[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Trade-off between macro-economic stability and growth

Is there a paradox between growth and macro-economic stability? In normal circumstances they are considered complementary-one reinforcing the other; but asking which comes as the foremost priority may lead to answers that would tend to vary from place to place reflecting the various dimension

thefinancialexpress.com.bd

Trade-off between macro-economic stability and growth
WASI AHMED
Published :
Jun 04, 2024 23:16
Updated :
Jun 04, 2024 23:16

Is there a paradox between growth and macro-economic stability? In normal circumstances they are considered complementary-one reinforcing the other; but asking which comes as the foremost priority may lead to answers that would tend to vary from place to place reflecting the various dimensions characterising economies. Is it appropriate to say that while macro-economic stability of a country is the precondition for economic growth, the latter may not necessarily be indicative of the former? The trade-off between the two is not simple enough.

Macroeconomic stability can be defined and measured in different dimensions including real, nominal and external stability. To speak of the most important one, real stability is related to sustained and stable growth in economic activity and employment, and is measured by business cycle indicators, such as the unemployment rate or the output gap. Macroeconomic stability is often considered a buffer against currency and interest fluctuations in the global market. Exposure to currency fluctuations, large debt burdens, and unmanaged inflation can cause economic crises and a collapse of GDP. It is here that macro-economic stability features as the foundation of an economy. Economists consider five variables to measure macro-economic stability. These include low and stable inflation, low long-term interest rates, low national debt relative to GDP, low deficits, and currency stability.

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[Saif]

A wounded economy, another perilous year

It’s not the best of times. It’s not the season of light. The future will tell whether it’s the period of Dickensian despair on the economic front. But this is not the moment for business as usual, for sure.

www.thedailystar.net

A wounded economy, another perilous year
Abul Hassan Mahmood Ali unveils fiscal goals in his maiden budget in parliament today. Will he be able to fix the precarious state of the economy?

It's not the best of times. It's not the season of light. The future will tell whether it's the period of Dickensian despair on the economic front. But this is not the moment for business as usual, for sure.

The cycle of economic exhilaration that portrayed Bangladesh as a stellar performer in Asia for a decade is no more on the steady ground that it once was. A triad of crises is now seeping into every corner of the economy. Inflation is an index of chronic consumer pain. The exchange rate shock is hurting almost everyone. Foreign exchange reserves are still haemorrhaging -- half a billion dollars per month.

A sea of red ink appears on the horizon as almost all indicators depict a gloomy picture. GDP growth has come down from its exuberant peak. Stock prices continue to drift downward. Most banks, save for a dozen, are lurching in and out of fund shortages. The zombie banks kept alive for too long are dragging the sector down.

Is the economy becoming a chronic patient? Perhaps not. But it's grievously bruised and needs to be healed and fast.

Years of stability lulled us into believing everything was perfect. People in almost every sphere became habituated to an equilibrium of low inflation, low interest rates and low exchange rate volatility. Under this apparent calmness was a layer of stress.

Then the global crisis came more as a trigger than a cause, exposing Bangladesh's vulnerabilities. Now the tinted perception of the economy is wearing off, acceptance of which we are resisting.

The new fiscal year starting in July could be another perilous year amid a confluence of global economic headwinds and the lingering effects of the government's past misguided steps.

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[Saif]

Govt to rely more on local banks than foreign funds

The government will rely more on domestic bank borrowing than foreign financing in the next fiscal year, intensifying pressure on the economy.

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Govt to rely more on local banks than foreign funds

The government will rely more on domestic bank borrowing than foreign financing in the next fiscal year, intensifying pressure on the economy.

In the revised budget for the current fiscal year of 2023-24, the net foreign financing was cut by 25 percent due to the increasing debt servicing cost and low utilisation of foreign funds.

Net foreign financing is calculated after excluding the expenditure on debt servicing.

The net foreign financing is likely to be reduced by 12 percent in 2024-25. In the current fiscal year, Tk 1,02,490 crore was allocated as net foreign financing, which was later reduced to Tk 76,293 crore.

The amount will be Tk 90,700 crore in FY25.

In the revised budget, the allocation for debt servicing has increased by 2.7 percent to $3.82 billion, including principal amount and interest payments. The expenditure climbed 13.8 percent due to the depreciation of the taka and stood at Tk 42,200 crore.

When the budget was placed last year, an exchange rate of Tk 99.46 per dollar was used. An exchange rate of Tk 110 per dollar has been taken into consideration in the case of the revised budget of FY24 and the proposed budget for FY25.

On May 8, the central bank, however, fixed Tk 117 as the mid-rate as it looks to allow the market to set the exchange rate.

How much money Bangladesh would have to pay will ultimately depend on the exchange rate at the time of payment.

In the proposed budget to be placed today, the debt servicing cost is likely to be $5.18 billion or Tk 57,000 crore, a 35 percent increase compared to the revised budget.

The debt servicing cost is increasing, and foreign funds are not being utilised fully. As a result, the net foreign financing has reduced.

The government had set aside $13.17 billion as foreign financing in the budget for this year, but it was later revised to $9.65 billion. Of the amount, $2.92 billion was earmarked as budgetary support in the original budget, and it was revised to $1.35 billion.

The new budget is likely to allocate $12.86 billion as foreign financing and $3 billion of it could be kept as budget support.

A top finance ministry official said the government had, in most years, failed to utilise the allocated foreign funds. The low use is another reason behind the decreasing foreign financing, according to the officials.

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[Saif]

What’s in the new budget?

The FY 2024-25 budget falls short of assessing the depth of the economically challenging time.

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What's in the new budget?

VISUAL: ANWAR SOHEL

Yesterday, the new finance minister presented the proposal for the national budget for FY2024-25 at a time when Bangladesh's economy is under tremendous pressure. The finance ministry deserves credit for undertaking the humongous task of preparing a budget during an economically challenging time. However, the proposed budget falls short of fully assessing the depth of the problem and making realistic targets, and thus suggesting practical measures to solve some of the problems.

How prudent is the fiscal framework?

With a size of Tk 7,97,000 crore, the FY2024-25 budget is equivalent to 14.2 percent of the GDP, which is the same as the revised budget of the outgoing fiscal year.

The gap between expenditure and revenue is large, which is common in Bangladesh. Since the revenue target is set at Tk 5,41,000 crore, or 9.7 percent of GDP, the government has to rely on both domestic and foreign sources. However, given the high inflationary pressure over the last two years and the resource constraints the country faces, it would have been prudent to keep the budget deficit low, somewhere between three or four percent of GDP, even though traditionally it has been set around five percent in the annual budget. In FY2023-24, the budget deficit was set at 5.2 percent of GDP, which has now been revised to 4.7 percent. In the upcoming fiscal year, it has been set at 4.6 percent. Of this deficit, 2.9 percent will be financed from domestic sources, and 1.9 percent from foreign sources.

A large amount of domestic funding will come from bank loans by the government, which is set to be Tk 1,37,500 crore—2.5 percent of the budget deficit. In the revised budget of FY2023-24, the amount of bank loans has been increased to Tk 1,55,935 crore. In the outgoing fiscal year, there was low demand for bank loans by the private sector. But the government's consistent dependence on the banking sector will create the crowding out effect for the private sector at some point. Besides, the government's interest payment against the bank loans continues to increase.

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[Saif]

Govt measures will tame rising inflation

Finance Minister Abul Hassan Mahmood Ali yesterday expressed hope that the government would be able to curb high inflation on the back of budgetary measures and the central bank’s steps.

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Govt measures will tame rising inflation
Says finance minister at post-budget briefing

Finance Minister Abul Hassan Mahmood Ali yesterday expressed hope that the government would be able to curb high inflation on the back of budgetary measures and the central bank's steps.

"I would like to remind you that after we assumed power in 2009, inflation was at a high level, but we brought it under control. I want to assert that inflation will fall this time too.

"We have taken several steps to control inflation through the tax structure. For example, duties have been reduced for the import of daily necessities."

The minister was speaking at the post-budget media briefing at the Osmani Memorial Auditorium in Dhaka.

Bangladesh has been seeing more than 9 percent inflation for the past two years. Though many countries have successfully brought it down, Bangladesh is struggling to contain it owing to a lack of adequate measures at the right time.

Mahmood Ali tried to allay fears that higher bank borrowing, targeted for the upcoming fiscal year, will stoke inflation.

"There is nothing to worry about," he said, adding that the government did not go for a bigger budget with an aim to rein in inflation.

"Since controlling inflation is our top priority now, contractionary policy remains the focus for a while. However, we will keep an eye to ensure our growth does not suffer too much from this."

In the budget speech, the finance minister said the goal is to increase government spending gradually in the second half of 2024-25, and this will be possible if the revenue collection increases.

Md Khairuzzaman Mozumder, secretary of the finance division, said there is distortion in the supply chain of essentials and the government is trying to address it.

"The policy rate has been increased to 8.5 percent, and it will take a while to see its impact."

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[Saif]

Bangladesh: a breakout economy or another LDC crash landing?

What Bangladesh achieved in the last five decades, more so over the last 30 years or so, has been more than impressive. We have been stepping up our gross domestic product (GDP) growth rates every decade consistently since the independence, culminating to 6-7 per cent pre-pandemic. If we take the f

thefinancialexpress.com.bd

Bangladesh: a breakout economy or another LDC crash landing?
ZAVED AKHTAR
Published :
Jun 04, 2024 23:25
Updated :
Jun 04, 2024 23:25

What Bangladesh achieved in the last five decades, more so over the last 30 years or so, has been more than impressive. We have been stepping up our gross domestic product (GDP) growth rates every decade consistently since the independence, culminating to 6-7 per cent pre-pandemic. If we take the first 50 years since independence, we have seen massive acceleration in the last 30 years with GDP doubling every 10 years, an unmatchable feat for any least developing country (LDC). During the period, Bangladesh has also seen strong acceleration of the Human Development Index (HDI), well ahead of India, Pakistan, and Nepal (albeit lower than Sri Lanka, Maldives & Bhutan) and is currently placed as Medium Human Development Category. In this connection, a quote from The World Bank Country Economic Memorandum, Change of Fabric, may be relevant. Regarding the reforms, it states: "In the mid-1980s, markets and public investment were strengthened, including for infrastructure. Further reforms in the early 1990s allowed for more private sector participation in trade, finance, and land ownership. These reforms were accompanied by complementary reforms in agriculture ((e.g., liberalization of agricultural input markets, seed sector reforms), and in social sectors (e.g., mandatory primary school, a female stipend program for secondary schools, and family planning programs). The rise of ready-made garments exports during that period evolved from a combination of private investment and public policy support. Structural improvements provided strong impetus to inclusive growth especially between the early 1990s and mid-2000s but major reforms have not been sustained since then. Bangladesh has yet to move to the next phase of economic transformation."

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[Saif]

New budget designed for plunderers: Fakhrul

New arrangements have been made in the proposed budget for fresh looting of the nation's wealth, said BNP Secretary General Mirza Fakhrul Islam Alamgir today

www.thedailystar.net

New budget designed for plunderers: Fakhrul

New arrangements have been made in the proposed budget for fresh looting of the nation's wealth, said BNP Secretary General Mirza Fakhrul Islam Alamgir today.

Speaking at a discussion, he also criticised Prime Minister Sheikh Hasina's comment where she described the provision for whitening black money as "using bait for catching fish"

"How long will you (PM) be able to deceive people by creating a smoke screen with such statements?" he asked.

"Just by looking at the budget, you can understand that arrangements have been made for another feast of big fishes," the BNP leader said.

He said the new budget will do nothing but harm the country.

Fakhrul said the growing inflation is the biggest crisis for the common people as the skyrocketing prices of commodities have made their lives unbearable.

Jatiya Samajtantrik Dal (JSD-Rob) arranged the programme at Jatiya Press Club, marking the first death anniversary of Serajul Alam Khan, one of the key organisers of the Liberation War.​

 

[Saif]

Who will actually have to pay 30 percent income tax?

What is a progressive tax system? Well, it means that the income tax rate climbs up as the income increases. But that still doesn't mean that the raised income tax rate will apply for the entirety of someone's income

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Who will actually have to pay 30 percent income tax?

In the budget proposal on Thursday, finance minister Abul Hassan Mahmood Ali proposed that the marginal tax rate for the highest income slab would be 30 percent. While 30 percent income tax is a relatively high figure, as the tax rate for the highest income slab previously was 25 percent, it is important to consider the fact that Bangladesh has a progressive tax system, which means that in practice, most people will actually not be paying their income taxes at an effective rate of 30 percent.

What is a progressive tax system? Well, it means that the income tax rate climbs up as the income increases. But that still doesn't mean that the raised income tax rate will apply for the entirety of someone's income.

In this year's budget, it has been proposed that the first Tk 3,50,000 income any individual makes will be tax free. For the next Tk 1,00,000 that they make, the tax rate will be five percent. It will be 10 percent for the next Tk 4,00,000, 15 percent for the next Tk 5,00,000, 20 percent for the next Tk 5,00,000, 25 percent for the next Tk 20,00,000, and finally, 30 percent for whatever a person makes beyond this.

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