Chapter

BANGLADESH

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: April 11, 1994.
Exchange Arrangement
CurrencyThe currency of Bangladesh is the Bangladesh taka.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe taka is pegged to a weighted currency basket of Bangladesh’s major trading partners. The Bangladesh Bank (BB) deals with authorized domestic banks only in dollars, the intervention currency. Authorized banks are free to set their own buying and selling rates for the dollar and the rates for other currencies, based on cross rates in international markets. At the end of 1999, the buy/sell margin was approximately 0.6%.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward contracts are available from authorized banks, covering periods of up to six months for export proceeds and import payments, and up to three months of remittances of surplus collection from foreign shipping companies and airlines. Authorized banks are permitted to retain working balances with their foreign correspondents. Currency swaps and forward exchange transactions are permitted when they are effected against underlying approved commercial transactions.
Official cover of forward operationsThe BB does not transact in the forward market, nor does it regulate transactions beyond the normal requirements of prudential supervision.
Arrangements for Payments and Receipts
Prescription of currency requirementsSettlements normally take place in convertible currencies and, in some cases, through nonresident taka accounts. Settlements with ACU member countries are required to be effected through the ACU in terms of the AMU (equivalent in value to the dollar). Payments for imports may be made to any country (with the exception of countries from which importation is prohibited). They may be made(1) in taka for credit in Bangladesh to a nonresident bank account of the country concerned; (2) in the currency of the country concerned; or (3) in any freely convertible currency. Export proceeds must be received in freely convertible foreign exchange or in taka from a nonresident taka account.
Payment arrangements
Bilateral payment arrangements
OperativeThere are operative bilateral payment arrangements with some countries.
Regional arrangementsBangladesh is a member of the ACU.
Clearing agreementsYes.
Administration of controlExchange control is administered by the BB in accordance with general policy formulated in consultation with the MOF. Banks are issued licenses as authorized dealers (authorized banks) in foreign exchange. The Chief Controller of Imports and Exports of the Ministry of Commerce is responsible for registering exporters and importers and for issuing the Import Policy Order (IPO). Registered importers may make their imports in terms of the IPO against LCs. LC authorization forms (LCAFs) are issued by authorized dealers and do not require a separate import license.
International security restrictions
In accordance with UN sanctionsOn the basis of a UN Security Council resolution, all settlements with Iraq, the Taliban (the Islamic State of Afghanistan), and the Federal Republic of Yugoslavia (Serbia/Montenegro) are prohibited.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeThere are no restrictions on the internal sale, purchase, or possession of gold or silver ornaments (including coins) and jewelry, but there is a prohibition on the holding of gold and silver in all other forms except by licensed industrialists or dentists.
Controls on external tradeThe importation and exportation of gold and silver require special permission. However, adult female travelers are free to bring in or take out any amount of gold jewelry without prior approval from the BB. Exports of gold jewelry and imports of gold and silver for the export/manufacture of jewelry are allowed under the Jewelry Export Scheme.
Controls on exports and imports of banknotes
On exports
Domestic currencyA resident or a nonresident may take out up to Tk 500 in domestic currency.
Foreign currencyNonresidents may take out the foreign currency and traveler’s checks they declared on entry or up to $5,000 or the equivalent brought in without declaration. They may also, without obtaining the approval of the BB, reconvert taka notes up to Tk 6,000 into convertible foreign currencies at the time of their departure. Residents may take out foreign currency and traveler’s checks up to the amount of any travel allocation they are granted, and also up to $5,000 brought in without declaration when returning from a previous visit abroad.
On imports
Domestic currencyThe importation of Bangladesh currency notes and coins exceeding Tk 500 is prohibited.
Foreign currencyForeign currency traveler’s checks and foreign currency notes may be brought in freely up to $5,000, but larger amounts should be declared to customs upon arrival in Bangladesh.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyBangladesh nationals and persons of Bangladesh origin who are working abroad are permitted to open foreign currency accounts denominated in dollars, euros, pounds sterling, or Japanese yen. These accounts may be credited with (1) remittances in convertible currencies received from abroad through normal banking and postal channels; (2) proceeds of convertible currencies (banknotes, traveler’s checks, drafts, etc.) brought into Bangladesh by the account holders, provided that amounts exceeding $5,000 have been declared to customs upon arrival in Bangladesh; (3) transfers from other foreign currency accounts opened under the former Wage Earners’ Scheme; and (4) transfers from nonresident foreign currency deposit accounts. The accounts may be debited without restriction, subject to reporting to the BB.



Residents, when returning from abroad, may bring in any amount of foreign currency and may maintain a resident foreign currency deposit account with the foreign exchange brought in. However, proceeds of exports of goods and services from Bangladesh or commissions arising from business deals in Bangladesh are not allowed to be credited to such accounts. Balances in these accounts are freely transferable abroad and may be used for travel in the usual manner. These accounts may be opened in dollars, euros, pounds sterling, and Japanese yen. Exporters and local joint-venture firms executing projects financed by a foreign donor or international agency may open foreign currency accounts. Foreign currency accounts may also be opened in the names of diplomatic missions in Bangladesh, their expatriates, and diplomatic bonded warehouses (duty-free shops). Approval is required to open these accounts.
Held abroadResidents who had opened an account abroad when previously residing abroad may maintain such an account after returning to Bangladesh.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedBangladesh nationals residing abroad; foreign nationals, companies, and firms registered or incorporated abroad; banks and other financial institutions, including institutional investors; officers and staff of Bangladesh missions and government institutions; autonomous bodies; and commercial banks may open interest-bearing nonresident foreign currency deposit accounts denominated in dollars, euros, pounds sterling, or Japanese yen. These accounts may be credited in initial minimum amounts of $1,000 or $500 ($25,000 for foreigners), with remittances in convertible currencies and transfers from existing foreign currency deposit accounts maintained by Bangladesh nationals abroad. The accounts bear interest if their terms range from one month to one year. Bangladesh nationals may maintain a foreign currency account abroad while residing abroad and may continue to hold the account after returning to Bangladesh. The balance, including interest earned, may be transferred in foreign exchange by the account holder to any country or to any foreign currency deposit account maintained by Bangladesh nationals abroad. The balances in the accounts, which are freely convertible into taka, must be reported monthly by banks to the BB. Nonresident Bangladeshis who do not open or maintain a foreign currency deposit account while abroad may open a nonresident foreign currency deposit account with foreign exchange brought in from abroad within six months of the date of their return to take up permanent residence in Bangladesh. All nonresident accounts are regarded for exchange control purposes as accounts related to the country in which the account holder is a permanent resident (the accounts of the United Nations and its agencies are treated as resident accounts).
Approval requiredNonresident foreign currency accounts may be opened by authorized dealers without prior approval from the BB for Bangladesh nationals and foreign nationals who reside abroad and for foreign firms operating abroad. Specified debits and credits to these accounts may be made in the account holder’s absence by authorized dealers without prior approval from the BB. Certain other debits and credits may be made without prior approval from the BB, but are subject to ex post recording.
Domestic currency accountsForeign missions and embassies, their expatriate personnel, foreign airline and shipping companies, and international nonprofit organizations in Bangladesh may open interestbearing accounts, but the interest earned may be disbursed only in local currency.
Convertible into foreign currencyAll diplomatic missions operating in Bangladesh, their diplomatic officers, home-based members of the mission staffs, international nonprofit organizations (including charitable organizations functioning in Bangladesh and their respective personnel), foreign oil companies engaged in oil exploration in Bangladesh and their expatriate employees, UN organizations and other international organizations, foreign contractors and consultants engaged in specific projects, and foreign nationals residing in Bangladesh (regardless of their status) are allowed to maintain convertible taka accounts. These accounts may be credited freely with the proceeds of inward remittances in convertible foreign exchange and may be debited freely at any time for local disbursements in taka, as well as for remittances abroad in convertible currencies. Transfers between convertible taka accounts are freely permitted.
Approval requiredYes.
Blocked accountsNonresident taka accounts of Bangladesh nationals may be blocked by the BB.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsAdvance payments for imports require approval from the BB, which is normally given only for specialized or capital goods.
Documentation requirements for release of foreign exchange for imports
Domiciliation requirementsYes.
Preshipment inspectionAn inspection is required for all imports, with a few exceptions.
Letters of creditPayment against imports is generally permissible only under cover of irrevocable LCs. However, perishable food items of value not exceeding $7,500 a consignment may be imported overland without LCs; capital machinery and industrial raw materials may also be imported without LCs. Recognized export-oriented units operating under the bonded warehouse system may effect imports of up to four months’ requirements of their raw and packing materials by establishing import LCs without reference to any export LC. They may also effect such imports by opening back-to-back LCs (either on a sight basis under the Export Development Fund, or up to 180 days on a usance basis) against export LCs received by them. Authorized dealers may establish LCs on an f.o.b. basis without the approval of the BB, subject to certain conditions. Foreign exchange for authorized imports is provided automatically by authorized dealers when payments are due.
Import licenses and other nontariff measuresAll importers (including all government departments, with the exception of the Ministry of Defense) are required to obtain LCAFs for all imports. Under the authority of the IPO issued by the Chief Controller, importers are allowed to effect imports against LCAFs issued by authorized dealer banks without an import license. Single-country LCAFs are issued for imports under bilateral trade or payments agreements and for imports under tiedaid programs. LCAFs are otherwise valid worldwide, except that imports from Israel and imports transported on flag vessels of Israel are prohibited. Goods must be shipped within 17 months of the date of issuance of LCAFs in the case of machinery and spare parts, and 9 months in the case of all other items.
Positive listItems not specified in the control list of the IPO are freely importable, provided that the importer has a valid import registration certificate.
Negative listThe controlled list contains 110 items in about 1,400 categories at the four-digit level of the Harmonized System Codes. The importation of these items is restricted or prohibited either for public safety, religious, environmental, and social reasons, or because similar items are produced locally. Up to 26 items are restricted purely for trade purposes (7 of which are banned and 19 restricted). Imports from Israel are prohibited.
Open general licensesAll items not on the control list are freely importable by registered importers.
Licenses with quotasImports of specified raw materials and packing materials by industrial consumers are governed by an entitlement system, based on the requirements for various industries during each import program period established by the Board of Investment. Firms in the industrial sector are given an entitlement to import specified raw materials and packing materials, and LCAFs are issued on the basis of the entitlement. The entitlement system does not apply to raw materials and packing materials that are freely importable but does apply to items appearing on the controlled list. Separately, industrial consumers may be issued with LCAFs for parts and accessories of machinery. Goods imported against LCAFs issued to industrial consumers must be used in the industry concerned and must not be sold or transferred without prior approval.
Import taxes and/or tariffsThere are five tariff bands: zero, 5%, 15%, 25%, and 37.5%.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsProceeds from exports must be received within four months of shipment unless otherwise allowed by the BB. Exporters are permitted to retain 7.5% of the proceeds of exports of ready-made garments and 40% of the proceeds from other exports; they may use retained earnings for bona fide business purposes, such as business travel abroad; participation in trade fairs and seminars; and imports of raw materials, spare parts, and capital goods. They may also be used to set up offices abroad without prior permission from the BB. Joint ventures, other than in the garment industry, located in export processing zones (EPZs) are allowed to retain 80% of their export earnings in a foreign currency deposit account and to place the remaining 20% in a bank account in domestic currency.
Financing requirementsn.a.
Documentation requirements
DomiciliationYes.
Export licensesExports to Israel are prohibited. Exports of about 20 product categories are banned. Some of these are restricted for nontrade reasons, while others are restricted to ensure the supply of the domestic market. Export licenses are required for all banned or restricted items.
With quotasQuotas are imposed on garment exports by the Chief Controller of Imports and Exports on the basis of the previous year’s performance. The Export Promotion Bureau monitors quota use in order to reallocate unfilled quotas.
Export taxesExports of jute are taxed.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersPayments for invisibles related to authorized trade transactions are generally not restricted.
Trade-related paymentsThere are controls on administrative expenses and commissions.
Prior approvalFor unloading and storage costs, prior approval is required. Up to 5% of export receipts (up to 33.3% in the case of books) may be remitted abroad for commissions without prior approval from the BB.
Investment-related paymentsAuthorized dealers are allowed to remit dividends to nonresident shareholders without the prior approval of the BB on receipt of applications from the companies concerned; applications must be supported by an audited balance sheet and profit-and-loss account, a board resolution declaring dividends out of profits derived from the normal business activities of the company, and an auditor’s certificate that tax liabilities are covered. Authorized dealers may remit profits of foreign firms, banks, insurance companies, and other financial institutions operating in Bangladesh to their head office on receipt of applications supported by documentation. These remittances are, however, subject to ex post checking by the BB.
Prior approvalNo approval is required if loan agreements have been cleared by the Board of Investment (BOI).
Quantitative limitsInformation is not available for amortization of loans or depreciation of direct investments.
Indicative limits/bona fide testInformation is not available for amortization of loans or depreciation of direct investments.
Payments for travel
Quantitative limitsThe limit for personal travel by resident Bangladesh nationals to countries other than Bhutan, India, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka is $3,000 a year; the allowance for air travel to these seven countries is $1,000 a person a year. For new exporters, the indicative limit for business travel is $6,000, while established exporters are permitted to use balances held under the Export Retention Scheme (7.5% of exports of ready-made garments and 40% of other export proceeds). Manufacturers producing for the domestic market and importers are granted business travel allowances equivalent to 1% of turnover as declared in tax returns, and 1% of the value of imports, respectively. There is an annual ceiling of $5,000 in both cases.
Indicative limits/bona fide testYes.
Personal paymentsForeign currency for education is made available up to the cost of tuition and living expenses, as estimated by the educational institution concerned. No prior permission is required for the remittance of fees for undergraduate, postgraduate, and some professional courses. Foreign exchange is available for the costs of dependents abroad, after production of a certificate from the Bangladesh embassy in the country concerned, up to a reasonable level based on prevailing prices.
Prior approvalPrior approval is required for the transfer of pensions.
Quantitative limitsUp to $10,000 may be obtained for medical costs without prior approval. Larger amounts are subject to the approval of the BB.
Indicative limits/bona fide testApplications for foreign exchange for studies abroad and for family maintenance are accepted upon verification of their bona fide nature.
Foreign workers’ wages
Quantitative limitsForeign nationals may freely remit up to 50% of net salary in connection with service contracts approved by the government. The entire amount of their leave salaries and savings may also be freely remitted.
Indicative limits/bona fide testYes.
Credit card use abroad
Prior approvalGeneral approval is given for the use by exporters against the foreign exchange retention entitlement and for the use against the travel allowance by other residents.
Quantitative limitsCredit cards may be used up to the amounts authorized for travel allowance and up to balances held in foreign currency deposit accounts.
Other payments
Prior approvalNo prior permission is required for the remittance of royalties and technical fees of up to 6% of sales, and of training and consulting fees of up to 1% of sales.
Indicative limits/bona fide testIndustrial enterprises producing for local markets may remit up to 1% of sales receipts declared in the previous year’s tax return.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsExporters of services are permitted to retain 5% of the proceeds and to use retained earnings for bona fide business purposes. Bangladesh nationals working abroad may retain their earnings in foreign currency accounts or in nonresident foreign currency deposit accounts. Unless specifically exempted by the BB, all Bangladesh nationals who reside in Bangladesh must surrender any foreign exchange coming into their possession, whether held in Bangladesh or abroad, to an authorized dealer within one month of the date of acquisition. However, returning residents may keep, in foreign currency accounts opened in their names, foreign exchange brought in at the time of return from abroad, provided that the amount does not represent proceeds from exports from Bangladesh or commissions earned from business activities in Bangladesh. Residents may retain up to $5,000 brought into the country without declaration. Foreign nationals residing in Bangladesh continuously for more than six months are required to surrender within one month of the date of acquisition any foreign exchange representing their earnings with respect to business conducted in Bangladesh or services rendered while in Bangladesh.
Restrictions on use of fundsForeign exchange retainable as above may be used for travel abroad or bona fide business purposes.
Capital Transactions
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents may buy Bangladesh securities through stock exchanges against payment in freely convertible currency remitted from abroad through banking channels.
Sale or issue locally by nonresidentsProceeds from sales, including capital gains and dividends earned on securities purchased in Bangladesh, may be remitted abroad in freely convertible currency. Nonresidents may not issue securities in Bangladesh.
On money market instrumentsThese transactions are not allowed.
On collective investment securities
Purchase locally by nonresidentsThese transactions are not allowed.
Sale or issue locally by nonresidentsThese transactions are not allowed.
Purchase abroad by residentsThese transactions are not allowed.
Sale or issue abroad by residentsThese transactions are subject to prior approval of the Securities and Exchange Commission. If an instrument is denominated in foreign currency, prior BB approval is required.
Controls on derivatives and other instruments
Purchase locally by nonresidentsThese transactions are not allowed.
Sale or issue locally by nonresidentsThese transactions are not allowed.
Purchase abroad by residentsAuthorized dealer banks may obtain hedging abroad against exchange rate risks on underlying trade transactions.
Sale or issue abroad by residentsYes.
Controls on credit operations
Commercial credits
By residents to nonresidentsExport payments deferred for more than 120 days require BB authorization.
To residents from nonresidentsDeferred import payments are permitted for up to 360 days for capital machinery and for up to 180 days for industrial raw materials. Private industrial units may borrow funds from abroad with the approval of the BOI.
Financial credits
By residents to nonresidentsExcept in specific cases, credits are subject to prior BB approval.
To residents from nonresidentsAuthorized dealers (i.e., commercial banks) may obtain short-term loans and overdrafts from overseas branches and correspondents for a period not exceeding seven days at a time.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsBanks may issue guarantees/sureties in favor of nonresidents in relation to permissible current transactions on behalf of residents.
To residents from nonresidentsReceipt of guarantees/sureties by residents from abroad requires full disclosure of the underlying transaction.
Controls on direct investment
Outward direct investmentAll outward transfers of capital require approval, which is sparingly granted for residentowned capital.
Inward direct investmentInvestments, except in the industrial sector, require approval. The Foreign Private Investment (Promotion and Protection) Act provides for the protection and equitable treatment of foreign private investment, indemnification, protection against expropriation and nationalization, and guarantee for repatriation of investment. There is no ceiling on private investment. Tax holidays are granted for periods of up to nine years, depending on the location.
Controls on liquidation of direct investmentRequests for repatriation of the proceeds from liquidation of direct investment (in unlisted companies) are subject to prior scrutiny of the BB.
Controls on real estate transactions
Purchase abroad by residentsRemittances of funds for these purchases are not permitted.
Purchase locally by nonresidentsPurchases of real estate by a nonresident with funds from abroad are allowed.
Sale locally by nonresidentsRepatriation of sales proceeds are subject to prior approval by the BB, which is not normally granted.
Controls on personal capital movements
Loans
By residents to nonresidentsThese transactions are not allowed.
To residents from nonresidentsThese transactions are not allowed, except for industrial enterprises borrowing according to BOI guidelines/approval.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsTransfer of title to nonresidents by way of inheritances is not restricted, but income from, and sale proceeds of, such assets are normally not transferable abroad and are required to be used locally with prior authorization from the BB.
To residents from nonresidentsA resident Bangladesh national requires the prior approval of the government of Bangladesh for receiving any gift/endowment from a foreign donor. Inheritances are to be disclosed to the BB. Net current income from estates inherited abroad are to be repatriated.
Settlement of debts abroad by immigrantsThese transactions are normally not allowed, except for repayments on borrowing for industrial investments according to BOI guidelines.
Transfer of assetsThese transactions are not allowed, except for movable personal effects.
Transfer abroad by emigrantsThese transactions are not allowed, except for normal travel allowance permissible to residents.
Transfer into the country by immigrantsThese transactions are permitted, subject to the declaration requirement in respect of foreign exchange in excess of $5,000.
Transfer of gambling and prize earningsGambling is prohibited in Bangladesh.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadThe same regulations apply as for financial credits.
Maintenance of accounts abroadThe maintenance of these accounts is subject to notification to the BB.
Lending to nonresidents (financial or commercial credits)Lending to nonresidents is not allowed, except with prior BB approval and in specific cases.
Lending locally in foreign exchangeLending is subject to prior approval by the BB.
Purchase of locally issued securities denominated in foreign exchangePurchases are subject to prior approval by the BB.
Differential treatment of deposit accounts in foreign exchange
Interest rate controlsBanks are required to maintain interest rates on foreign currency deposits in line with international market rates.
Open foreign exchange position limitsThe BB places limits on each authorized dealer’s net open position, not to exceed 12.5% of capital.
Provisions specific to institutional investors
Limits (max.) on portfolio invested abroadDomestic institutional investors may not acquire investment assets abroad.
Other controls imposed by securities lawsn.a.
Changes During 1999
No significant changes occurred in the exchange and trade system.

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