Bangladesh Policy Notes Unpredictable Regulatory Practices Key issues and challenges The current regulatory environment in Bangladesh discourages the entry of innovative businesses. Entrepreneurs face a myriad of regulatory barriers including an absence of laws and regulations that clarify the rules of the game for new activities (regulatory gaps), and conflicting definitions and interpretations (regulatory ambiguity). Bangladeshi regulators, as elsewhere, are typically risk-averse and slow to catch up with innovations in the economy. The problem is made worse by Bangladesh’s outdated legal and regulatory apparatus. During the past decade, some improvements have been made but the regulatory environment remains costly, with over-regulation, lack of transparency and poor accountability. Typically, rules and regulations are announced without prior notice, consultation or impact assessment. As a result, they do not benefit from the practical knowledge that businesses have. Even well- designed rules and regulations cause problems if announced suddenly and with immediate effect. There are inconsistencies and gaps in rules and regulations. Government agencies often impose their own rules and procedures without considering possible conflicts with rules and procedures imposed by other government agencies. In addition, regulatory gap is a serious issue for innovative activities whose legality may be questioned if there are gaps in the legal and regulatory framework or grey areas subject to discretionary interpretation. Businesses find it difficult to find information on existing rules and regulations. Businesses are unaware of the rules, regulations and procedures that they need to comply with at different stages of the project cycle and, even if they are aware, lack knowledge of the detailed requirements (for example documents required, fees and where to apply). Regulatory officials use undue discretion in dealing with businesses. Rules and regulations, as written, may leave scope for varying interpretations by officials and businesses. Often, regulatory agencies do not provide adequate guidance to the front-line officials on how to interpret and administer the rules. As a result, discretionary enforcement and interpretation of rules increases the cost of doing business in Bangladesh. Many regulatory areas lack an effective grievance redressal system. Businesses therefore do not have avenues to complain or contest a specific decision or lack of a decision that adversely affects them. Even if businesses can voice their grievances, there may be inadequate or no follow-up by the relevant agency and businesses may have no recourse to higher authorities. However, the politically connected businesses have an undue advantage in this environment. Insecure property rights also dis-incentivize businesses from making investments. These take the form of outright expropriation of assets and policy and regulatory actions that make costs and revenue streams more uncertain. Examples include changes in rules after an investment has been committed, non-payment by the government on goods and services procured by it, and discriminatory and confiscatory taxation. Regulatory unpredictability hampers business entry and day to day business operations; however, the degree depends on the size of the business. In a recent survey of businesses, more than 60 percent of the respondents complained about inconsistency in laws and regulations and discretionary behavior by regulatory officials. About half complained about poor access to information on laws and regulations and the absence of grievance mechanisms. Regulatory unpredictability is felt differently by businesses 1 depending on their size. In the survey, large and medium sized firms complain more about discretionary behavior (62 percent and 65 percent respectively) than small firms do (54 percent). Lack of effective grievance mechanisms is felt most strongly by medium-sized firms (64 percent citing this as a problem compared to 40 percent for small and large firms). Regulatory surprises (announcement of laws and regulations without prior consultation) are felt more acutely by small firms (46 percent citing this as a problem) than medium or large firms (37-38 percent). Policy Recommendations To address these issues, in the short term, the government needs to: • Make it mandatory to use the existing e-platform (ministry web sites) for soliciting feedback from stakeholders on regulatory issues. • Pilot a feedback loop with selected government-to-business services through structured questionnaires. To address these issues, in the medium to long term, the government needs to: • Identify areas of redundancy, conflict, jurisdictional overlap and regulatory gaps in all existing laws, acts, and rules and prepare a time bound action plan to address them. • Introduce and publish a regulatory calendar at the beginning of a fiscal year indicating all upcoming laws for the year. • Make stakeholder consultation mandatory for all new bills and amendments. Publish feedback reports, including justification for considering some feedback but not others, to ensure the accountability of government departments. • Set up a Regulatory Impact Analysis (RIA) unit at a central ministry to introduce the concept in the law-making process of Bangladesh. Build RIA capacity at the central unit and the agency level to conduct RIA for upcoming bills or amendments. • Establish an automated system to publish all the new laws, regulatory amendments and SROs on a dedicated website within a week of their enforcement. • Introduce an inter-operability mechanism to facilitate data-sharing between all government agencies. • Introduce a ‘Feedback Loop’ for all government-to-government, business and citizen services to generate information on the quality of regulatory service delivery. • Introduce a systemic online grievance mechanism for all government-to-government, business and citizen services • Introduce a guillotine approach to remove all redundancy in the laws. 2