes. It is also in the process of aligning its accounting and auditing practices with international standards. Efforts are being made to introduce a culture of corporate governance but they suffer from serious institutional weaknesses. An Anti-Money Laundering and Terrorist Financing Act was drafted in 2005 but is stalled, preventing the strengthening of a weak system. Financial supervision standards lack independent assessments, the insurance sector is underdeveloped and poorly regulated.

Macroeconomic Policy and Data Transparency

Bangladesh is not a subscriber to the International Monetary Fund (IMF) Special Data Dissemination Standard (SDDS), but has participated in the IMF's less stringent General Data Dissemination System (GDDS) since 2001. According to both the IMF's 2005 Report on the Observance of Standards and Codes - Data Dissemination Module (ROSC) and 2007 Article IV Consultation , Statistical Appendix, Bangladesh's statistical base is generally adequate to conduct effective surveillance. The 2007 Article IV report suggested that further improvements should focus on enacting legislation that better defines the role of the Bangladesh Bureau of Statistics (BBS) and empower it more appropriately to fulfill its mission. New legislation should improve interagency cooperation, especially with regard to data generation on government debt financing via the banks. Bangladesh should also institute advance release calendars, disseminating them to all interested parties, and complying with the release dates contained therein. Greater use should also be made of the BBS website as a place where the public can conveniently and simultaneously access statistical data. More »

The principle legislation underpinning Bangladeshi monetary policy is the Bangladesh Bank Order of 1972, which created the Bangladesh Bank (BB) and conferred on it limited monetary and exchange-rate policy-making and implementation authority. The BB's operational authority was further strengthened with a 2003 amendment to that original Order. In its 2007 Article IV Consultation report on Bangladesh, the IMF noted that reforms aimed at strengthening central bank operations achieved some success, as did efforts to improve the exchange rate system. The BB used IMF technical assistance to attain significant improvements in its foreign exchange market function and raise public confidence in the currency. In addition, the BB improved its operations as central bank, enhanced its liquidity management, and expanded its capacity to oversee the banking sector as well as monitoring the compliance of the nationalized commercial banks with performance requirements. However, the publicly available information does not directly address Bangladesh's compliance with IMF's monetary policy standard. More »

In its 2003 Report on the Observance of Standards and Codes (ROSC) on fiscal policy, the IMF found that Bangladesh had achieved some advances in its basic fiscal policy transparency practices. These improvements include bringing accounting and fiscal reporting standards closer to the basic requirements of the IMF's fiscal transparency code. Further improvements were noted in the 2005 ROSC update, which noted that many 2003 recommendations by the IMF had been implemented, particularly with regard to fiscal reporting. Reforms elsewhere had been slower, most recently due to the failure to hold elections scheduled for January 2007. However, the 2007 IMF Article IV Consultation reported that the transitional government, put in place following the missed elections, enjoys wide approval for its anticorruption campaign, which has resulted in scores of arrests in both the business sector and within government, and has enabled the resumption of fiscal reform efforts. Nonetheless, the Open Budget Index for Bangladesh compiled by Artiur Rathman and Unnayan Shamannay ranks the Bangladesh budget process at 40%, earning a descriptive evaluation of "minimal" openness. More »

Institutional and market infrastructure

The Bangladeshi insolvency regime is based primarily upon the 1997 Bankruptcy Act, supported by provisions of the Companies Act of 1994, the Banking Companies Act of 1991 (as amended), and the Finance Institution Act of 1993. The laws provide the mandate for money loan courts, bankruptcy courts, and dedicated courts that handle the recovery of debts for banks and other financial institutions. However, according to a 2004 report by the U.S. Department of Commerce on "Doing Business in Bangladesh," the legislation is largely ineffective in addressing insolvent companies. Banks prefer alternatives to the bankruptcy courts, including demanding blanket guarantees from company directors as a condition for issuing loans. Implementation of creditor rights is weak. According to the World Bank's "Doing Business" snapshot of Bangladesh for 2008, the average cost of a business-closing is 8% of the debtor estate, as compared to a regional average of 6.5% and an average of 7.5% for member states of the Organization for Economic Cooperation and Development (OECD). In Bangladesh it takes an average of 4 years to complete the business-closing process, compared to 5 years regionally and 1.3 years in OECD member states. The return to creditors in Bangladesh is 23.2 cents on the dollar, compared to a regional return of 20.1 cents and an OECD average return of 74.1 cents. More »

A 2003 World Bank review of the accounting and auditing environment in Bangladesh noted that national practices were not in line with internationally acceptable standards and suffered from "institutional weaknesses in regulation, compliance, and enforcement of standards and rules." The World Bank therefore recommended improving the accounting and auditing framework by adopting International Financial Reporting Standards (IFRSs) without any modifications and setting up an independent oversight body for enforcing international standards. According to a comparative analysis of national standards with IFRSs conducted by the South Asian Federation of Accountants (SAFA) for five South Asian countries including Bangladesh, the Institute of Chartered Accountants of Bangladesh (ICAB) adopted most IFRSs as Bangladesh Accounting Standards. However, the national standards are modified to reflect local legal requirements. The 2007 ICAB self-assessment confirmed that Bangladesh adopted international standards with modifications. These national standards are mandatory for all listed companies and recommended for other entities. The SAFA analysis added that the ICAB is making efforts to eliminate the differences with the international equivalents. As of 2007, Bangladesh had adopted 31 IFRSs and 5 were under review. More »

According to a 2003 Bangladesh Enterprise Institute (BEI) assessment on corporate governance in Bangladesh, corporate governance in the country is sub par. The institutions, government agencies, legal enforcement, and market behavior do not support corporate governance, and there are rarely repercussions for noncompliance. The assessment recommends that reforms be targeted in institutions and sectors to create motivation for transparency and accountability that will ultimately contribute to improved corporate governance. It also emphasizes the importance of raising awareness of the importance of corporate governance and related issues to empower stakeholders. As a response to the 2003 BEI assessment, the BEI established a taskforce to formulate a code of corporate governance. In 2004, it released the Code of Corporate Governance for Bangladesh. In 2006 the Bangladeshi Securities and Exchange Commission (SEC) introduced guidelines for corporate governance which are enforced on a 'comply-or-explain' basis. The Organization for Economic Cooperation and Development indicates that the SEC's capacity building and system development has improved. Also, the SEC has greater authority to sanction and is gradually using its authority more. However, the judiciary serves as a continuing impediment to corporate governance, due to poor training of judges in corporate governance matters and lengthy processes. More »

According to the assessment of accounting and auditing practices conducted by the World Bank in 2003, Bangladesh suffers from "institutional weaknesses in regulation, compliance, and enforcement of standards and rules" and Bangladeshi auditing practices are not in line with internationally accepted standards. The World Bank noted that Bangladesh Standards on Auditing (BSAs) are based on International Standards on Auditing (ISAs); however, BSAs have not been updated in line with the international standards. The World Bank therefore recommended improving the accounting and auditing framework by adopting ISAs without any modifications and setting up an independent oversight body to enforce international standards and codes. A comparative analysis of national standards with ISAs conducted by the South Asian Federation of Accountants (SAFA) confirmed that Bangladesh adopted most of ISAs and other International Auditing and Assurance Standards Board (IAASB) pronouncements. However; the subsequent revisions made by the IAASB have not been incorporated. As of July 2006, the SAFA noted that the adoption of revised ISAs is under review in Bangladesh and that the old versions are still in use. Furthermore, the 2007 Institute of Chartered Accountants of Bangladesh self-assessment explained that the adopted international standards have been modified to reflect the local legal environment. BSAs are mandatory for listed companies. More »

The Money Laundering Prevention Act (MLPA) of 2002 is the primary anti-money laundering (AML) legislation in Bangladesh. A 2003 World Bank report observes that the enactment of the MLPA has given a powerful boost to AML vigilance in Bangladesh. The report also states that the Bangladesh Bank has the authority and responsibility of implementing and enforcing the MLPA, with powers to investigate and try money laundering offences, and seize and freeze money-laundering related assets. Bangladesh is also taking steps to strengthen its AML measures with amendments to the 2002 MLPA. The Anti-Money Laundering and Terrorist Financing Act, drafted in 2005 to amend and replace the 2002 MLPA, was stalled due to the prevailing political instability. The 2003 World Bank report points out that the major challenges facing AML efforts in Bangladesh include: (1) building capacity for better identification and investigation of money-laundering offenses; (2) establishing a Financial Intelligence Unit (FIU) within the Anti-Money Laundering Department of the Bangladesh Bank with technically advanced capabilities to collect and analyze suspicious transaction reports; (3) building up the expertise of the Independent Anti-Corruption Commission and the Police Department in tracking down Money Laundering crime chains; and (4) creating awareness through training of the banks and other financial institutions in AML measures, and upgrading their information technology for tracking AML networks efficiently. The 2007 U.S. Department of State (DoS) report observes that the AML regime needs to be strengthened and terrorist financing criminalized in order for the legal framework in Bangladesh to be aligned with international standards. The report also finds that poor training, technology, and other resources are cause for concern. Among the measures recommended by the U.S. DoS report, safe harbor provisions, due diligence measures, banker negligence accountability, a viable FIU and financial intelligence collection system are the most important. However, there is insufficient information publicly available that directly addresses Bangladesh's compliance with the 40+9 Recommendations of the Financial Action Task Force (FATF). More »

According to the 2005-2006 annual report of the Bangladesh Bank published in 2007, Article 26 of the Bangladesh Bank Order of 1972 empowers the Bank to issue notes and coins and manage the currencies in circulation. The Order does not make any specific mention of the Bank's responsibility for payment systems in the country. However, according to its 2005-2006 annual report, the Bank's authority and responsibility are implicit. The Bangladesh Bank undertakes the task as the country's central bank, motivated by its interests in a stable currency and financial system and the smooth operation of monetary policies. The 2007 Bank's annual report acknowledges that the existing payments and settlement system in Bangladesh does not conform to international practices. However the same report states that the central bank has been focusing on modernizing the payment systems in the country, and that includes modernizing the legal and regulatory framework governing the systems. The envisaged legal system will better meet the requirements of the modern payment systems by vesting explicit regulatory and oversight powers pertaining to payment systems in the central bank, and will include clear rules, policies, and procedures for the soon-to-be-introduced Bangladesh Automated Clearing House. The project incorporates the implementation of a real time gross settlement system, the formation of the National Payments Council to lay down policies and long-term strategies for the implementation of a modern payments system, the issuance of a modern Cheque Design Standards, and the expansion of the use of modern and innovative payment instruments like credit and debit cards, point of sale systems, and high-value interbank payments. The expected completion date of the project is 2008-2009, and it promises to make the payment systems in the country conform to international standards. More »

Financial Regulation and Supervision

The Bangladesh Bank supervises and regulates the banking sector in Bangladesh. According to the 2007 Article IV consultation report by the IMF, the transitional government in Bangladesh is pushing forward with key stalled reforms, such as corporatization of the nationalized commercial banks, strengthening the regulatory framework and the Bangladesh Bank's supervisory capacity, and enhancing off-site and on-site supervision. The 2007 IMF report commends Bangladesh for implementing many recommendations of the (unpublished) 2002 Financial Sector Assessment Program (FSAP), but it finds that more needs to be done to bring Bangladesh closer to international regulatory standards. It also warns of underlying weaknesses in the banking system due to the undervaluation of capital inadequacy in individual banks. The report therefore calls for a stronger monitoring framework to improve financial sector risk management and promote banking sector soundness. The IMF, in its 2007 report, welcomes the proposed amendments to the Banking Companies Act that, when enacted, will enable the Bangladesh Bank to tighten loan classification standards and increase minimum capital requirements for banks. The Bangladesh Bank, according to the report, is conducting a self-assessment of its implementation of the 2002 FSAP recommendations and has asked an IMF/World Bank mission to assess its conclusions and conduct an FSAP update. As an adjunct to the reforms in the regulatory framework, the IMF also asks Bangladesh to improve enforcement for more accurate assessment of the soundness of the financial system, especially in the climate of rapid credit growth. However, there is insufficient information publicly available as to Bangladesh's overall compliance with the Basel Core Principles for Effective Banking Supervision. More »

According to the Asian Development Bank's (ADB) 2005 assessment on the "Capital Market Development Program (CMDP) in Bangladesh," Bangladesh's capital market is weak. It lacks the foundation of an efficient capital market. In 1997, the ADB approved the CMDP to reform Bangladesh's capital market. The program was designed to increase market capacity and transform the capital market to be fair, transparent, and efficient, in order to attract more investment capital. The ADB evaluates the completed program as partially effective. While there was some progress in strengthening the regulator and improving surveillance, enforcement of regulations remains weak. However, there is insufficient publicly available information that addresses Bangladesh's adherence to the Objectives and Principles of Securities Regulation promulgated by the International Organization of Securities Commissions (IOSCO). More »

The insurance sector in Bangladesh is governed by the Insurance Act of 1938, which was amended in 1993. The Controller of Insurance in the Department of Insurance, housed within the Ministry of Commerce, regulates and oversees the insurance sector. However, the Bangladesh Bank website states that a separate Insurance Regulatory Authority is being created in Bangladesh. The ADB, in its several observations since 1998, finds that the insurance sector in Bangladesh is underdeveloped and poorly regulated. As mentioned in a 2003 report published by the Bangladesh Enterprise Institute, the insurance industry also suffers from undue political interference, fraudulent claims, inadequate risk assessments, and limited and poor quality private sector participation. The legal framework has also been found to be weak, with even weaker enforcement. The regulatory staff lacks formal training or industry experience, as well as infrastructure or incentives to enforce compliance with laws. The ADB expresses discontent that despite substantial support given by the ADB to strengthen Bangladesh's securities and insurance regulatory frameworks, Bangladesh has shown scant commitment to reform. Nevertheless, a new loan has been sanctioned by the ADB in 2007 to overhaul the insurance legislation and create a new regulatory authority in line with international best practices, with an expected completion date of December 2007. More »

Legend:

Credit Ratings

Moody's Not rated

Fitch Not rated

Standard & Poor's Not rated

Macroeconomic Data

2007 GDP (Current Prices): 72.424 billion USD (IMF)

2007 GDP (Per Capita): 455 USD (IMF)

2008 GDP (Growth Forecast): 5.5% (IMF)

2008 Inflation (CPI): 9.3% (IMF)

2007 Unemployment: 2.5% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 0.625 billion USD (UNCTAD)

FDI (Outward): 0.008 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 1223 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)