Regulatory uncertainty has become a major bottleneck for investment in Bangladesh, where private sector investments remain weak, said the World Bank in its latest report.
At present, foreign direct investment is less than 1 percent of the GDP.
Businesses, particularly the medium-sized ones, suffer from the inconsistencies in policy implementation, said the Washington based-multilateral lender in the Spring 2019 edition of the Bangladesh Development Update.
The report, which puts special focus on regulatory predictability, was unveiled yesterday at the WB's office in Dhaka.
“Regulatory uncertainty makes property rights insecure, which is a deterrent to investment,” the report said.
Insecurity of property rights takes many forms, ranging from threat of outright asset expropriation to policy and regulatory actions that make costs and revenue streams more uncertain on top of normal commercial risks.
“Frequent change in decisions on price hike of fuel, electricity, gas and bank interest rate leave entrepreneurs in a dilemma when it comes to taking decisions for further investment,” said Zahid Hussain, lead economist of the WB's Dhaka office.
The success of Bangladesh's development aspirations hinge on increased private investment and innovation, the report said.
“Investments will be needed in new ways of doing things: new products, new technologies and new business models. This requires an enabling environment, of which regulatory predictability is an important dimension.”
Discretionary behaviour by regulatory officials is at the core of regulatory uncertainty, including non-uniform interpretation of rules and requirements, the WB said.
“It is often the most serious source of unpredictability,” it said, adding that the space for discretionary behaviour is often created by weaknesses in the rule book.
The roots of weak regulatory design lie in poor rule-making processes. This includes inadequate use of evidence when making rules, such as lack of consultation with stakeholders and little use of impact assessment.
Investors are also concerned about poor access to information about rules and regulations, adverse and often sudden changes in laws and regulations, and lack of effective grievance mechanisms.
One out of two businesses in Bangladesh feel that finding information on existing rules and regulations is a major obstacle to doing business, according to the report.
There are also concerns about the credibility of available information, with almost two-thirds complaining that it is not updated regularly and is often incomplete.
“A manifestation of this problem is the absence of a government website providing the VAT, customs and income tax laws/ordinances in one place, including all amendments.”
And the widespread and increasing practice of issuing rules and regulations through Statutory Regulatory Orders further accentuates the problem, the report said.
Subsequently, the WB called for a multi-pronged approach to address regulatory uncertainty including high-level actions on systemic reforms accompanied by additional, more specific reforms.
“This means going beyond streamlining individual rules and regulatory processes to make the regulatory framework in Bangladesh suitable for a fast-changing world and encourage innovation and risk-taking.”
Bangladesh's regulatory system needs the establishment of a technical regulatory oversight body at the centre of the government to oversee, lead and report on regulatory reforms, Husain said.
Specific actions include introducing regulatory impact assessments, holding structured and inclusive consultations on draft laws and regulations and reviewing existing laws and regulations to identify gaps, inconsistencies and redundancies.
Immediately publishing all SROs through widely accessible means and introduction of business-to-government feedback loops on regulatory service quality are the other suggestions.