—AKM Asaduzzaman Patwary—

The geo-economic crisis and its fallout caused wide-ranging consequences across the world hampering global trading system. Many developed and developing economies have not become immune from the global shocks. Bangladesh is no exception to this global shockwave. The entire private sector, encompassing the large and MSMEs across the board, has been badly affected. The prolonged war of Russia and Ukraine with related different economic sanctions, Israel and Palestine war have aggravated the world economic order.

The world economy encountered 2.7% global merchandise trade decline and 12% foreign investment decline which deepen the geo-economic meltdown to a large extent. Bangladesh also has several macroeconomic challenges.

Amidst this challenging economic context, MSMEs are badly hard hit. The World Bank earlier reported 90% of businesses and over 50% of employments worldwide are contributed by SMEs. In Bangladesh, the MSMEs play various crucial roles as the key facilitator of the economic acceleration. MSMEs contribute 25% of GDP, 80% of industrial employment and act as the linkage of many core industries. This local and global share of SMEs underscores their inevitability in the world economy. They are also instrumental in foreign trade, attracting investment, establishing private property, fostering innovation and new technologies.

Despite the significant importance of MSMEs, the proposed national budget lacks specific allocation and revival initiatives targeted at them. Ironically, the budget has neither given any target for private sector investment nor a specific agenda to support the crippling MSMEs. The budget has not included any enabling policies, fiscal supports to address the SME challenges and their growth.

The soaring cost of bank lending with failure of SMART rate, liquidity crunch, double digit inflation, 40% exchange rate hike, low import trend adversely enhanced the cost of doing business making the local business climate harder. Consequently, the private sector credit trend becomes slim reaching the lowest to 9% while private investment to GDP ratio hovers within 23% over the last couple of years. The budget overlooks sector-specific strategies for the unique challenges faced by different SMEs. The banking sector dependent deficit budget holds back the MSME investment lending.

Although the budget hasn’t made any provision of funding and fiscal easing process, several small initiatives are likely to facilitate MSMEs welfare in some sectors. Market expansion support through online platforms and linkage programmes of SMEs with larger ones, and increased duty on imported raw materials of certain products for local entities are good efforts. The government has also introduced broader measures to secure healthy business environment, reduced corporate tax on non-listed companies to 25% and OPC business to 20%. Some industry-specific exemptions, especially in IT sector, may help SMEs to embrace digital transformation. Maintaining stable duty rate on essential inputs in agricultural items, subsidies on import of accessories of electric motor may add value to relevant MSMEs.

Alongside, the SMEs engaged in manufacturing and selling may be subjected due to higher SD on some food and beverages. SD hike on mobile phones and internet services may affect the SMEs reliant on digital communication. One per cent CD on capital machinery import in EZs is unfriendly for further industrial investment.

If we glance at the account of policy measures and tariff change in industrial items, the gains of MSMEs are much below the mark. Taking into account the rejuvenation priority of MSMEs from economic downturn, the government could provide some strategies and policy directives to leverage the MSMEs. The national budget may consider blended agenda like low-cost financing, port handling fee, domestic market quota, technology and skills transfer and others necessary to get rid of economic slump and help them digital transformation.

Process simplification in bank borrowing, charges and penalty waiver on tax payment and deferral of tax payment, subsidised energy tariff and flexible lending repayment tenure, and IP related readiness are needed to embrace the new climate upon LDC graduation.

Since MSMEs encounter structural and procedural issues in complying with tax payment and financing, a separate flexible SME tax code and simple bank financing access can bring about remarkable changes. Above all, the undisbursed COVID recovery MSMEs stimulus fund and pending refinancing scheme of Tk.62,000 crore could be expedited. Private sector stresses consideration of the said needs in the Finance bill 2024 amendment. It is worth mentioning that these measures may have multiplier macroeconomic effects like industrial mobility, new investment, employment, revenue generation, poverty elimination and financial sector stability. These result-oriented outcomes may steer the knowledge-backed economic transformation. The economic census of GoB in 2013 reported 21 million businesses countrywide and lion share of them are CMSMEs. This position justifies unprecedented importance of MSMEs and the need for holistic budget approach for the inclusive economic growth. Incorporating these timely suggestions can lead to a conducive climate retaining the utmost interest of private sector. Despite huge fiscal constraints, 17.5% higher public sector budget at the cost of many key avenues is apparently an untimely choice. A little austerity in public expenditure and rational resource share could be a saviour for all priority avenues towards a holistic budget. MSMEs are expected to enforce the targeted actions on much-needed economic turn around and balanced development translating the economic competitiveness in no time.

(The writer is Executive Secretary at DCCI)