[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Stop the downward economic spiral

Fresh sovereign rating downgrade shows much remains to be done

www.thedailystar.net

Stop the downward economic spiral
Fresh sovereign rating downgrade shows much remains to be done

VISUAL: STAR

S&P Global's downgrading of Bangladesh's long-term sovereign rating from BB- to B+ is but another indication that while the nation's focus has been trained on ensuring justice for the lives lost in recent violence, the economy continues to take a hit because of the government's failure to resolve this crisis. Following the unrest that resulted in the death of so many individuals, a five-day complete internet blackout, and subsequent curfew imposition, many economic sectors have struggled to bounce back even after the situation has become less tense. The lack of internet connectivity has particularly hurt IT and business-processing outsourcing firms and export-oriented industries. Even the S&P, alongside citing persistent pressure on Bangladesh's external metrics, particularly the decline in foreign exchange reserves, also mentioned in its report how the government is grappling with widespread protests, and that the "highly concentrated political environment" may undermine the predictability of future policy responses.

The S&P downgrade is significant as it may erode confidence in our economy among investors and businesses, and could directly affect Bangladesh's foreign direct investment (FDI) prospects. It may also result in interest rates for foreign loans rising. This means that the economy faces a double whammy as it tries to stay on the path to recovery from a 9.7 percent inflation and a 35 percent reduction of foreign exchange reserves over two years. This path has been beset by problems predating the recent unrest.

For example, on the back of a statistical mismatch of export data between two major sources, Bangladesh Bank published revised figures in early July, and the S&P report mentioned that exports have declined 5.9 percent in FY24. While remittance inflow grew by 10.7 percent in the same period, the latest data from the central bank shows that remittance inflow in the first 28 days of July was 16 percent lower compared to the full month of July a year ago, and 35 percent lower compared to June this year. Recent events have but exacerbated all these longstanding issues, highlighting once again that the economy is structurally unprepared for instability.

One may recall that Moody's previously downgraded Bangladesh's sovereign credit rating in May 2023, citing heightened external vulnerability and persistent liquidity risks, as well as institutional weaknesses. Another global credit rating agency has now downgraded Bangladesh a year on, which indicates that the authorities have failed to take lessons from the previous setback. As things stand, any economic recovery cannot be even started without first resolving the ongoing crisis through ensuring justice for those killed in the protests. So the authorities must take the latest rating downgrade with the seriousness that it deserves.​

 

[Saif]

Apprehensions rife over future exports

The ongoing unrest and curfew have raised apprehensions over Bangladesh’s future exports on the back of data corrections by Bangladesh Bank showing that almost all major sectors suffered a drop in shipments last fiscal year.

www.thedailystar.net

Apprehensions rife over future exports
Fears grow following fall in shipments last year, ongoing unrest

The ongoing unrest and curfew have raised apprehensions over Bangladesh's future exports on the back of data corrections by Bangladesh Bank showing that almost all major sectors suffered a drop in shipments last fiscal year.

The situation has been exacerbated by the fact that Bangladesh is in dire need of foreign currencies to prop up dwindling foreign exchange reserves, which have dropped to just $20.48 billion as of July 31 of this year.

Protests since July 15 over reforming public job quotas led to the deaths of at least 204 people and massive destruction of government property.

The authorities imposed a curfew on July 20 to contain the situation. Public and private offices are running under relaxed curfew times and economic activities are yet to return to normal.

Among the products, knitwear exports, which account for over a third of the country's total export earnings, declined 6.93 percent

The central bank found the export data mismatch in reports prepared by the Export Promotion Bureau (EPB) and the National Board of Revenue (NBR) for the July-April period of fiscal 2023-24.

The actual exports amounted to $33.67 billion, nearly $14 billion below the value earlier published, representing a 6.8 percent year-on-year fall in exports.

Among the products, knitwear exports, which account for over a third of the country's total export earnings, declined 6.93 percent.

Similarly, export of woven garments, which account for a similar portion of the total shipments, declined 6.34 percent.

The scenario was the same for all the sectors, except for agricultural products, plastic and chemicals.

"The buyers are in uncertainty and anxious over the unrest and on whether the exporters will be able to deliver the products,'' said Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association.

The apparel sector faced direct losses of $800 million as exporters had to offer discounts and bear port demurrages for missing lead times and shipment deadlines, he told The Daily Star.

Besides, Bangladesh missed out on receiving exports orders amounting to at least $3 billion during the last 12 days as those were not placed for the unrest, he said.

Hatem feared that those orders were placed in countries comparatively similar to Bangladesh.

Fortunately, previous work orders were not cancelled and the buyers are now observing the situation to decide on their next steps, he said.

Till date the mood of the buyers is not clear, said Anwar-Ul-Alam Chowdhury, president of the Bangladesh Chamber of Industries, adding, "So, it's tough to forecast what is ahead."

It is tough to understand the buyers and what they are thinking regarding the ongoing situation of the country, he said.

As S&P Global downgraded Bangladesh's long-term sovereign rating from BB- to B+, its impact will fall on the economy as well as exports, he said.

Considering the overall situation, there is a possibility that there will be a negative impact at the end of the day as buyers do not like unrest and an unstable situation, said Chowdhury.

Referring to a latest US study, he said American fashion companies were actively diversifying their apparel sourcing base and exploring opportunities, especially in India, amid growing risks and market uncertainties in Bangladesh. This is not a good message for the Bangladeshi exporters, he said.

The recent unrest pushed the country's economy and exports towards uncertainty, said Ahsan Khan Chowdhury, chairman and chief executive officer of PRAN-RFL Group.

Some of their buyers have cancelled scheduled factory visits, he said.

Businesses should be provided the space to function for the sake of the economy and, overall, national interest, he said.

Businesses have an equilibrium and if it collapses for any reason, it takes time to return to normalcy, said Khan, adding, "Now it will take time for normalcy to return to Bangladesh."

"Exports of our sector, particularly agricultural products, were in the positive last fiscal year and it will continue this fiscal year also as we have plans to grow the exports," he said.

He claimed that their agriculture products were doing well in the international markets and gaining popularity.

"If we get sufficient investment from the financiers, our business will definitely grow," he said, adding, "We do not need to stay stuck in flashbacks of the past, rather we should think about the future."

"Besides, we entered the plastic sector which is also creating a scope to win over the global market and it has good prospects to grow the exports," he said.

Exports of fiscal year 2024-25 are off to a rocky start as the first month saw the loss of operations for a number of days, said Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industry.

If exports are taken to be of $50 billion over 365 days, loss in export earnings over 10 days stands at nearly 2.7 percent or $1.3 billion or Tk 16,200 crore.

On top of that, there is a loss of confidence of buyers overseas, which remains unquantifiable, he said, adding, "Risk discounts can climb higher, while borrowing costs will increase, creating pressure on prices.''

"Hopefully, the figure will be lower as we will be able to complete some exports with some delays and recover some of the lost production days by working harder later in the year," he said.​

 

[Saif]

Politics has to change to cure Bangladesh of economic ills

What is good politics for a party, or any party, may not result in good economics

www.thedailystar.net

Politics has to change to cure Bangladesh of economic ills

VISUAL: BIPLOB CHAKROBORTY

What is good politics for a party, or any party, may not result in good economics. The ruling class in Bangladesh will ridicule this concern, referring to the remarkable economic growth the country has boasted for more than a decade. If the growth in GDP is all that matters, then the discontent shown on the streets and social media platforms is hard to explain. The privileged, who have been exploiting the status quo and would like to ensure it never ends, have an explanation though. They say those who are aggrieved are a small group of opponents of national development.

Is that so? No. Since the demonstrations of disagreement on politics, as it is now in Bangladesh, and policies adopted to regulate everything from politics, law and order, and economy, have been directly or indirectly punished, whenever tracked down, people seek out alternative routes to let out their anger. That is why students, who still have years before joining the workforce, and adults who have long passed the age to apply for government jobs, joined the protesters demanding reforms to the quota system in public recruitment. That's how they became part of the mass rather than people who could be singled out.

However, anyone living in the cocoon of power should have felt the heat of public discontent, if they wanted to, long ago. It is just around the corner at roadside tea stalls in conversations between people worried about income prospects, soaring living expenses, and threats of losing everything to the unfair and biased system.

Prof Anu Muhammad once said the money spent on roads, bridges, and flyovers also drives up GDP, but that may not be translated into better economic well-being of the people. An economy is only successful when the growth in economic output touches all equally, irrespective of their social statuses and connections to political, legal, and economic institutions of the country.

Is this the case in Bangladesh? The answer lies in the corruption status of the country revealed by Transparency International Bangladesh (TIB) in January this year. It earned a score of 24 on a scale of 100, according to the Corruption Perception Index 2023. The score is the country's lowest in 12 years and the second worst after Afghanistan in 2023. TIB says that the state institutions responsible for curbing corruption are "under political and bureaucratic influence."

The misuse or abuse of power has a manifestation almost in every small and big industry, the equity market, and even in kitchen markets. The market overall seems to have gone under the control of a few who can influence the state machinery and political and economic institutions to their benefit.

Hence, the government's zero-tolerance-against-corruption stance reiterated in almost every public speech seems nothing but phoney.

Now what happens when those who are being ruled do not trust the ruler? They do not invest their capital to launch or expand a business, fearing everything will be taken away by those who can exercise power. Those who do not have capital feel hopeless about any prospects of elevating their living standards without access to political power. So, they do not consider exploring opportunities, if there are any, to improve their skills, because better skills mostly go in vain when bribery and lobbying play a bigger role in employment and entrepreneurship.

This is the context against which hundreds of thousands of people are leaving this country through illegal sea channels to reach the shores of the European nations, the Middle East, Malaysia, China, and the US, though the risks are well-known, as they are extensively reported by the media, NGOs, and INGOs. In fact, in 2023, the number of such migrants to European countries surged 10 percent to 337,008 from the year before, and in 2022 it escalated 58 percent year-on-year, according to The European Border and Coast Guard Agency.

Illegal migration spiked at a time of praiseworthy GDP growth.

There are reasons, such as climate change and lack of jobs, but those who are giving Tk 5 lakh to Tk 10 lakh, sometimes even more, to migration rackets, by selling ancestral properties or borrowing from unconventional sources at sky-high interest rates, could also think of opening a small business in their upazilas, districts or cities. They don't. The risk of crossing the Mediterranean Sea does not seem as great as overcoming the barriers put in place by law enforcement agencies and relevant authorities to get clearance for a small business. And then the regulatory bodies would keep on twisting the arm of the small investors to get whatever they want.

There are blatant examples within our range of visibility. We, residents of Dhaka, are so familiar with small roadside shops being vandalised every few months, but that is not done to free roads but to extort money before vendors return to the same place with new unofficial permits. One fruit vendor once told me he was tired of setting up his business again and again. So, he decided to try his luck in the Middle East.

People like him fall victim to exploitation again when looking for jobs overseas, by the people who have power, connections, and who can get away with any wrongdoing. The victims do not get justice because the legal system is also under the influence of those who have money and power. As TIB said, the allegedly corrupt keep enjoying unabated protection and even get rewarded.

The migrants become the lifeline of Bangladesh's economy while most of them leave their families behind, not to find a better life but to survive with deep resentment for the unjust political and economic institutions back home. However, the institutions want them to play their due role so they can thrive without any constraints.

Given a chance, though, migrants would just look away and would be busy building their lives elsewhere in another part of the world. Those who can afford that do that, but those who have loved ones, languishing in the corrupt system, send money home.

The government's rhetoric about its development works does not change the reality. The growth has catered to the greed of a small segment of the people, living at the top of society. Those in the middle have got a slice of the pie when those at the top used them to their advantage. The rest have acted as spectators in the game.

This has to change. Unfair economic growth is not sustainable without the participation of the larger population. Signs of that have already emerged. The flow of remittance through legal channels has shrunk, foreign direct investments have plummeted, and money laundering has escalated—by those who would like to park up their illegally-earned money somewhere safe and also by those who fear expropriation of their hard-earned money.

All of these are inimical to national growth in a real sense. For that, politics and economics, dominated by politics, have to change. Fair political and legal systems are prerequisites for fair economic institutions that would support everyone to grow within their potential and abilities. Unless and until that happens, the voices of the repressed would only amplify, may get subdued at times by pressure of state machinery, but would flare up again on the path to culmination.

Bishakha Devnath is the business editor of The Financial Express.​

 

[Saif]

Challenging times for economy

The European Union (EU)'s postponement of its first round of talks with Bangladesh on a fresh agreement towards enhancing trade, economic and developmental relations scheduled for September has occurred at a time when the country's economy is facing multiple challenges, both old and new. The Europe

thefinancialexpress.com.bd

Challenging times for economy
SYED FATTAHUL ALIM
Published :
Aug 04, 2024 17:28
Updated :
Aug 04, 2024 17:28

The European Union (EU)'s postponement of its first round of talks with Bangladesh on a fresh agreement towards enhancing trade, economic and developmental relations scheduled for September has occurred at a time when the country's economy is facing multiple challenges, both old and new. The European trading bloc's foreign affairs spokesperson who informed the media of the deferment on July 31 did not say if the meeting would take place at a later date, though Bangladesh's foreign ministry is learnt to have said that the talks have been shifted to November as the schedule clashed with the UN General Assembly session to be held on September 10.

However, one would like to believe that there is no other issue affecting the said deal styled, Partnership and Cooperation Agreement (PCA), between the EU and Bangladesh initiated in October last year in Brussels. The partnership agreement with the world's largest economic bloc, which is also Bangladesh's chief trading partner, accounting for 20.7 per cent of the country's trade transacted in 2023 alone, is a very vital one for Bangladesh. It is worthwhile to note that last year (2023), the country's export to the trade bloc (EU), according to the Export Promotion Bureau (EPB), was worth US$24 billion, which was 58 per cent of the country's total export abroad. Evidently, the just postponed talks with the EU bears special significance since after graduation the country is going to come up against the EU's higher duty regime applicable for imports from developing countries as Bangladesh is going to graduate to the developing group of nations after November, 2026.

Notably, as a Least Developed Country (LDC), Bangladesh has so far been enjoying duty-free access of its exports to EU under the Generalised System of Preference (GSP). In the scheduled talks, Bangladesh could make out a case for its inclusion in the EU's GSP plus scheme, which offers complete duty suspension for products across approximately 66 per cent of all EU tariff lines. The GSP plus arrangement is an EU incentive for vulnerable developing countries that ratified 27 international conventions on human rights, labour rights, environmental protection, climate change and good governance. Undoubtedly, some of the conventions out of the 27 will be very challenging for the government to meet, especially in view of the recent developments in the country.

In this connection, EU's foreign policy chief Josep Borrel last week expressed concern over the violence and blood-letting surrounding the recent student unrest earlier dubbed quota protests, which lately transformed into an 'anti-discrimination student movement.' In the future talks with the EU, these issues might be raised and the negotiators from Bangladesh side would be required to put forward their points convincingly. The recent turn of events on the campuses and beyond have added some quite unexpected challenges to the economy and business. The July report for inward remittance, for instance, is anything but reassuring. According to the Bangladesh Bank (BB), the amount of remittance sent home in July was US$190.9 billion. This is a drastic fall because since October last year, the remittance inflow was on the rise and in June last reached its peak at over US$2.54 billion. That means, within a month of the peak, the remittance receipt has decreased by US$630.26 million.

The internet service that remained suspended between July 18 and 23 might be a reason for reduced homeward flow of remittance. But once the internet service was restored, the normal trend of remittance flow should have resumed. Some have suggested that this untoward development might be a fallout from the violent quota protests as some expatriate workers reportedly threatened to stop sending remittance as a mark of their solidarity with the agitating students. Whatever the case may be, being instructed by the central bank, a number of commercial banks bought remittance dollars at higher rates than usual to woo remitters for transfer their money home. In the informal currency market, the value of a USD rose to as high as BDT125.The government should take the issue seriously because the remittance dollars are actually the backbone of the country's forex reserve. One might recall at this point the severe economic crisis that Sri Lanka went through in 2022 resulting in mass street protests. That country's foreign exchange reserve hit the bottom. Sri Lanka, too, experienced a fall in remittance receipts that played a crucial role in that country's severe financial crisis. It may be recalled that in March 2022, the country was earmarked for sovereign default as its near-depleted foreign exchange reserve was not enough to meet the island nation's foreign debt obligations. Many are against comparing Bangladesh with Sri Lanka on the ground that the economic realities of the two countries are different. But the finer points of differences apart, in the modern-day developing nations in particular, a robust foreign exchange reserve is the sine qua non of their economies' sustainability. In a sense, uninterrupted flow of foreign currency whether from expatriate workers' remittance, export earnings, foreign investment or aid, constitute the lifeline of such economies. Since depletion of the foreign exchange reserve in tandem with rising foreign debt was the immediate cause of Sri Lanka's collapse two years back, the policymakers in Bangladesh need to take that into serious consideration. Against this backdrop, the two main sources of the country's hard currency, inward remittance and export, should top the agenda of deliberations on the economy.

However, the kaleidoscopic changes the country has been undergoing since the beginning of the current fiscal year (2024-25) are adding to the uncertainties and new challenges to the economy. The development partners including the EU will be keenly watching the events unfolding in the country before they take any firm decision on reaching any new agreement with Bangladesh. Prospective foreign as well as domestic investors, too, will take a wait-and-see approach before committing their funds in any new business venture or the expansion of the existing ones.

How the economy would sail through the ongoing crisis depends a lot on the wisdom and political acumen of those in charge.​

 

[Saif]

Life crippled, economy bleeds

Life gets crippled and the economy continues to bleed amid unrelenting violence following the anti-discrimination student movement that severely disrupted business and economic activities across the country, businesses and economists said. Such disruptions to trades and businesses come at

thefinancialexpress.com.bd

Life crippled, economy bleeds
Fresh bloodletting clashes prompt reinforced curfew, closure
Jasim Uddin Haroon and Jubair Hasan
Published :
Aug 05, 2024 00:44
Updated :
Aug 05, 2024 00:44

Life gets crippled and the economy continues to bleed amid unrelenting violence following the anti-discrimination student movement that severely disrupted business and economic activities across the country, businesses and economists said.

Such disruptions to trades and businesses come at a time when the $460-billion-plus economy of Bangladesh was steadily rebounding from multiple macroeconomic strains caused by the Covid-19 pandemic, the Russia-Ukraine war that triggered serious disruptions to global supply chains, volatile forex market followed by energy crisis in the manufacturing units.

As the government reinforced full-scale curfew across the country alongside shutting all government and private offices to cool down the escalating flare-ups of violence on Sunday, it means the economic activities will be completely upended.

Under such circumstances, entrepreneurs and economists said, the situation now persisting across the country comes as the 'last nail to the coffin' with an almost shutdown of business activities.

They also fear spillover effects of the killings and violence already started hitting the economy as the European Union (EU) recently postponed negotiations with Bangladesh on a new cooperation agreement after criticism of Dhaka's response to contain deadly protests, which will "undoubtedly" affect exports to the 27-nation economic bloc.

"This is the worst situation that we are passing through," Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem told the FE.

The business leader said the entrepreneurs were planning to put more money into business in early 2022 when the export growth of the clothing industry found a rebound after the pandemic.

Within few months, the Russia-Ukraine war broke out, disrupting the global macroeconomic order. Again, the private-sector players managed the situation and started growing amid the persisting energy crisis, especially gas shortages.

"The ongoing crisis following the nationwide student protests put us in a serious trouble. It's like the last nail to the coffin as all the production units are now shut because of the violence and curfew imposed by the government to contain the chaos for indefinite period," he said.

He mentioned that the EU already suspended discussion on a new pact with Bangladesh in the wake of the unrest, which would have an adverse impact on exports of Bangladeshi products to the EU markets.

Former lead economist of World Bank's Dhaka Office Dr Zahid Hussain says there is a certainty that the economy continues worsening.

"But the question is how deep and long the bleeding will continue because every minute the situation keeps changing from bad to worse," he notes.

The eminent economist observes that the whole nation passes through a crisis time. "If the bleeding is not stopped immediately, it will be disastrous for the economy as there is no sector in the country not impacted by the troubles.

The economy will incur huge losses following the closure of all economic and financial units, says Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh (PRI).

He rates the losses as irreparable in the coming months. Whoever takes power, they will inherit the losses. "It cannot be overcome," the noted economist notes on a note of concern over the ongoing street faceoff.

He forecasts Tk 300 billion worth of economic losses to be suffered in the next three days when all economic activities will halt.

He mentions that earlier the economic losses were at least Tk 1.0 trillion during the last phase of halting economic activities.

Day-labourers or people who depend on daily earnings will be the worst sufferers. Once the factories remain closed, the manufacturers face problems on two fronts: how to make shipment and how to pay the employees.

Under such situation, he fears, the International Monetary Fund (IMF) and other lenders may postpone their activities for the next round of instalment from the Bretton Woods Institution.​

 

[Saif]

No time to spare in stabilising economy: experts

Bangladesh has no time to spare when it comes to ensuring the stability of the economy, which has fallen into a crisis mainly due to the absence of democracy for over a decade.

www.thedailystar.net

No time to spare in stabilising economy: experts

A solitary truck exits the Chattogram port around 1:00pm yesterday. Although the gates are usually jam-packed around noon, very few vehicles dared to venture out given the tense atmosphere yesterday. Photo: Rajib Raihan

Bangladesh has no time to spare when it comes to ensuring the stability of the economy, which has fallen into a crisis mainly due to the absence of democracy for over a decade.

Following Sheikh Hasina's resignation as prime minister and the announcement that an interim government would be formed, economists yesterday said reforms should be taken immediately to address economic challenges.

The challenges include high inflation, falling foreign exchange reserves, the high burden of default loans, poor governance in the banking sector and, above all, corruption.

The government must also stem further destruction before taking steps to revive the economy.

It is unclear what type of government is going to be formed now, but there is no time to spare when it comes to reviving the economy, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

The economy was already in crisis and the recent political turmoil, which included internet blackouts and supply chain disruptions, only rubbed salt in its wounds.

So, the priority now should be the economy, he said.

To bring back normality, social equity and justice need to be ensured, which also aligns with the students' demands.

Internet connection and other communications should not be disrupted further while education should be resumed with full priority, Hussain said, adding that such measures would provide confidence to people and normalise economic activity.

Due to the turmoil over the recent weeks, which included the deaths of over 300 people including students, there was supply chain disruption.

Now, everything should be operational. The metro rail and elevated expressway in Dhaka as well as railways and all other connections should be operational as soon as possible, he said.

In order to rein in inflation, the supply chain disruption should be addressed and money should not be printed, the economist added.

Budgetary reforms are also necessary, according to Hussain. The interim government must examine areas where it can save as well as where it needs to increase expenditure.

As poor people are suffering, the government should take measures to increase support for them.

He also said all barriers in making the foreign exchange market transparent and market-based will have to be removed.

Eradication of corruption should be prioritised and all the regulatory bodies should be reformed, he added.

According to Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, if the political system is inadequate, the economy cannot perform well. So, he said, a participatory and democratic political system is necessary.

Democracy and accountability should be ensured as well.

He added that the country is facing several short-term challenges as well as structural problems.

Due to stubbornly high inflation, low-income individuals have been suffering.

Annual inflation rose to 9.73 percent in 2023-24, which was the highest rate in the past 12 years. The inflation rate has remained above 9 percent since March of 2023, according to the Bangladesh Bureau of Statistics (BBS).

Alongside attempting to stabilise exchange rates, the interim government will also have to focus on reducing expenditure in order to tame inflation, Mansur said.

To solve structural problems in the financial sector, a committee of analysts must be tasked with unearthing problems in the banking sector and finding out exactly how big the hole is.

If a proper diagnosis is not conducted, the problem cannot be solved, he added.

Other areas like the stock market, bond market and insurance industry should also be analysed by a separate committee and restructured if necessary, he recommended.

The International Monetary Fund and World Bank can provide support in these areas if necessary.

He also said the existing revenue management system has been a silent killer, adding: "It is destroying the whole economy."

An economy cannot develop with a low tax-GDP ratio and Bangladesh has one of the lowest in the world.

In FY23, Bangladesh's tax-to-GDP ratio stood at 7.3 percent despite rising per capita income, according to the Ministry of Finance.

So, the whole system should be reformed to raise tax revenues, he said.

Along with financial support, empowering local government agencies is also necessary as it will help decentralise the economy and development, Mansur added.

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said the economy needs huge reforms, adding that it had been weakened by a lack of political will.

Bangladesh has been following the wrong political system of non-democracy for more than a decade. When a political system is devoid of democracy, one group benefits and rent-seeking prevails.

So, the country's people suffer despite higher GDP growth because proper distribution is absent, she said.

At the same time, institutions such as the Bangladesh Bank, National Board of Revenue and Bangladesh Securities and Exchange Commission suffered from a lack of good governance due to non-democratic practices.

"Their governance broke down. Moreover, unabated corruption soared and people suffered," Fahmida said.

She added that there had been huge corruption in implementing development projects, which wasted taxpayers' money.

At the same time, investment slowed down, job creation faltered, exports declined, and the foreign exchange reserves went down.

The non-democratic system is at the root of the volatile economic situation at present. Now, the structure of the economy should be reformed to bring back vibrancy, Fahmida added.​

 

[Saif]

The economy needs lots of rebuilding

The protests centring the anti-quota movement of the students have so far left more than 300 people dead and thousands injured in just 20 days across the country. The massiveness of the students' protests and the response to them by the authorities are seen as unprecedented in Bangladesh's history.

thefinancialexpress.com.bd

The economy needs lots of rebuilding
Shamsul Huq Zahid
Published :
Aug 05, 2024 23:31
Updated :
Aug 05, 2024 23:31

The protests centring the anti-quota movement of the students have so far left more than 300 people dead and thousands injured in just 20 days across the country. The massiveness of the students' protests and the response to them by the authorities are seen as unprecedented in Bangladesh's history.
People from all walks of life have been longing for an immediate end to such deadly encounters on the streets that during the last couple of days assumed the character of a political showdown.

On Sunday, hundreds of thousands of protesters occupied the streets of Dhaka and other cities and towns. And the ruling party men -- many of them carried firearms -- took to the streets to defeat protesters. As a result, the economic activities came to a grinding halt. Factories, shops, markets, and other commercial establishments remained closed for the last three weeks. The countrywide supply chain remains disrupted. The supply of essentials to Dhaka from the outside has been scanty, leading to a substantial price rise. The daily turnover of commercial establishments dealing with daily necessities has nosedived. The daily wage earners had financial difficulty since they had no work. Hundreds of them have gone back home.

The ongoing unrest is not only hurting every sector of the economy, directly or indirectly, but has also exacerbated the existing problems such as high inflation, declining reserves, soaring prices of fossil fuels, slowdown in foreign and local private investment, huge classified loans, and rising unemployment.

The deadly violence, hopefully, will be over as the demand of the students and masses is now fulfilled with the resignation of Sheikh Hasina as head of the government. Yet the events of the last three weeks will surely leave a deep scar in the nation's psyche. The economy has suffered a notable loss. At the end of the first phase of the violence, some trade bodies disclosed the losses they suffered. They will have to revise their estimates as and when the situation improves.

During the Covid pandemic, the economy suffered both locally and externally. For obvious reasons, earnings from exports and remittances declined, and domestic production suffered because of the supply chain disruption. But the country's image outside had remained intact. It earned international plaudits because of the resilience it had demonstrated against many odds.

That situation does not exist anymore, it seems. How can a country can maintain its image if it cuts off communication with the outside world for days together? The absence of internet has taken a substantial toll on the economy. Life without internet is impossible these days. That some IT professionals went to neighbouring Nepal and India to meet the demand of their clients abroad shows how important the internet is. Allegations have it that IT professionals in Bangladesh lost many clients because of the suspension of internet service at home.

However, disconcerting developments involving certain macroeconomic issues and a notable decline in the performance of key institutions, including regulatory ones, have eroded in the country's image on the external front. And, this is evident from the consecutive rating downgrades of by international rating agencies, including Fitch and S&P.

The Fitch downgraded the Bangladesh's credit rating despite the fact that the latter was making some improvements in terms of export receipts, remittance income and domestic resource mobilization during past few months. But other failings weighed on the rating exercise.

Foreign investors and lenders always value the country ratings while making their investment decisions. One can well imagine the impact of the ongoing developments on the external front that matters greatly in the management of the country's economy.

While both politics and the economy are crucial, the current situation has elevated politics to the forefront. A prudent political decision is now the key to resolving the crisis, and the fate of the country's economy hinges on this decision that the entire nation is eagerly anticipating.

The Bangladesh Bank last month unveiled a monetary policy for the first half of the current financial year, keeping the contractionary stance in place. The core objective of the policy is to tame inflation that has been hovering around 10 per cent for several months.

Given the urgency of the situation, a significant amount of reassessment and rebuilding is imperative in the aftermath of the recent unrest. This upheaval has impacted every aspect of national life, particularly the economy.

The monetary policy will necessitate a fair, objective review. The fiscal policy, the budget expenditures and many more economic issues will also demand a fresh look.

It's important to acknowledge that progress on economic issues will be stalled until the nation successfully navigates the current crisis of unprecedented magnitude.

Now that the main demand of the students and others opposed to the Awami League government is met, it is time to settle down and chalk out an appropriate course of actions for the economy. An interim government was set to be formed, according to the statement made Chief of Army General Waker-Uz-Zaman yesterday. Hopefully, law and order will restored within a short time and the interim administration will do what is needed to put the economy on track.​

 

[Bilal9]

It is unclear what type of government is going to be formed now, but there is no time to spare when it comes to reviving the economy, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

Dr. Zahid Hussain is supremely qualified to be economic adviser to the Caretaker Interim Govt. and even the chosen elected govt. who used to teach at NSU and was also a lead economist in the South Asia Finance and Poverty group at World Bank's Dhaka HQ.

But he is an apolitical guy. Ideally we should choose this type of qualified people for cabinet posts who have never actively sought or wanted one.

Zahid Hussain | Lead Economist

Zahid Hussain joined the World Bank in 1995 and is currently a lead economist in the South Asia Finance and Poverty group. Prior to that, he was a member of

blogs.worldbank.org

https://www.weforum.org/agenda/authors/zahid-hussain/

 

[Saif]

Mending macrocosmic flaws an urgent must-do

The upcoming interim government should take the macrocosmic issues seriously as many economic parameters are unfavourable or destabilized, including inexorable inflation, economists say after an unceremonious exit of the Awami League regime. First to come is the financial sector which they suggest

thefinancialexpress.com.bd

Mending macrocosmic flaws an urgent must-do
Jasim Uddin Haroon and Jubair Hasan
Published :
Aug 06, 2024 01:02
Updated :
Aug 06, 2024 01:02

The upcoming interim government should take the macrocosmic issues seriously as many economic parameters are unfavourable or destabilized, including inexorable inflation, economists say after an unceremonious exit of the Awami League regime.

First to come is the financial sector which they suggest should be given the topmost importance to bring back confidence of the people in banking and other financial markets, including the capital market.

Dr Ahsan H. Mansur, executive director of Policy Research Institute of Bangladesh or PRI, told the FE that Bangladesh needs to form at least five separate taskforces to assess issues relating to the financial sector and revenue board.

He suggests two taskforces for the financial market --- one for the banking industry and the other for the non-banking sector including the stock market.

Dr Mansur thinks three separate taskforces need to be formed for the revenue board-one for direct taxation, one for indirect taxation, and one for customs.

"There is a need for experts to assess and recommend the suggestions, even, if required, international experts to truly assess the health of the financial and public key organs," he says, adding: "The organs need to be assessed properly and recommendation made for how to improve them."

The economist, who had once served the IMF, thinks inflation could be reduced within next four to five months.

He stresses restoring macroeconomic stability as many remain stressed.

He mentions that the central bank has taken some right directions to improve the forex market, but to some exceptions.

"We are now dictating the crawling-peg system-actually it should be market-based."

Former lead economist of World Bank's Dhaka Office Dr Zahid Hussain thinks the first challenge of the possible interim government would be bringing social stability immediately starting the trial for the killings in recent anti-discrimination student movement, which was one of key demands of the protestors.

Alongside creating a congenial atmosphere for bringing the students back to classroom with the opening of all the educational institutions, he says, the interim government needs to rebuild the damaged infrastructure and make those operational.

The eminent economist also suggests they have to start work to address the problems leading to growing inflation, volatility on the forex market and weaknesses in the financial sector.

Citing the just-ousted government's key reform measures in the financial sector under PCA (prompt corrective action) framework, he says the framework is scheduled for implementation from March 2025, based on performance and financial indicators as of December 2024.

"Why do we start it from now?" he questions, adding that the budget expenditure needs to be reviewed for suspending unnecessary and political projects.

Chairman of the Policy Exchange of Bangladesh Dr M Masrur Reaz says the interim government should take immediate actions to stop the bleeding of the system arising from "mismanagement, miss-governance and manipulation of economic data".

"Do an honest and thorough analysis to see what damages have been done. Based on the identification, two types of reforms are required: one is to see the governance failure and the other is forward looking to strengthen the macroeconomic situation," he adds.

The economist thinks there is a need for decoupling trade associations, giving them enough freedom to get engaged in critical and effective discussion with the policymakers for the betterment of the businesses.​

 

[Saif]

IMF says it is ‘fully committed’ to Bangladesh after protests oust PM

The International Monetary Fund said it remained ‘fully committed to Bangladesh and its people’ after protests ousted Sheikh Hasina from the post of prime minister. Bangladesh's president dissolved parliament on Tuesday, clearing the way for new elections a day after Prime Minister She

thefinancialexpress.com.bd

IMF says it is 'fully committed' to Bangladesh after protests oust PM
REUTERS
Published :
Aug 06, 2024 22:11
Updated :
Aug 06, 2024 22:11

The International Monetary Fund said it remained 'fully committed to Bangladesh and its people' after protests ousted Sheikh Hasina from the post of prime minister.
Bangladesh's president dissolved parliament on Tuesday, clearing the way for new elections a day after Prime Minister Sheikh Hasina resigned and fled the country following student-led protests that left hundreds dead.

Long-term lending from multilaterals including the IMF, World Bank and the Asia Development Bank amounts to roughly a quarter of Bangladesh's GDP, according to emerging market experts Tellimer, making their continued backing key to the country's economy.

The IMF, which approved a $4.7 billion loan programme with the country in January 2023, said it was following developments and "deeply saddened by loss of lives and injuries."

"We remain fully committed to Bangladesh and its people and support efforts to ensure economic stability and deliver inclusive growth," an IMF spokesperson said in an emailed statement.

On Monday, the World Bank, which had total commitments of $2.85 billion in the year to June 30, said it was still assessing the impact of the events on its lending, but remained committed to Bangladesh's development.

Bangladesh does not have any foreign currency bonds, and its short-term external debt is just 5% of GDP, limiting market reaction to the political turmoil.

But a stagnant economy contributed to the protests; nearly 32 million young people in the nation of 170 million are out of work or education in a population. Inflation hovers around 10% per year and dollar reserves have shrunk to just three months of import cover.

Multilateral lenders will be closely watching the next steps taken by the government and the military.

"A military coup, in legal terms, would put at risk fresh external sovereign debt from multilaterals," Hasnain Malik of Tellimer said.​

 

[Bilal9]

 

[Bilal9]

 

[Saif]

Inflation will go down

Salehuddin Ahmed, finance and planning adviser to the interim government, yesterday said inflation in Bangladesh will go down within a reasonable amount of time.

www.thedailystar.net

Inflation will go down
Salehuddin says

Salehuddin Ahmed, finance and planning adviser to the interim government, yesterday said inflation in Bangladesh will go down within a reasonable amount of time.

However, newly-appointed Bangladesh Bank Governor Ahsan H Mansur said the burden of spiralling prices may be brought to tolerable levels within the next five to six months.

"I will not tell you to go to the market tomorrow and see how prices have declined because that will not be the case," Ahmed said while speaking to reporters at the Secretariat following a meeting on prices, production and supply of essentials.

"However, it will also not be the case that decades are required to reduce inflation," he added.

Ahmed also said the government would emphasise improving supply and production to tame inflation.

Alongside taking various measures in this regard, it will also evaluate whether those are effective.

Moreover, the interim government will impose measures or policies that are easily digestible, he added.

The meeting was also attended by the central bank governor, secretaries of the finance, commerce, and food ministries as well as senior officials of other relevant ministries.

After the meeting, the new central bank governor said it would be possible to work on the domestic market from three angles, one of which is the supply side.

"This relates to how we can increase supply by increasing production and create a positive impact on the market," he added.

Second, issues like extortion that have come to the fore need to be addressed. The third will be addressing demand-side issues.

Bangladesh Bank is already working to this end and there will be a review to know whether more can be done, Mansur said.

He said another important challenge is the dearth of foreign currency, as a result of which Bangladesh is currently unable to import as per previous levels, impacting the overall market.

Mansur said keeping inflation at a tolerable level will be possible within five to six months if issues like foreign currency reserves, extortion and lower production are addressed adequately.

"We are hoping for that but we need time to work," he added.

He also said it is not possible to solve the foreign currency crunch overnight.

Apart from that, Mansur said the reserves cannot be reduced illogically and that a minimum level has to be maintained. This is because an illogical decline would lower investor confidence in the market.

So, the central bank needs to maintain the minimum reserve level in sectors where US dollars are used for imports, he said, adding that calculated steps should be taken in this regard.

He also informed that they would discuss the issue with development partners.​

 

[Saif]

Reserve crisis will not be resolved overnight: New BB governor

Bangladesh Bank's newly appointed governor Dr Ahsan H Mansur has acknowledged the country's foreign exchange reserve crisis, cautioning that the situation will not improve overnight. However, he assured that the central bank will not drastically cut down on dollar supply to the market. In a press

thefinancialexpress.com.bd

Reserve crisis will not be resolved overnight: New BB governor
He pledges cautious approach
FE ONLINE DESK
Published :
Aug 14, 2024 17:04
Updated :
Aug 14, 2024 17:48

Bangladesh Bank's newly appointed governor Dr Ahsan H Mansur has acknowledged the country's foreign exchange reserve crisis, cautioning that the situation will not improve overnight. However, he assured that the central bank will not drastically cut down on dollar supply to the market.

In a press briefing at the secretariat on Wednesday, following a meeting on inflation and food supply, Dr Mansur said, "The reserve crisis is a reality, and it won't be resolved overnight. We need to assess our position and determine the optimal level of supply to the market while maintaining adequate reserves."

The governor emphasised the importance of maintaining market confidence and avoiding an abrupt reduction in dollar supply. He highlighted the need to balance the demand for imports and payments with the available reserves.

Dr Mansur further revealed plans to engage with development partners to explore avenues for increasing the country's foreign exchange reserves. He expressed optimism about the situation, stating, "We will tread carefully but move forward. I hope we will start seeing results within a few months."

The governor's comments come amidst growing concerns over Bangladesh's dwindling foreign exchange reserves, which have been impacted by factors such as rising import costs, higher debt servicing and a global economic slowdown.​

 

[Saif]

Bangladesh turmoil may slow financial reform, weaken banks: S&P

Moody’s Analytics said last week it has provisionally revised Bangladesh’s GDP growth forecast for this year to 5.1 per cent from 5.4 per cent previously

en.prothomalo.com

Bangladesh turmoil may slow financial reform, weaken banks: S&P
ReutersNew Delhi/Dhaka
Published: 15 Aug 2024, 10: 46

A vendor waits for customers at his fruits stall at a wholesale market in Dhaka on 14 August 2024, days after a student-led uprising that ended the 15-year rule of Sheikh Hasina AFP

Political turmoil in Bangladesh is likely to slow planned financial reforms and has already added to weakness in the banking sector, S&P Global Ratings said on Wednesday.

Prime Minister Sheikh Hasina quit and fled to India last week after student-led protests against her spiralled into some of the worst violence since Bangladesh’s 1971 independence from Pakistan, killing 300 people and injuring thousands.

An interim government, led by Nobel Prize winning economist Muhammad Yunus, has been appointed to plug a power vacuum and hold elections, but the protests have widened to target officials appointed during Hasina’s term, including the central bank chief and four deputy governors, who have resigned. A new central bank governor has been appointed.

“We see risk of policy inaction and a potential slowdown in financial reforms,” S&P Global Ratings credit analyst Shinoy Varghese said.

Weakness in the banking industry, including a lack of liquidity, thin capital buffers and ailing asset quality, has worsened while the departure of senior central bank officials could delay ongoing structural reforms, the rating agency said.

The anti-government protests emerged from a movement in July against quotas in government jobs, as the $450-billion economy - the world’s fastest-growing just years earlier - struggled with youth unemployment, inflation and shrinking reserves.

These conditions drove Hasina’s government to seek a $4.7 billion bailout from the International Monetary Fund, which was approved in January 2023.

Workers stand while waiting for vegetables to transport at a wholesale market in Dhaka on 14 August 2024, days after a student-led uprising that ended the 15-year rule of Sheikh Hasina AFP

Weeks of unrest have fanned inflation, which reached 11.66 per cent in July - when the government imposed a nationwide curfew, shutting down transport, offices and the mainstay garments industry for days - from 9.72 per cent the previous month, according to official data.

Moody’s Analytics said last week it has provisionally revised Bangladesh’s GDP growth forecast for this year to 5.1 per cent from 5.4 per cent previously.

“Bangladesh’s recovery from the currency crisis hinges on the ability of any replacement government to meet public concerns and reestablish social order,” it said in a note.

The Asian Development Bank, a key development partner for Bangladesh, said it would work with the interim government towards macroeconomic and fiscal sustainability.

“A second priority is the expansion of private sector development to enhance competitiveness and create new employment opportunities,” the ADB said in a statement.

“This includes working with the interim government to streamline government-to-business services to reduce the cost of doing business in Bangladesh.”​