INEFFECTIVE PRIVATIZATION OF PUBLIC ENTERPRISES : CASE STUDY OF BANGLADESH.
This essay examines the limitations of the privatization program in Bangladesh. The question of privatization of public enterprises arises because of their poor financial and operating performance. Public enterprises in Bangladesh incur chronic losses, require state financed equity injections and credit from the banking system. Privatization, which is used to mean the transfer of both ownership and control of the firm from the public sector to the private sector, has been viewed as a possible remedy to overcome the malaise of the public sector. It is believed that privatization will reduce the role of the state, lessen the state's fiscal deficit by decreasing the demand for continued financing of firms from the exchequer, and improve the asset quality of the banking system.
Bangladesh is one of the pioneers in the privatization of public enterprises. It has privatized a large number of firms. The set of privatized firms chosen for investigation here covers all the major industrial (manufacturing) and commercial firms privatized in Bangladesh since January 1, 1979 till 1995. Binayak Sen (1) undertook a survey of these privatized. The Bangladesh Institute of Development Studies (BIDS), under the authority of the Ministry of Finance of the Government of the People's Republic of Bangladesh, conducted the survey - - Sen's survey sample consisted of 205 privatized firms. In the present study, four firms have been excluded for one reason or another: for instance, three firms mentioned in Sen's list have merged into one. Sen's list of privatized firms includes the 35 jute and 29 cotton textile firms that were returned to their former (or "original") Bengali owners. The present study does not incorporate the enterprises privatized since 1996.
Nationalized commercial banks and state-owned development financial institutions dominate the financial system. The Bangladesh authorities have privatized two commercial banks and opened to private entrepreneurs sectors previously reserved only for public investment. Here industrial and commercial enterprises privatized between 1979-1995 are studied. Detailed analyses of the debt-default status and the tax registration profile of privatized firms are presented, using unique data sets obtained exclusively for this paper from Bangladesh's central bank and the national tax authorities. The empirical findings suggest that privatization in Bangladesh has been ineffective. The case of Bangladesh illustrates that state-directed financing obtained by firms may not decline in spite of privatization. The softness of the budget constraint may still remain after privatization. As implied in the model of ineffective privatization, constructed in this paper, perverse outcomes of privatization might occur in regimes characterized by widespread corruption and poor governance. This essay points out the limitations of the privatization in Bangladesh. The analysis presented here of various dimensions of post-privatization enterprise performance and behavior such as debt-default and tax compliance is not only of theoretical interest but also of some policy concern as the privatization of public enterprises is likely to gain greater momentum in the near future. This issue is on the policy agenda of the Bangladeshi authorities and the international donors.
This section briefly reviews the following :
(a) The literature on public enterprises and privatization in Bangladesh, and
(b) selected papers from the analytical and the empirical literature on firms' post-privatization performance.
Despite the importance of public enterprises to Bangladesh's economy, the literature on public enterprises in Bangladesh is quite limited. The major study of public enterprises in Bangladesh is Sobhan and Ahmad (2). It discusses the problems of public enterprises in the 1970s from the planners' viewpoint. Islam (3), Yusuf (4) and Ahmad (5) give overviews of the nationalization and the performance of public enterprises. Mahmood (6) provides an in-depth analysis of the financial and the operating performances of selected public enterprises from 1972 to 1985.
Although there is no comprehensive study of privatization of public enterprises in Bangladesh, the number of academic and policy papers on privatization and post-privatization experience is growing. Muhith (7) focuses on the evolution of policy changes and the process of privatization. Humphrey (8) provides a detailed inside account of the origins, implementation, and scope of the privatization program, but does not evaluate the post-privatization performance of firms. Mallon and Stern (9) present the background to policy reforms in the early 1980s, dissecting, in particular, the roles of various interest groups and how policies are formulated in Bangladesh.
Sobhan and Mahmood (10) analyze and compare the performance of nationalized and privatized firms in the jute and the textile sectors. They do not find convincing evidence of superior performance of privatized firms. Lorch (11) studies the post-privatization operation of the textile industry; he, too, does not detect any indication of improved productivity, profitability, or performance. Bhaskar (12) relates Bangladesh's experience of privatization to some policy problems of privatization in developing countries. Bhaskar and Khan (13) analyze the post-privatization employment patterns of white-collar and blue-collar workers. They argue that the excess employment in public enterprises is due to patronage, and show that post-privatization labor restructuring led to the dismissal of excess white-collar workers and an increase in the employment of part-time and blue-collar workers. Sen reports the results of a useful survey of privatized firms in Bangladesh. Dolwah (14) presenting a case study of firms privatized between 1991 to 1996, claims that privatization has brought about definitive improvements in performance and productivity. None of these previous studies of privatization in Bangladesh has investigated the debt-default or the tax compliance of privatized firms.
The literature on the international experience in the privatization of public enterprises is diverse and extensive. There is also literature on the ownership of the firm, such as Hansmann (15), in industrial organization theory. While there are many examples of successful privatization, it is by no means established that the change of ownership will inevitably improve performance, particularly when other institutions and policies remain unchanged. Privatization is not a substitute for the growth of the private sector and the emergence of new firms. A number of lessons can be drawn from the international experience of privatization (Kay and Thompson (16); Kikeri, et.al (17), Vickers and Yarrow (18); Vickers and Yarrow (19), and Yarrow (20)). Favorable macro-economic circumstances, liberal economic policies, competitive input and product markets, and a prudential regulatory framework are conducive to successful privatization. Many observers of privatization argue that successful privatization depends also on well-defined objectives, sound preparation for sale, appropriate pricing and valuation, and transparency in transactions.
Galal, et al (21) maintain that privatization generally brings about substantial benefits. Sappington and Stiglitz (22) argue that the state's promise of nonintervention has greater credibility under private ownership of the means of production than under state ownership. Perotti (23) provides a formal model of a successful state-designed privatization program constructed to reap maximum benefits. Megginson, Nash, and van Randenborg (24) examine the post-privatization performance of 61 firms from different sectors and different countries. They report that after privatization these firms have achieved more sales, greater investment, higher operational efficiency, lower debt, and higher dividend payments without sacrificing employment security. The findings regarding post-privatization performance in Bourbakri and Cosset (25) are similar. Drawing on the results of a survey of privatized East German firms, Dyck (26) argues that if a privatization program facilitates managerial change, firm performance can significantly improve. In a study using British data, Cragg and Dyck (27) find that four years after privatization, privatized firms exhibit a significant negative relation between improved performance and the probability of top management resignation. D'Souza and Megginson present evidence of significant improvements in profitability, output, operating efficiency and dividend payments, and decrease in leverage ratios following privatization.
Boycko, Shleifer, and Vishny (28) argue that state ownership is an effective way to subsidize select groups. Under public ownership, politicians seek more spending on labor than the optimal level. Such political control leads to inefficiencies that harm the public interest. Privatization, they hold, can "depoliticize" the firm. Thus, the level of employment after privatization is closer to the optimal level. In their model, after privatization, there is a greater restraint on the authorities to tamper with the firm's expenditures because the political cost of subsidizing the private firm is higher than the political cost of squandering its profits in a public enterprise regime. In their view, privatization generates efficiency by raising the cost of political interference. The institutional change caused by the transfer of ownership brings about efficiency gains.
However, the impact of privatization on welfare is not always unambiguously positive In many cases, the full potential gains of privatization are far from being realized. Nellis (29) reports that in many transition economies privatization has not led to corporate restructuring, and that enterprises' financial and operational performance, productivity, and profitability may not improve if the institutionalized practices of the public enterprise regime persist. Russia's "loans for share" privatization has been widely criticized. Insider privatization and incorrect modalities of privatization have been held responsible for failing to bring about efficient corporate governance and better performance. The experience in the former Soviet Union, some transition economies, and low-income countries show little evidence of higher growth or productivity even after several years of liberalization, privatization, and macro-economic stabilization and structural adjustment. The fiscal burden of financing enterprises may continue after privatization. The varied experiences of privatization provide impetus for a critical examination of and cautious reflections on privatization in economies with weak institutions.
Debt-Default Status of Privatized Firms in Bangladesh
One of the principal reasons for privatizing public enterprises in Bangladesh is to reduce the fiscal burden that their losses and their subsidization impose on the state. The losses of public enterprises are substantial. In 1996-97, the aggregated losses of public manufacturing enterprises was Taka 8,231 million ($175 million) and the aggregated losses of public enterprises was Taka 14,117 million ($300 million). In 1997-98, the aggregated losses of public manufacturing enterprises was Taka 5,489 million ($116 million) and the aggregated losses of public enterprises was Taka 7,549 million ($160 million)(*). Public enterprises receive little direct subsidies and grants from the state budget. In 1996-97, direct subsidies amounted to merely Taka 610 million ($12 million) and in 1997-98, it was only Taka 634 million ($13 million). Public enterprises rely on indirect funding in the form of equity injections from the state and continued borrowings from the nationalized commercial banks. Public enterprises received Taka 11,592 million ($247 million) in 1996-97 and Taka 17,438 million ($394 million) in 1997-98 as equity, and borrowed Taka 16,585 million ($352 million) in 1996-97 and Taka 18,531 million ($394 million) in 1997-98 as loans from the banks). According to Bangladesh Bank in December 1997, the outstanding loans of public enterprises amounted to nearly Taka 42,987 million ($915 million), of which Taka 15,057 million ($320 million), nearly 35 percent, was overdue. The public enterprises paid only Taka 1,879 million ($40 million) in 1996-97 and only Taka 1,645 million ($35 million) in 1997-98 as dividends, most of these dividends originated from profits of the state monopolies in the oil and gas sector. The rate of return on capital or the rate of profit for most public enterprises is, thus, either fairly low or negative. Table 1 below provides the consolidated financial status of non-financial public enterprises in Bangladesh from 1992-93 to 1998-99. Table 2 below shows the profits/losses of non-financial public enterprises from 1993-94 to 1998-1999.
Private ownership is supposed to lead to better management. Privatization in Bangladesh can be regarded as successful if it raises the firm-level productive efficiency, financial and operational performance and, thus, improves profitability. If, under private management, the loss-making enterprise would start earning profits, it would be able to borrow on a commercial basis and raise equity from the capital markets and foreign investors. Successful privatization would reduce, if not altogether eliminate, the need for continued subsidized credit from the public banks and the reliance on the state for continued equity injections. After privatization, the state would be able devote its funds to social expenditure and investment. The replacement of soft-budget constraints, characteristic of public enterprises (Kornai 1986), with hard budget constraints is an indispensable feature of a successful privatization program. This section investigates how many privatized firms rely on financing from the state-dominated banking system. This investigation will make use of a unique data set obtained exclusively for this paper from the Credit Information Bureau of the Bangladesh Bank, the country's central bank. It presents the amount of outstanding and overdue loans of the 201 firms that have been privatized, and analyzes their debt-default status. It shows that many privatized firms rely on loans from the banking sector and that most of these loans are overdue.
The state-owned banks, which are the most important source of credit to the public enterprises as well as privatized and private enterprises, are beset with bad loans. Table 3 provides the time series of the stock of outstanding loans of the scheduled banks in Bangladesh from December 1991 to June 1997. The table shows that credit advanced to the private sector has grown rapidly, whereas credit advanced to the public sector has been stagnant.
Table 4 testifies to the rise of the private sector in Bangladesh's economy. It gives the level of public and private investment in Gross Domestic Product (GDP) and the share of public and private sector investment in GDP. As shown in the table, both the level and the share of private sector investment have increased rapidly. Whereas in 1990-91, private investment constituted merely 5.8 percent of GDP, it amounted to 10.2 percent of GDP in 1997-98
Table 5 gives the summary position of outstanding and overdue loans of over Taka 100 million ($2 million) and above to the public sector as well as the private sector in Bangladesh as of March 31, 1998. The total amount of outstanding loans greater than or equal to Taka 100 million ($2 million) to the public sector is Taka 25 billion ($532 million), of which Taka 21 billion ($426 million), approximately 82 percent, is overdue. The total amount of such outstanding loan to the private sector is Taka 43.7 billion ($930 million), of which Taka 36.7 billion ($781 million), about 84 percent, is overdue. The amount of credit extended to the private sector is higher than that given to the public sector. The aggregate debt-default ratio of the private sector is not lower than that of the public sector, which prima facie may suggest that in Bangladesh the private sector is no better than the public sector in repaying loans obtained from the banking and non-banking financial sector. Table 6 gives the outstanding and the overdue loans which the public enterprise obtained from the nationalized commercial banks.
The classification of non-performing debts in Bangladesh does not meet conservative and prudential Basle standards generally accepted among international banks. Thus, the list of firms with overdue loans is constructed on the basis of fairly "liberal" and possibly lax standards. If more conservative principles of loan classification are applied, an even larger number of privatized firms would be regarded as defaulters and the volume of classified loans would be much higher. Firms that already have overdue debt may be unable to service their outstanding loans. Hence, incidences of both outstanding and overdue loans of privatized firms are reported here. The set of privatized firms chosen for investigation is the same set and subset of firms used in Sen's survey of privatized firms in Bangladesh. The set, consisting of 201 firms, covers all the major industrial (manufacturing) firms privatized from 1979 to 1995.
Data provided by the Credit Information Department of Bangladesh Bank, the country's central bank, shows that as of December 31, 1997, out of 201 privatized firms, information is available on 128 firms. Of these 128 firms, 77 firms have overdue and outstanding loans; 33 firms have outstanding loans but no overdue loans; and only 18 firms have neither outstanding nor overdue loans. The total volume of outstanding loans given to 110 firms amount to Taka 15.35 billion ($327 million); the average (mean) amount of outstanding loans is nearly Taka 140 million ($3.1 million) per firm. The 77 firms that have overdue loans owe Taka 12.65 billion ($269 million) of which Taka 5.7 billion ($121 million) is overdue. The ratio of overdue loans to outstanding loans to these firms is 37 percent. The average (mean) amount of outstanding and overdue loans of the 77 firms is respectively nearly Taka 164 million ($3.5 million) and nearly Taka 74 million ($1.6 million) per firm. Table 7 provides the subclass interval ranges of outstanding and overdue loans, and reveals that a few privatized firms have substantial amounts of overdue and outstanding loans.
The World Bank (Dowlah) conducted a study of 13 selected privatized firms. Although the study regards the privatization experience in Bangladesh as successful, and the Bank's economic advice to the authorities endorses rapid and extensive privatization, it does not analyze the debt-default status of privatized firms. This is a serious gap, given the importance of the loan defaulting phenomenon in Bangladesh. Thus, information concerning those firms as of March 31, 1998 is obtained from the central bank and analyzed here. Information on 11 of the 13 firms is available. Of these 11 firms, 5 firms have overdue loans; three firms have outstanding loans but no overdue loans; and only three firms have neither overdue nor outstanding loans. The total amount of loans given to 8 firms is over Taka 1 billion ($21 million), of which Taka 793 million ($17 million) is overdue. The ratio of overdue to outstanding loans is 79 percent. The average (mean) amount of outstanding loans per firm is Taka 126 million ($2.7 million). The total sum of loans given to the 5 firms with overdue loans amounts to Taka 825 million ($17.8 million), of which nearly Taka 793 million ($16.9 million) is overdue. The average (mean) sum of loans given to the firms with overdue loans is Taka 165 million ($3.5 million), of which Taka 158 million ($3.4 million) is overdue. The three firms that have outstanding but no overdue loans have outstanding loans of Taka 189 million ($4.2 million); the average (mean) amount of outstanding loans owed by these firms is Taka 63 million ($1.3 million) per firm. Some of these firms have a fairly large amount of loans. The first firm has an outstanding loan of Taka 507 million ($10.8 million), of which Taka 504 million ($10.7 million) is overdue. The second firm has an outstanding loan of Taka 224 million ($4.7 million), all of which is overdue. The third firm has an overdue loan of Taka 61 million ($1.3 million). Two other firms have small amounts of overdue loans. The inability or the unwillingness of the privatized firms to service their debt suggests that these firms have not had any profound improvements in performance after privatization.
The authorities recently published, in response to a parliamentary question, the set of debt-defaulter firms, each with overdue loans of at least Taka 10 million (approximately $200,000). Sen's survey provides the set of 201 privatized firms. Intersecting these two sets shows that out of the 201 privatized firms, 63 firms (nearly 30 percent) are also in the list of defaulters. The author submitted to the central bank the list of these firms to analyze their debt-default status. As of March 31, 1998, according to the central bank, information on 59 out of 63 firms is available, and information on 4 firms is not available, as shown in Tables 8 & 9 59 firms, 51 have both outstanding and overdue loans, 8 firms have outstanding but no overdue loans, and there is no firm in the set without either outstanding or overdue loans. The 51 firms with overdue loans have outstanding loans of Taka 9,433 million ($201 million), of which nearly Taka 4,900 million ($104 million) --- approximately 52 percent --- is overdue.
State-owned development financial institutions have been key suppliers of industrial credit to private enterprises, including privatized ones, in Bangladesh. Tables 12 & 13 are the industrial loan recovery profiles of the two main development financial institutions in the country, the Bangladesh Industrial Bank (BSB) and the Bangladesh Industrial Loan Institute (BSRB), from 1992-93 to 1997 -1998. The Bangladesh Industrial Bank's (BSB) ratio of loan recovery to total due credit declined from 7.6 percent in 1992-93 to two per cent 1997-98, while the ratio of overdue to outstanding credit increased from nearly 52 percent in 1992-93 to almost 62 percent in 1997-98. The Bangladesh Industrial Loan Institute's (BSRS) ratio of loan recovery to total due credit declined from 3.2 percent in 1992-93 to 1.5 percent in 1997-98, while the ratio of overdue to outstanding credit rose from 60 percent in 1992-93 to 87 percent in 1997-98. Both these industrial banks were already in a fragile financial condition in 1992-93. By 1997-98, their financial conditions and asset qualities had progressively worsened.
Empirical Research Findings
The following data below provides data about the share of overdue loans in percentage of total loans by types of domestic commercial banks, and the distribution of nationalized commercial banks' and private commercial banks' overdue loans by type of debtors. It shows that the problem of overdue loans is not solely confined to nationalized commercial banks, but is endemic to private commercial banks also. It suggests that privately owned banks are not better in selecting borrowers or recovering loans from borrowers. The share of non-performing loans of domestic commercial banks, both nationalized and private ones, is very high, as shown in Table 9.
Both the public sector's and the private sector's non-performing loan ratios are high. The ratio of non-performing loans of the development financial institutions is even higher than commercial banks and has been rising in recent years.
The reasons for the widespread overdue loans of banks are weakness in the regulatory and supervisory system, defective corporate governance of banks, lack of internal bank control, poor accounting and auditing systems, poor risk management, and the political power of key defaulters. The weakness of regulatory oversight, poorly managed banks and deficient legal institutions, enable borrowers to default debts without the fear of retaliation.
The data on the overdue and outstanding loans to privatized firms indicate that inability to repay loans is a major problem of privatized firms in Bangladesh. The poor record of the financial institutions' loan recovery reinforces the notion that privatization does not prevent the perpetuation of "soft" government. These firms are unwilling or unable to service their loans due to either the failure to realize profits, managerial inefficiency, or diversion of profits for personal gains rather than servicing debts. Their unwillingness to repay loans is a failure of development administration or "governance." If the firm's management expects that the banks will not force it to repay, then it has no incentive to repay its debt. The authorities have been, for the most part, either unwilling or unable to retrieve debts from firms that have borrowed heavily and exceeded the time limit to repay. The failure to recover loans has hurt the reputation of the bank authorities. The lack of credible threats prompts firms to default loans because they know that such default will not incur any major penalty.
Some owners of privatized firms have often argued that they are unable to service the firm's debt because it was accumulated during the period of public ownership. Since they are not responsible for borrowing prior to privatization or for past public sector inefficiency, they cannot be held accountable for debts incurred in the past. Therefore, some have claimed that they are neither obliged nor willing to repay such loans. However, this proposition fails to take into account the fact that the price at which the buyer bought the firm reflects the servicing costs of the debt, which is part of their contractual obligation. The sale price reflects the fact that a firm is supposed to repay its loan. The sale price will be lower if the expected burden of repaying is higher, and vice versa.
In itself, a high amount of debt does not signal firm inefficiency. If the firm has marketable collateral that can be sold to meet its obligations, it should be able to sell debts (bonds), "purchase" credits, or secure loans from commercial banks or the capital market. Even if the firm does not have any marketable collateral, but if capital market participants expect the firm to produce commodities that will generate sufficient profits to be able to repay its debts, it may be able to borrow heavily. Firms with the potential to generate future profits are able to obtain funds for fixed and circulating capital by issuing high interest-bearing "junk" bonds, or by relying on venture capital. The debt holders of such firms assume a high risk because of the possibility of high returns. Such debts are rarely bought or subsidized by the state in advanced capitalist economies. Instances where the owner of privatized firms has bought public enterprises with borrowed public funds can be regarded as publicly sponsored leveraged privatization of public enterprises. Both publicly sponsored leveraged buy out of public enterprises, or publicly leveraged privatized firms are contrary to the essence of privatization, since the objectives of privatization are to reduce the state's fiscal burden and state subsidies, and, indeed, the role of the state in the economy. Publicly sponsored leveraged buy out and cheap public credit for privatized firms not only distort the markets; such state interventions are also likely to promote rentier class than productive activity.
Unless compelling evidence to the contrary is provided, the rationale for the state in Bangladesh to use its scarce resources for publicly leveraged buyouts or public leverage of privatized firms remains suspect. The state's development funds should be used for providing public goods, social expenditure, improving primary education, basic health care, and other appropriate investment and expenditure, justifiable on the basis of social and economic calculations. The firm is privatized precisely because of the authorities' conviction that the firm would be better managed under private ownership, subject to capital market discipline and the possibility of bankruptcy. The state continuing to subsidize the private owner would entail not only the transfer of public wealth to private agents, but also the undermining of the objectives of privatization. A firm that has perpetual access to state funds is not subject to capital market discipline and the possibility of bankruptcy. The management of a publicly leveraged privatized firm has hardly any incentive to improve performance because it has such easy access to state funds and does not have to subject itself to the competitive forces in the loan funds market. Due to poor surveillance of the banking and non-banking financial system, some private agents can resort to "insider lending," misrepresentation of material facts, or other such subterfuge to obtain loans for the privatized firm. Many of these loans are unjustifiable on the basis of economic calculation.
The absence of financial sector discipline and the incomplete nature of privatization are major stumbling blocks to successful privatization and private sector development in Bangladesh.
Establishing financial sector discipline would set the ground for obtaining the benefits of private ownership of the means of production and shrink the opportunities for rent-seeking activities. The appropriate action on the part of the authorities would be to compel the firm to meet its obligations to its creditors, employees, suppliers, and customers in accordance with the provisions of the law. If the firm is unable to meet its obligations, it should, after due process, be sold off to (a) pay its creditors and employees and (b) be transferred to its new owners who are expected to provide the firm with a more effective management and, thus, realize positive profits. Such action can be regarded as "re-privatization" of the privatized firm. If the firm cannot be sold because it is not economically viable, it ought to be liquidated in accordance with the standard practice of market economies .
Tax Registration Profile of Privatized Firms
Tax evasion is a serious problem in many developing countries, such as Bangladesh. Polyconomics, Inc., (30) reports that 25 percent of the Mexican economy is "off the books." Bagachwa and Naho (31) estimate that the unofficial segment of the Tanzanian economy has increased over the years, from 10 percent of the national income in the late 1960s to 30 percent in the late 1980s. Das Gupta, et al (32) claim that the improvement of tax compliance in India could raise tax revenue by 75 percent. Schaffer (33) finds that the tax arrears of privatized firms in many transition economies are quite high. Given the widespread tax evasion in developing countries, an examination of tax compliance of privatized firms in Bangladesh is warranted. In this section, the tax registration records of the set of privatized firms in Bangladesh are examined in order to investigate their tax registration profile. As McLaren (34) summarized in a survey of the analyses of tax evasion in developing countries, there are three major approaches to detect and determine the level of tax evasion. The first approach is the survey method, for example as in Gauthier and Gersovitz (35). The second technique used to determine tax evasion is the "qap" approach, such as in Aim, et al (36). The third method is the monetary approach, like in Polyconomics Inc., (1990).
This section uses a survey, conducted specially for this paper, to provide exploratory knowledge of the extent of tax non-registration among privatized firms. Whereas Gauthier and Gersovitz (37) use a self-reported survey to detect and analyze tax evasion, avoidance, and exemption, this study uses a directly verifiable approach to determine tax evasion and avoidance. In their survey sample, participation of the firms was voluntary. Undoubtedly there can be a self-selection bias in such surveys, besides the problem of relying on self-reported answers to survey questions despite surveyors' guarantees of full confidentiality. In the present survey, objective and verifiable information about privatized firms' tax registration status is obtained directly from the authorities' tax databases. Similar to Gauthier and Gersovitz's survey, which uses different kinds of taxation on businesses in Cameroon to find out their compliance, this section uses two different taxes on Bangladeshi businesses to determine the extent of their tax registration. Non-registration is only one form of tax evasion or avoidance. Other kinds of tax evasion and avoidance in Bangladesh are, for example, under-valuation, misrepresentation of material facts, inappropriate classification, and legal subterfuge. A unique data set, consisting of privatized firms' tax registration records maintained by the authorities, is used here. It was obtained from the national tax authorities exclusively for this paper.
Empirical investigation of privatized firms' tax registration would indicate the extent of their tax compliance because registration is the minimum necessary requirement for certain tax payments to the state. A firm is required to not only register for the appropriate taxation procedures but is also supposed to periodically file tax returns and pay the due amount of tax. The non-registration for taxation by privatized firms, which often implies failure to comply with tax regulations, can reduce financial (revenue) gains of the state from privatization of public enterprises.
In order to comply with tax regulations, firms are required to register with the authorities in accordance with procedures laid down by law. A firm is required to register to obtain a Business Identification Number (BIN) for Valued Added Taxation (VAT). It also has to register to obtain a Taxpayer's Identification Number (TIN) for corporate and/or income tax. The National Board of Revenue (NBR) of the Ministry of Finance has the state's authority to issue these registration numbers. Each registration process is completely separate and independent of the other. The numbers are given separately by different and autonomous offices of the NBR upon processing of the registration forms.
All firms must register for a TIN and use it to file tax returns in each financial year even if no corporate and/or income tax is due that year. Firms subject to the payment of Valued Added Taxation are required to register for VAT and obtain a BIN. A BIN is also required to receive tax credit for the cost of inputs. However, unlike TIN, only firms above a fixed amount of turnover (Taka 15 million ($300,000)) are subject to VAT. Firms below the given size are subject to "turnover tax". The rate of turnover tax, 4 per cent, is lower than that of VAT, which is 15 per cent. Thus, valuation of the turnover of the firm is subject to contests and disputes between the management of the firm and the authorities. If a firm is classified as a "small" business it pays a lower rate of tax while the authorities are deprived of revenue. Certain sectors, such as "cottage industry," cold storage, and retail trade (except 69 items), are exempt from VAT. Thus, firms in those sectors do not have BIN.
Even though the tax registration records in Bangladesh reflect the weakness of tax administration, they do provide one of the most well kept sets of statistical information in Bangladesh; after all, they enable the authorities to collect revenue and to meet the preconditions of foreign official assistance. Although generally not publicly available, the authorities have made it available for this paper.
Registration Status of Firms in World Bank Case Study
The tax registration status of the 13 firms in Dowlah's (38) case study is given below :
* 6 firms have TIN registration.
* 6 firms have BIN registration.
* 3 firms are registered for both TIN and BIN.
* 4 firms have not registered for either TIN or BIN.
Registration Status of Defaulting Firms
A good number of privatized firms have overdue loans of more than Taka 10 million ($200,000). Most of these loans have been borrowed from nationalized commercial banks. The central bank provided, in response to a parliamentary inquiry, a list of firms with overdue loans. Privatized firms with overdue (classified) loans have been identified. 63 privatized firms have overdue loans greater than or equal to Taka 10 million ($200,000). Since the loans have been provided mostly by the nationalized commercial banks, the authorities have considerable information on these firms. Hence, it is of interest to analyze the tax registration status of such firms. Results of tax registration status of privatized firms with overdue loans are given below:
* 37 firms are registered for BIN.
* 20 firms are registered for TIN.
* 14 firms are registered for both BIN and TIN.
* 20 firms are not registered for either BIN or TIN.
Registration Status of Jute Goods Manufacturing Firms
Among the privatized firms are 34 jute goods manufacturing firms. The jute industry is among the major and oldest ones in the country. The privatized jute mills are organized under the Bangladesh Jute Mills Association (BJMA), which is the industry lobby. Results of the tax registration status of jute goods manufacturing firms are as follows:
* 21 firms are registered for BIN.
* 14 firms are registered for TIN.
* Only 10 firms are registered for both.
* 9 firms are not registered for either forms of taxation.
Registration Status of Textile Firms
Textile is another major industry in Bangladesh. Among the privatized firms there are 27 textile firms. The textile firms are organized under the Bangladesh Textile Manufacturers' Association (BTMA). The results of tax registration status of textile goods firms are as follows:
* 11 firms are registered for BIN.
* 10 firms are registered for TIN.
* 4 firms are registered for both.
* 10 firms are registered for neither BIN nor TIN.
Registration Status of Firms in the Other Sectors
Leaving aside the firms in the jute and textile sectors, there are 97 privatized firms in other sectors such as food and allied products, light engineering and metals, chemicals and cosmetics, leather processing, and so forth. The results of their tax registration status are as follows:
* 55 firms are registered for BIN.
* 27 firms are registered for TIN.
* 18 firms are registered for both.
* 33 firms are not registered for either taxation.
Analysis of Sector Dimension of Tax Registration
The above data on various sectors' tax registration levels show that among the privatized firms, the jute sector has the highest degree of compliance for both BIN and TIN. For BIN registration, the firms in other sectors are more compliant than the firms in the textile sector. For TIN registration, textile sector firms are more compliant than the firms in other sectors. Since the jute sector is the oldest industry in Bangladesh, and its presence is quite visible, the high degree of registration is understandable. The extent of registration levels in textile and other sectors' may owe to specific features of tax surveillance of the VAT and the corporate tax administration.
Reasons for Widespread Non-Registration among Privatized Firms
Under private ownership, the firm may seek to avoid and evade tax payments to the authorities if either the likelihood of detection is low or the penalty imposed in the event of detection is also low, or both. The probability of detection in the case of evasion of tax registration is very low. Although the NBR authorities are supposed to carry out routine surveys for TIN and BIN registration, the tax authorities' survey departments are weak, lack initiative, and have limited administrative capacity and resources to conduct thorough and rigorous surveys. While the potential legal measures available to the authorities are considerable, ranging from property confiscation to jail terms, the authorities rarely prosecute non-registered firms. Thus, actual expected penalty for the firm avoiding registration is low.
The authorities are unable to provide any data on the number of firms detected to have been without registration, or the amount of money generated from penalties due to the absence of any systematic records. The unavailability of such data implies--and tax officials concur with the following inference--that the number of firms detected by the authorities as evading tax registration is negligible. Because the number of firms detected evading is low, the authorities do not maintain such records. Systemic maintenance of records of this kind would enhance the tax authorities' reputation and credibility within the bureaucracy and, particularly, with multilateral and bilateral donor agencies, which have identified loopholes and administrative weakness of the tax authorities as factors responsible for low revenue collection in Bangladesh.
The authorities do not cross-check among the records and the databases to search for nonregistration for various kinds of taxes. At present there is no mechanism to coordinate different offices in the NBR to undertake cross checking. It is alleged that rent-seeking officials often connive with firms that have not registered. Instead of reporting to the authorities and collecting the due amount of taxation and fines, dishonest officials, upon detecting firms that have not registered, demand personal gratuity payments from firms and connive with the management in avoiding taxation. This may be a significant factor contributing to the low number of registrations.
The fact that a large number of firms have been able to escape any form of registration with the authorities suggests (a) non-compliance on the part of the firm's management, and (b) lapse and administrative weakness or connivance on the part of the tax authorities. The tax authorities' limited computational resources impair their ability to detect firms evading tax registration and to collect revenue.
Case Study of Tax Compliance of Privatized Firms
This section analyzes the tax compliance record of a sample of privatized firms. It investigates the tax compliance and payments history of 13 privatized firms between 1991 and 1996. These firms specifically selected in a recent World Bank study (Dowlah (38&14)). There are several justifications for conducting this case study. Firstly, the Bank-sponsored study does not examine their tax compliance records, it is of scientific interest to extend the knowledge concerning these firms by investigating whether their tax payments have increased or decreased after privatization. Secondly, the present case study contributes to the literature of post-privatization performance in low income developing countries, in contrast to Galal, et al, another Bank-sponsored report, which draws on case studies of 12 firms, mostly utilities and oligopolies, from high and medium income countries. Thirdly, methodologically this study proceeds from an empirical investigation of the tax compliance records of selected firms to generalized remarks about privatized firms' tax payments and post-privatization performance, rather than from the arbitrary a priori conviction or implicit assumption that privatization will bring about social gain, again they provides a typical contrast because they use the case studies mainly as illustrations of the success of privatization although such conclusions are highly dependent upon the construction of counterfactuals and specific values of parameters. Fourthly, firms' tax payments for assessing post-privatization performance have been rarely used in the literature on privatization. This paper contributes to the literature by using tax payments to infer post-privatization firm performance and conduct.
Firstly, data on tax registration status of the selected firms are obtained from the country's tax authority, National Revenue Board (NBR) of the Ministry of Finance of the Government of People's Republic of Bangladesh. Secondly, after securing permission to investigate the tax records of privatized firms, detailed tax information is obtained from the field offices of the relevant Tax Commissioners. Thirdly, whenever feasible, records are obtained from either public corporations of which the firms were part of during its public ownership phase or the firms' own records. Fourthly, the tax payments records are carefully analyzed in conjunction with any other relevant variables from the available information set.
The main objectives of the analysis are to determine if there has been any change in tax payments and infer, on the basis of tax payments, the change in the level of a firm's activity (output). While the amount of tax payments can be readily determined from the records, the determination of the firm's output from its tax payments is much more tenuous. Firstly, due to the weakness of the tax regime, firms are able to avoid and evade taxes. Thus, tax payments may understate the amount of production and actual profits. Secondly, even with reliable data, it is both difficult and tedious to calculate the value of the output because it depends on the choice of parameters, changes in output mix and product types, and so forth. Despite these limitations, such an exercise is not without merit; if carefully used, it can indicate the direction of change in the level of output.
For this case study, the authorities gave access only to indirect taxation data, such as customs duty, supplementary duty, and VAT. This study is based on inferences that can be made on the basis of analyzing indirect tax payments and other available information. Direct tax payments are used for the four public limited companies in the set. Direct taxation figures, which are obtained from their annual reports, are used to compare pre-privatization and post-privatization tax contributions. However, direct tax payments are not available for privately held firms. While information about direct taxes payments of all the firms would have been quite useful, this does not pose a serious limitation in positing the level of activity generated by the firm. A more serious problem for the study is that many of the firms have been unable to provide a good time series about their tax payments. Hence, conjectures about the level of activity are based on rather limited number of observations. Whenever that is the case, the author compensates this loss of data by detailed discussions with tax officials monitoring the firm and, if possible, with the firm's management to learn about the change in firm's tax payments and performance. This study was carried out during the Fall of 1998. In order to ensure privacy, the actual identities of the firms are not revealed here.
Tax Payments and the Problems of Privatization in Bangladesh
Based on the above analysis of tax compliance records, in conjunction with what is known from, earlier studies of privatized firms in Bangladesh (Sen 1997), the following observations can be made regarding tax compliance and payments of these firms.
A number of firms that were once under public ownership are not even registered for taxation. Clearly firms that have been liquidated or shut down do not register for taxation or make any tax payments. Privatization is not a remedy for nonviable enterprises, which have to be shut down. Some privatized enterprises that are shut down would be and have been transformed into service activities, outside the realms of current tax net, in accordance with the price and profit 'signals' provided by the market (*). It is possible that some liquidated firms provide capital and labor that is acquired and absorbed by other firms that do produce goods and services which are valued by consumer and are taxed by the authorities. If the liquidation of the firm releases resources which are then used in productive activity then the authorities may obtain revenue but not otherwise. Some firms that are reported to be operating may have managed to escape the surveillance of the tax authorities due to the weakness of the tax administration and the connivance of corrupt tax officials. It is also possible that some firms that should be paying VAT are instead paying (lower) Excise duties.
Of the 13 firms studied in this survey, indirect tax payments increased for 7 firms because many of these have resumed production after privatization. Many of these firms that had been shut down while they were in the public sector. These firms were reactivated with some delay after privatization. One firm's indirect tax payments increased although its output decreased. Indirect tax payments have decreased for at least two firms because their productions have declined considerably. One of these two has incurred a huge debt that is not being serviced, and the other has serious management problems. Another two firms are not paying any indirect taxes because one of them has been either liquidated or is shut down and the other is producing goods that are not taxed under present VAT/Excise regime. Four firms out of 13 are publicly listed firms. Thus, data on their provision for income tax is available in the public domain from the annual reports filed with the Securities and Exchange Commission. Direct tax payments have declined for three out of the four publicly listed privatized firms in this survey. The fourth firm's income tax payments increased because of a price hike of the commodity it produces.
The survey results lend themselves to a few policy suggestions and observations about privatization in Bangladesh. Firstly, if privatization is to be carried out, the process must be speedy and well managed. Once the privatization process is set off, delays in the process can lead to production loss, accumulation of debt, exacerbation of labor problems, loss of clientele, and so on. Secondly, if privatization is to be effective and welfare enhancing the transition period must be well managed and short so that neither production process is disrupted nor there is any scope for capital depletion. Thirdly, firms that experience considerable managerial turmoil since privatization often show no increase and sometime substantial decline in tax payments. Firms that are engaged in rentier activities, such as obtaining loans from nationalized commercial banks with no intention repayment, do not make any effort to increase efficiency because the rate of profit from unproductive activity remains higher than that of productive activity. In such cases the firm's production falls and its tax payments decline heavily. Fourthly, firms that encounter favorable market conditions or improve efficiency raise output. The authorities may be able obtain more revenue from such firms. It is not possible to determine how much of the increase in revenue owes to increased efficiency and how much to positive demand shock without studying and obtaining comparative cross sectional data of similar firms.
Two crucial factors that effect the possibility of increased tax payments after privatization. These are (a) the rate of the tax and (b) the level of output. Tax revenue critically depends on both (*). If the tax rate is held constant, firm-level performance and output would have to rise following privatization for increase in revenue. But increased firm-level efficiency is not sufficient by itself. Tax authorities must maintain proper vigilance over privatized firms to ensure their compliance with the tax regulations and to obtain the due amount.
Shleifer and Vishny (7) argue that "soft" states suffer from insidious levels of corruption. The findings of this study can be regarded as an illustration of tax evasion in a regime of fiscal corruption and administrative deficiency in a "soft" state. The present results would support the arguments made in Boone (39) and Marcoulier and Young (40) that "reforms" often create new channels of rentier activities. The widespread tax non-registration and non-compliance may be the result of illicit "gift-exchanges" between the authorities and the privatized firms.
This research study reiterates the importance of implementing privatization as an integrated part of a liberal economic order that established fair laws and their strict enforcement, competition and prudential banking regulations, adequate tax surveillance, and that rewards productive endeavors. It shows some of the difficulties that arise after privatization. The post-privatization experience of Bangladesh lends credence to the view that debt-default and tax arrears or evasions are routes by which firms' budget constraints are often softened after privatization. Due to the "gift-exchange" relationship between the authorities and the manager of the privatized firm, the volume of financing may not decrease in spite of privatization. Effective privatization and private sector development require legal and social institutions and institutional practices, often lacking in developing and transition countries, to secure the gains of private ownership of the firm. The outcome of incomplete privatization in many developing and transition economies has been rendered ineffective due to the failure in the imposition of a hard budget constraint on the privatized firm. The problems of debt-default or tax non-compliance are not unique to privatized firms in Bangladesh.
Privatization may not eliminate impediments to financial discipline and improved financial and operating performance of the firm. The post-privatization problems of inter-enterprise arrears, tax non-compliance and arrears, wage arrears, and banking arrears exist in many developing and transition economies. However, ineffective privatization may be a phase in the transformation of the controlled economy to a liberal economy.
Future research on privatization might attempt to determine the following: (a) the conditions under which hard budget constraints are imposed on privatized firms and their financial and operating performance improve; and (b) the economic and welfare consequences of privatization in developing and transition economies.
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TANWEER AKRAM, ESQ
Department of Economics
New York, 10027, U.S.A.
The author is thankful to the participants at various seminars who provided useful feedback on earlier drafts of this paper, The author is grateful to the Credit Information Bureau of Bangladesh Bank and the National Board of Revenue of the Ministry of Finance both of which are agencies of the Government of the People's Republic of Bangladesh, for providing the data sets used in this paper and to the Centre for Policy Dialogue for Research Fellowship.
(*) Monitoring Cell, Ministry of Finance, Government of Bangladesh (1998); Taka 50 = US$1 (June 1998)
(*) Provided that private ownership of enterprises does not lead to the overall decline of industry, the level of activity and/or productive efficiency, the crucial issue is to attain optimal allocation of capital, labor, and other resources such that the ratio of the social marginal rates of return of the factors of production are equal throughout the economy. To allow this, there should efficient entry and exit policies, Where there are production externalities, or any strategic reasons for investment, the authorities may provide incentives and policy support to promote those activities while ensuring that such support is not 'captured' by vested lobbies and interest groups.
(*) Let tax revenue be tY where, t is the rate of tax, and Y is the level of activity. Therefore, d(tY) = tdY + Ydt. Suppose that the authorities hold the tax rate fixed, that is, dt = 0; hence, d(tY) = tdY. It is assumed here that Y is independent of the tax rate, that is, the tax rate has no effect on the level of activity.
TABLE 1 CONSOLIDATED ACCOUNTS OF NON-FINANCIAL PUBLIC ENTERPRISES : 1990/91 - 1998/99 (In Billion Taka) Indicator 1990/91 1991/92 1992/93 1993/94 1994/95 Operating Revenue 105.2 123.8 144.6 143.5 156.1 Operating Expenditure 97 117.0 138.9 132.4 152.1 Wages and Salaries 11.8 12.9 15.2 14.6 14.6 Purchase of Goods 74.4 92.5 111.4 102.9 119.2 and Services Depreciation 10.8 11.6 12.3 14.9 18.3 Operating Surplus 8.2 6.8 5.7 11.1 4.0 Non-operating Income 1 -2.3 -2.3 1.0 -0.2 Interest Payments 10.8 11.0 12.1 7.7 8.0 Income before Taxes -1.6 -6.5 -8.7 4.4 -4.2 Profit Distribution 2.6 3.6 4.1 4.9 2.2 Dividends 2.5 3.5 4.0 4.8 2.0 Profit Sharing 0.1 0.1 0.1 0.1 0.2 Income Tax 3.9 5.3 4.9 5.5 2.1 After-tax retained -8.1 -15.4 -17.7 -6.0 -8.4 Income Gross Savings 2.7 -3.8 -5.4 8.9 9.9 Gross Fixed 41.3 32.2 27.6 22.9 24.3 Capital Formation Financing 38.6 36.0 33.0 14.0 14.4 Net Long-term 11.1 18.3 7.1 4.9 1.2 Borrowing Drawings 17.9 27.4 18.7 15.9 14.7 Repayment 6.7 9.1 1.6 11.0 13.5 Equity Injection 4.6 4.1 6.3 9.1 9.1 Finance Deficit 22.9 13.6 19.61 0.0 4.1 Memorandum Items Total Assets 418.3 497.7 528.3 602.8 631.8 Equity 98.5 128.5 117.6 197.8 212.4 Debt 319.8 369.2 410.7 405.0 418.7 Employment (thousands) 321.9 313.3 292.5 269.0 256.9 Profitability (in percent) Op. Surplus/Op. 7.6 5.5 3.9 7.7 2.5 Revenue Op. Surplus/Total Assets 2.0 1.4 1.1 1.8 0.6 Other ratios Debt-Equity Ratio 3.2 2.9 3.5 2.0 2.0 Indicator 1995/96 1996/97 1997/98 1998/99 Operating Revenue 163.8 169.1 194.2 214.9 Operating Expenditure 161.8 176.2 192.9 211.7 Wages and Salaries 15.6 15.4 16.9 18.2 Purchase of Goods 134.1 145.7 160.7 177.3 and Services Depreciation 12.1 15.1 15.3 16.2 Operating Surplus 2.0 -7.1 1.3 3.2 Non-operating Income 5.3 2.8 2.9 2.3 Interest Payments 7.5 8.4 9.2 9.3 Income before Taxes -0.2 -12.7 -5.0 -3.8 Profit Distribution 2.3 1.7 3.3 4.3 Dividends 2.1 1.5 3.1 4.0 Profit Sharing 0.2 0.2 0.2 0.3 Income Tax 1.5 1.0 1.3 1.6 After-tax retained 4.0 -15.4 -9.6 -9.7 Income Gross Savings 8.1 -0.3 5.7 6.5 Gross Fixed 26.2 24.8 37.7 48.4 Capital Formation Financing 18.1 24.9 31.8 41.8 Net Long-term 9.4 4.5 2.2 9.0 Borrowing Drawings 21.2 14.9 15.9 21.3 Repayment 11.8 10.4 13.7 12.3 Equity Injection 6.8 10.8 13.4 20.0 Finance Deficit 1.9 9.6 16.2 12.8 Memorandum Items Total Assets 631.1 634.0 680.0 777.3 Equity 214.6 231.3 238.6 251.8 Debt 419.4 448.7 469.9 525.5 Employment (thousands) 258.4 253.4 242.3 244.0 Profitability (in percent) Op. Surplus/Op. 1.2 -4.2 0.7 1.5 Revenue Op. Surplus/Total Assets 0.3 -1.0 0.2 0.4 Other ratios Debt-Equity Ratio 2.0 1.9 2.0 2.1 Source : Government of Bangladesh (various years) TABLE 2 PROFITS OF NON-FINANCIAL PUBLIC ENTERPRISES : 1993 / 94 - 1998 / 99 In million Taka SECTOR 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 Manufacturing BTMC -1,529 -1,169 -1,343 -1,246 -102 -380 BJMC -640 -314 -962 -1,005 -480 -1,975 BSEC -903 -684 -645 -694 -442 -971 BSFIC -150 78 -378 -678 -642 -324 BCIC 255 -755 -1,214 -2,658 -2,190 -620 BFIDC -112 11 30 132 139 71 Electricity, Gas & Water PDB -3,892 -6,469 -7.65 -3,211 -1,105 -3,434 DESA -1,851 -1,986 -1,392 -1,574 -1,622 -1,652 CWASA -27 -26 -33 -43 -30 -24 DWASA 36 -29 -67 14 28 63 BOGMC 1,002 1,204 1,443 1,099 1,062 2,844 Transport & Communication BSC -158 -129 -149 57 110 51 BIWTC -25 -7 17 100 109 18 CPA 484 641 924 491 467 641 MPA 154 203 204 123 129 105 BIMAN 714 719 496 408 925 552 BRTC -113 -88 -54 -49 -23 -49 Commercial BPC 4,713 1,427 973 -4,299 -4,747 352 BJC -75 -63 -19 -18 -16 -9 TCB 179 16 -14 23 43 6 Agriculture & Fishery & Construction BFDC 1 -10 1 -30 -10 -13 BADC -130 -9 -134 -234 -227 -293 CDA 31 -118 38 17 52 616 RAJUK 200 39 174 47 50 41 KDA 20 192 43 26 17 111 RDA 12 68 7 2 0 4 Services BFDC 17 25 2 10 12 12 BFFWT 5 60 77 74 133 67 BTB -3 -6 4 2 3 7 BIWTA -51 -166 -215 -9 -16 -76 BPRC 19 24 12 36 57 37 BWDB 31 93 32 31 32 39 REB 166 170 239 192 218 191 BSCIC -34 -7 -19 -32 -34 -63 EPZA 29 52 I 90 72 48 69 CAAB 525 616 717 630 669 616 BHB 2 2 0 0 0 0 BSB -14 -12 -14 -14 -20 -2 Total -1,111 -6,405 -1,893 -12,206 -7,406 -3,372 TABLE 3 OUTSTANDING ADVAMCES OF THE SCHEDULED BANKS (In Million Taka) Sector Dec-91 Jun-92 Dec-92 Jun-93 Public Sector Government 2,014.8 2,413.3 1,776.2 1,347.0 Autonomous and Semi-Autonomous Bodies 4,627.6 4,736.4 5,260.3 5,536.8 Financial Institutions 42.2 422.2 30.5 1,351.7 Non-Financial Public 37,093.9 39,026.8 35,696.0 43,150.4 Enterprises Nationalized Sector 36,203.9 38,120.0 34,773.4 42,371.3 Corporations Others 890.0 906.8 922.6 779.1 Local Authorities 434.8 516.1 352.2 463.0 Total 44,213.3 47,114.8 43,115.2 51,848.9 Private Sector Agriculture 31,955.8 36,117.3 37,607.0 38,672.9 Manufacturing 59,892.4 62,237.7 71,388.1 72,863.3 Commerce & Trade 57,403.4 63,018.4 67,935.7 74,035.8 Transport & Storage 4,105.7 4,780.3 4,394.1 4,325.6 Construction 5,725.2 6,330.5 6,448.6 6,810.9 Private Trust Fund & Non-Profit Organizations 683.3 686.6 715.3 799.4 Private Financial 1,698.1 1,780.5 2,188.8 2,146.2 Institutions Professionals & 5,368.5 5,730.6 6,049.3 6,835.1 Self-Employed Foreign Official 2,899.1 2,722.9 2,627.8 2,575.5 Sector & Foreign Firms Others 5,660.6 5,175.9 6,628.9 7,380.1 Total 174,892.1 188,580.7 205,984.0 216,444.8 Grand Total 219,105.4 235,695.5 249,099.2 268,293.7 Memorandum Items Credit to Public Enterprises/Credit to Private Manufacturing Firms 61.9 62.7 50.0 59.2 (in percent) Credit to Public Sector/Credit to Private Sector 25.3 25.0 20.9 24.0 (in percent) Sector Dec-93 Jun-94 Dec-94 Jun-95 Public Sector Government 1,697.1 1,727.5 1,649.5 2,071.9 Autonomous and Semi-Autonomous Bodies 6,327.5 5,666.3 6,548.6 8,686.9 Financial Institutions 39.8 1,341.7 403.4 28.5 Non-Financial Public 45,646.8 32,550.6 30,908.6 35,193.0 Enterprises Nationalized Sector 44,742.8 31,888.6 29,747.2 33,840.1 Corporations Others 904.0 66.2 1,161.4 1,352.9 Local Authorities 434.1 1,193.7 605.9 632.2 Total 54,145.3 42,478.9 40,116.0 46,612.5 Private Sector Agriculture 40,040.9 42,867.5 45,012.3 47,593.6 Manufacturing 75,837.9 83,614.9 87,889.8 94,567.5 Commerce & Trade 78,501.3 78,745.8 90,078.9 98,134.2 Transport & Storage 4,307.6 2,573.4 3,993.2 5,729.0 Construction 7,278.4 7,930.4 8,527.8 7,946.9 Private Trust Fund & Non-Profit Organizations 761.5 336.8 298.8 256.4 Private Financial 2,350.6 2,820.9 3,899.2 4,802.3 Institutions Professionals & 8,044.1 7,648.7 8,097.8 8,742.1 Self-Employed Foreign Official 2,888.1 3,088.1 3,684.9 3,808.2 Sector & Foreign Firms Others 7,978.1 11,166.0 11,403.0 11,601.9 Total 227,988.5 240,792.5 262,885.7 283,182.1 Grand Total 282,133.8 283,271.4 303,001.7 329,794.6 Memorandum Items Credit to Public Enterprises/Credit to Private Manufacturing Firms 602 38.9 35.2 372 (in percent) Credit to Public Sector/Credit to Private Sector 23.7 17.6 15.3 16.5 (in percent) Sector Dec-95 Jun-96 Dec-96 Jun-97 Public Sector Government 1,983.6 4,374.7 3,017.2 4,853.4 Autonomous and Semi-Autonomous Bodies 5,749.4 5,694.6 5,999.8 8,077.7 Financial Institutions 163.3 44.3 130.2 1,795.5 Non-Financial Public 30,315.3 -7,933.7 29,483.6 32,807.9 Enterprises Nationalized Sector 28,625.4 25,987.8 27,599.7 30,458.2 Corporations Others 1,689.9 1,945.9 1,883.9 2,349.7 Local Authorities 718.7 715.2 1,676.8 1,798.8 Total ~8,930.3 38,762.5 40,307.6 47,333.3 Private Sector Agriculture 49,338.2 53,005.3 53,726.0 55,403.2 Manufacturing 06,942.9 116,779.8 124,215.4 133,160.3 Commerce & Trade 108,379.7 114,300.3 122,203.2 123,227.2 Transport & Storage 5,723.1 11,516.0 6,464.6 7,036.7 Construction 8,236.8 8,595.6 9,110.4 9,092.8 Private Trust Fund & Non-Profit Organizations 169.7 155.5 148.9 100.8 Private Financial 5,451.2 4,417.6 6,127.0 5,538.4 Institutions Professionals & 8,567.6 11,076.0 11,673.9 13,495.0 Self-Employed Foreign Official 3,836.4 3,729.7 4,005.5 3,639.6 Sector & Foreign Firms Others 13,109.3 9,322.1 17,702.4 19,618.6 Total 309,754.9 332,897.9 355,377.3 370,312.3 Grand Total 48,685.2 371,660.4 395,684.9 417,645.6 Memorandum Items Credit to Public Enterprises/Credit to Private Manufacturing Firms 28.3 23.9 23.7 24.6 (in percent) Credit to Public Sector/Credit to Private Sector 126 11.6 11.3 12.8 (in percent) Source: Bangladesh Bank, (various years) TABLE 4 PUBLIC AND PRIVATE INVESTMENT IN BANGLADESH : 1990-91 TO 1997-98 (In Million Taka) SECTOR 1990-91 1991-92 1992-93 1993-94 Investment 95,955 109,851 135,214 158,927 Private 48,562 60,063 74,406 80,676 Public 47,393 49,788 60,808 78,251 As percent of Gross Domestic Product Investment 11.50 12.12 14.26 15.42 Private 5.82 6.63 7.85 7.83 Public 5.68 5.49 6.41 7.59 SECTOR 1994-95 1995-96 1996-97 1997-98 Investment 194,651 221,200 242,427 250,507 Private 110,172 139,343 151,263 157,064 Public 84,479 81,857 91,164 93,443 As percent of Gross Domestic Product Investment 16.63 16.99 17.29 16.26 Private 9.41 10.71 10.78 10.19 Public 7.22 6.29 6.50 6.06 Source : Bangladesh Bureau of Statistics (various years) TABLE 5 SUMMARY POSITION OF OUTSTANDING AND OVERDUE LOANS (Taka 100 million (US$2 million) and above) (In Million Taka) Sector No of Total Total Overdue Share of Overdue Borrowers Outstanding Public 27 24,970 20,550 -82.3 Private 165 43,720 36,720 84.0 Total 192 68,690 57,270 83.4 Source : Bangladesh Bank (1998) TABLE 6 OUTSTANDING AND OVERDUE LOANS OF PUBLIC ENTERPRISES FROM NATIONALIZED BANKS DECEMBER 1997 (In Million Taka) Sector Corporation Outsanding Loan Overdue Loan Percent Overdue Manufacturing BTMC 6,341.2 5,503.3 86.8 BSEC 7,986.5 4,779.5 59.8 BSFIC 1,942.9 294.6 15.2 BCIC 1,408.0 370.3 26.3 BFIDC 0.0 0.0 na BJMC 16,237.6 772.7 4.8 Sub-total 33,916.2 11,720.4 34.6 Utilities BOGMC 0.1 0.1 100.0 PDB 315.3 14.8 4.7 DESA 0.0 0.0 na CWASA 0.0 0.0 na DWASA 0.0 0.0 na Sub-total 315.4 14.9 4.7 Transport BSC 1,174.2 769.1 65.5 BIWTC 1.0 0.1 10.0 Biman 0.0 0.0 na BRTC 120.8 120.8 100.0 CPA 0.0 0.0 na MPA 0.0 0.0 na Sub-total 1,296.0 890.0 68.7 Commercial BPC 4,922.5 1.9 0.0 BJC 0.0 0.0 na TCD 0.0 0.0 na Sub-total 4,922.5 1.9 0.0 Agriculture BADC 1,934.3 1,933.8 100.0 BFDC 4.8 0.0 0.0 Sub-total 1,939.1 1,933.8 99.7 Services BSCIC 133.2 133.2 100.0 BIFDC 354.0 307.6 86.9 BWD 39.9 4.2 10.5 BTB 50.1 50.7 100.0 BPC 15.1 0.0 0.0 BFDC O.G 0.6 100.0 BSB 2.5 0.0 0.0 REB 2.7 0.0 0.0 Sub-total 598.7 496.3 82.9 Total 42,987.0 15,057.3 35.0 Source: Bangladesh Bank (December 1997) TABLE 7 OUTSTANDING & OVERDUE LOANS OF PRIVATIZED FIRMS (In Million Taka) Outstanding Loans of Privatized Firms Range No of Amount Av.Amt. Firms Outstanding 1.0-5.0 3 28.2 2.17 5.1-10.0 4 29.4 7.35 10.1-20.0 11 164.8 14.98 20.1-50.0 15 497.7 33.18 50.1-100.0 19 1,495.7 78.72 100.1-500.0 44 10,522.4 239.15 500.1-1,000.0 4 2,1611.6 652.90 Total 110 15,349.8 139.54 Overdue Loans of Privatized Firms Up to 5.0 10 26.3 2.63 5.1-10.0 11 79.2 7.20 10.1-20.0 7 105.8 15.11 20.1-50.0 20 720.4 36.02 50.1-100.0 15 1,057.3 70.49 100.1-500.0 14 3,707.5 264.82 500.1-1,000.0 0 0.01 na Total 77 5,696.9 73.99 Source: Bangladesh Bank TABLE 8 DEBT-DEFAULT STATUS OF SELECTED PRIVATIZED FIRMS (In million Taka) Indicator No of Amount of Av. Amt. Firms Loans Total 63 Firms for which information is not available 4 na na Firms for which information is available 59 na na Firms with overdue loans 51 9,433.0 184.% Firms with outstanding but not overdue loans 8 875.3 109.41 Firms with neither overdue not outstanding loans 0 na na Total 59 10,308.3 174.72 Source: Bangladesh Bank (1998) TABLE 9 SUMMARY PERFORMANCE INDICATORS OF BANKS IN BANGLADESH In percent Indicator Dec.-94 Dec.-95 Dec.-96 Dec.-97 Classified loans by 34.8 32.0 31.5 32.7 group of Banks Domestic Banks 36.3 33.9 33.3 34.8 Nationalized Commercial 32.1 31.1 32.6 36.6 Banks Private Domestic Banks 44.5 39.4 34.8 31.4 Foreign Banks 8.8 5.4 4.7 3.4 Specialized Development .. .. 50.9 65.7 Banks Classified Loan Rations by Debtor Public Sector .. 24.6 41.3 32.4 Private Sector .. 33.1 30.3 32.8 Distribution of Classified .. 100.0 100.0 100.0 Loans by Sector Public Sector .. 9.3 14.7 12.1 Private Sector .. 90.7 85.3 87.9 Total Classified Loans 34.8 32.0 31.5 32.7 by Category Substandard 19.2 13.1 13.4 10.6 Doubtful 17.6 12.4 12.3 15.7 Bad 58.6 69.8 74.3 73.8 Total Adjusted Classified 31.4 25.6 24.8 25.7 Loans by Sector Domestic Banks 32.8 27.2 26.4 27.5 Nationalized Commercial 26.5 25.3 26.6 29.9 Banks Private Domestic Banks 44.2 31.3 26.0 23.0 Foreign Banks 8.8 3.5 3.1 1.9 Specialized Development Banks .. .. 28.91 55.2 Source: Bangladesh Bank, 1998
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|Publication:||Journal of Financial Management & Analysis|
|Date:||Jan 1, 2018|
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