[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

UAE emerges as top remittance source for Bangladesh

Bangladesh received the highest remittance from the United Arab Emirates in the first 10 months of the outgoing fiscal year, well ahead of traditional powerhouses such as Saudi Arabia and the United States, central bank figures showed.

www.thedailystar.net

UAE emerges as top remittance source for Bangladesh
Experts cite incentives and money whitening attempts for the change

Bangladesh received the highest remittance from the United Arab Emirates in the first 10 months of the outgoing fiscal year, well ahead of traditional powerhouses such as Saudi Arabia and the United States, central bank figures showed.

The second-highest volume came from the United Kingdom, with the US was at third and Saudi Arabia at fourth.

The spike in the funds remitted from the UAE has been good news for Bangladesh since it gave a much-needed fillip to an economy reeling under the foreign currency reserves crisis for the past two years.

Experts, however, have raised questions about whether the smuggled money is returning in the form of remittance to enjoy incentives and legalise it.

UAE-based remitters sent $3.65 billion in July-April of 2023-24, which was 52 percent higher than the receipts of $2.41 billion in the same period of the previous fiscal year. It was third-placed in July-April of 2022-23.

The flow from the UAE constituted 19 percent of the $19.11 billion migrant workers transferred during the period, according to Bangladesh Bank data.

It comes as the Gulf nation has become a major hub for investments for Bangladeshis although how the financing to set up the ventures was mobilised could not be known immediately since only a handful of companies have received permission from the BB to invest abroad.

Many Bangladeshis have allegedly laundered money to the UAE illegally and invested there, according to media reports.

Dubai, the most populous city in the UAE, and the capital of the Emirate of Dubai, is currently one of the favourite destinations among the wealthy population in the world to siphon money, according to experts.

The fact that the UAE is not the largest destination for Bangladeshi expatriates has also deepened the suspicion.

Bureau of Manpower, Employment and Training (BMET) data showed 21.58 lakh people have gone to the country in search of jobs since 2004, which is 44.5 percent lower than the 38.85 lakh people who departed for Saudi Arabia, home to the largest number of migrant workers from the South Asian nation.

However, remittance receipts from the UAE were 40.8 percent higher than that of Saudi Arabia in the first 10 months of FY24. In July-April, $2.16 billion came from Saudi Arabia, down from $3.04 billion a year ago.

To read the rest of the news, please click on the link above.​

 

[Saif]

IMF sets 33 conditions for next two loan instalments

Bangladesh will have to comply with 33 new conditions by June next year in order to receive the next two instalments under the International Monetary Fund’s $4.7 billion loan programme.

www.thedailystar.net

IMF sets 33 conditions for next two loan instalments

Bangladesh will have to comply with 33 new conditions by June next year in order to receive the next two instalments under the International Monetary Fund's $4.7 billion loan programme.

It came as the lender approved the third tranche of $1.15 billion yesterday in a boost to Bangladesh's foreign exchange reserves.

The fresh conditions are aimed at helping Bangladesh overcome four persisting challenges: depleting foreign currency reserves, rising inflation rate, lower revenue earnings, and a lack of governance in the banking sector.

In a letter to IMF's Managing Director Kristalina Georgieva, Finance Minister Abul Hassan Mahmood Ali said: "Bangladesh continues to face challenges as external shocks persist, which has made it difficult to restore macroeconomic stability."

"Considering persistently difficult external conditions, we commit to step up our efforts."

He elaborated on the steps, saying it will raise revenues to enable higher development and social spending, enhance fiscal governance, modernise the monetary policy framework, and increase exchange rate flexibility further.

He also said that his government would work to reduce financial sector vulnerabilities and develop capital markets, improve the investment climate and boost productivity, and establish an enabling environment to better adapt to climate change.

IMF's loan programme contains two types of conditions: seven are linked to performance criteria and the rest are related to structural benchmarks.

Of the seven, the country will have to increase its net international reserve (NIR) to $19.47 billion by next June. The revised target was $14.78 billion for June this year.

The primary budget deficit will have to be brought down to Tk 128,300 crore from the Tk 138,360 crore set for 2023-24, which ends on June 30. So, the government will have to tighten its belts in 2024-25.

The primary deficit is the difference between government revenues and expenses, excluding interest payments.

The government will have to raise its tax revenue to Tk 478,050 crore where the collection goal was Tk 394,530 crore for FY24. This means the country will have to mobilise more than 21 percent higher revenue, which could prove to be difficult since receipts averaged 15 percent in recent years.

The other three performance criteria are controlling reserve money, expanding social spending, raising capital investment of the government, and getting rid of external payment arrears.

Among the structural benchmarks, Bangladesh needs to fulfil five conditions this month and most of them are related to revenue collections.

As part of the condition, the country will prepare a report on tax exemptions given in the areas of personal income tax, corporate income tax, and value-added tax.

By September, the Bangladesh Bank will have to complete the first phase of the modernisation of its monetary policy framework in line with recommendations of the IMF in order to contain inflation.

"To address elevated inflation and falling foreign exchange reserves, we have realigned the exchange rate to the market-clearing level and simultaneously adopted a crawling peg with a band system as a transitional step toward greater exchange rate flexibility in line with the IMF recommendations," said the finance minister.

The government has also initiated measures to further safeguard the foreign exchange reserves buffer with IMF assistance, he said.

"We have also adopted a mechanism of readjusting the band to allow for additional exchange rate flexibility and to prevent excessive loss of FX reserves."

The country will have to fulfil five conditions by December. The National Board of Revenue (NBR) will have to adopt a tax compliance improvement plan covering VAT. It will finalise a medium and long-term revenue strategy covering indirect and direct taxes.

The planning ministry will formulate sector strategy papers and a multi-year public investment programme for five sectors.

The government will simplify organogram related to the supervision of each bank by a single team. It will issue an updated regulation to align the definition of non-performing exposures and forbearance in line with the Basel guidelines.

By June 2025, at least 50 percent of government transactions, excluding interest payments, subsidies, loans, equity, and liabilities will have to be carried out via electronic funds transfer.

The finance ministry will have to publish a report on state-owned enterprises (SOEs). This will also cover a detailed analysis of the financial health of at least 40 SOEs.

"In addition, we are committed to further tightening the monetary policy stance and recalibrating fiscal policy to support monetary tightening," the minister added.

In a press release, Deputy Managing Director Antoinette M Sayeh said near-term policies of the country should focus on rebuilding external resilience and bringing down inflation.

"The authorities' recent actions to realign the exchange rate and implement the new exchange rate arrangement are welcome."

"Periodic reviews of the crawling peg would be important to ensure its effectiveness. Continued monetary and fiscal policy tightening would help to rein in inflation."​

 

[Saif]

Foreign debt costs to spiral

Bangladesh’s interest payments on external borrowing are projected to soar by 65 percent within three years due to rising global interest rates and an expanded foreign loan portfolio, which will put further pressure on the dwindling foreign currency reserves.

www.thedailystar.net

Foreign debt costs to spiral
Interest payments to surge 65pc to $2.21b by 2027

Bangladesh's interest payments on external borrowing are projected to soar by 65 percent within three years due to rising global interest rates and an expanded foreign loan portfolio, which will put further pressure on the dwindling foreign currency reserves.

According to a finance ministry report, the interest payments will rise to $2.21 billion or around Tk 26,000 crore by 2027 with the taka losing 35 percent of its value against the greenback over the last two years.

The principal amount is also forecast to jump by 28 percent to $3.17 billion in fiscal 2026-2027, compared to the current fiscal year.

Foreign loan repayments, including interest and principal amount, are projected to reach $3.82 billion in the current fiscal year. Foreign debt servicing already stood at $2.81 billion in the first 10 months of the fiscal year. The amount will rise to $5.38 billion by 2027.

"The impact of currency depreciation on external debt levels underscores the need for careful monitoring and management of external debt risks to maintain economic stability and resilience," said the report titled Medium-Term Macroeconomic Policy Statement (MTMPS).

The proportion of external interest payments in the budget is also expected to rise to 2.6 percent in FY27 from 0.9 percent in FY22, reflecting a growing impact of external debt on the budget, the report mentioned.

It further said two major factors are contributing to the increase in interest payments for foreign loans.

One factor is that the reference rates in advanced countries are expected to stay high, and the other is that Bangladesh's graduation from the category of LDCs will gradually narrow the window for getting concessional loans from external sources.

A reference rate is an interest rate benchmark that is used to set other interest rates. The Fed Funds Rate, the Secured Overnight Financing Rate (SOFR), and the prime rate are among the most common reference rates.

The report said the implicit interest rate on external borrowing exhibits a gradual increase over the period -- from 1 percent in FY21 to 2.6 percent in FY27.

"This increase is attributed to a higher proportion of borrowing through floating and semi-concessional rates, which are more sensitive to market fluctuations compared to fixed-rate financing."

It also mentioned that the depreciation of the taka has elevated the value of external debt when measured in local currency terms.

This highlights the influence of currency fluctuations on the debt portfolio and the importance of managing external debt exposure in the face of exchange rate volatility.

Referring to the gradual increase in foreign loan repayments, the report said that managing these debt service obligations is essential for ensuring financial stability and preventing liquidity crises.

"Despite the increasing amounts of external debt repayment, they are expected to remain within tolerable limits, supported by the government's efforts to diversify funding sources and build up foreign exchange reserves," it added.

Talking to this newspaper, Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh, said that given the ongoing forex crisis, Bangladesh has to be judicious about taking loans and choose projects that are of high social and economic importance.

"Many of the investments were good, but many were not, which is why our debt burden is rising. The government's capacity to borrow is decreasing due to the inability to expand revenue growth in line with economic growth."

He said projects such as the Dhaka Metro Rail and even an underground rail line in Dhaka will be beneficial.

However, the huge spending on the train line to Cox's Bazar, the Padma Rail Line, and the nuclear power plant in Rooppur will not yield expected outcome. They will add to the burden of foreign debt repayment, he said.

According to the report, Bangladesh's foreign loans are mostly made up of five currencies. The US dollar remains predominant, constituting 53 percent of the total, followed by the Japanese yen at 20 percent, the euro at 15 percent, the Chinese renminbi at 8 percent, the British pound at 3 percent, and other currencies making up 1 percent of the debt.​

 

[Saif]

Bangladesh's forex reserves near $22b as new funds arrive

The country’s reserves as per the calculation method used by the IMF stood at $19.47 billion on June 26. With the latest injection, the amount stands at roughly $21.89 billion.

www.thedailystar.net

Bangladesh's forex reserves near $22b as new funds arrive

Bangladesh's foreign currency reserves rose to around $22 billion after the International Monetary Fund (IMF) and other lenders disbursed loans.

Today, the IMF disbursed $1.15 billion as the third tranche of a $4.7 billion loan programme. The country received around $900 million from other sources such as South Korea, the World Bank and the Islamic Development Bank, said Bangladesh Bank Spokesperson Md Mezbaul Haque.

"We are yet to finalise the account. We will get the final figure on the next (working) day," he said. Gross reserves would be around $26.5 billion.

The country's reserves as per the calculation method of the IMF stood at $19.47 billion on June 26. With the latest injection, the amount stands roughly at $21.89 billion. This is the highest level in nearly four months.

When Bangladesh began calculating its foreign reserves in line with the IMF's method on July 12 last year, the foreign reserves stood at $23.56 billion.

The reserves have been falling since the second half of 2022 due to higher outflow than inflow.

The gross reserves stood at $41.7 billion in August, 2021.​

 

[Saif]

All is not well

WITH a population of nearly 170 million in an area of 147,570 square kilometres, Bangladesh is the eighth most populated country in the world. It is still one of the least developed countries, poised to graduate to a developing country by 2026 and a developed country by 2041...

www.newagebd.net

All is not well
Hussain Imam 27 June, 2024, 22:23

| New Age/Mehedi Haque

WITH a population of nearly 170 million in an area of 147,570 square kilometres, Bangladesh is the eighth most populated country in the world. It is still one of the least developed countries, poised to graduate to a developing country by 2026 and a developed country by 2041.

The socio-economic indicators of the country are also impressive. Its per capita income, which was $91 at the time of our independence in 1971, is now $2,854. Its GDP growth, which was 3–4 per cent even in the early 90s, is now well above 6 per cent. The country's social indicators, such as infant and maternal mortality rate, life expectancy, school enrolment rate of children, and overall literacy, have shown phenomenal improvement over the years. The infant mortality rate has declined to 22.64 deaths per 1000 live births and maternal mortality has gone down by 38 per cent to 256 deaths per 100,000 in 22 years from 2000 to 2022.

The country can be proud of its literacy rate increasing to 74 per cent, school enrolment of children to above 96 per cent, and life expectancy of 73.82 years, an increase of 58.8 per cent compared to that of 2011.

Unfortunately, in spite of all those achievements mentioned above, all is not well in Bangladesh. Its economy is in shambles, to say the least. Education is in the doldrums. Healthcare is fragile. Corruption is at its highest peak. To start with, let us talk about the economy, leaving the other three for some other days.

As already mentioned, our economy is in shambles. Inflation has been persistently high over the years. The result is an abnormal rise in the cost of living, and this rise in the cost of living has been at a much greater pace than the increase in earnings. According to economists, the real income of people has remained either static or declined if we consider the rise in the cost of fuel, the sharp depreciation of local currency against the dollar, and the spiralling price hike of essential commodities.

The price hike has been a major problem for the ordinary people of this country. The high rate of inflation for a considerable period of time has drastically reduced the purchasing power of ordinary people. Every day they go to the market, only to be taken aback by the price hike of essentials. The price of potatoes is now Tk 60 a kilogram, onion Tk 90 a kilogram, and egg Tk 160 a dozen. There is hardly any item in the market, be it green papaya, green chilli, lentil, garlic, ginger or vegetable oil, the prices of which are not skyrocketing.

The vast majority of people are literally reeling to their knees in maintaining their livelihood. The unemployment rate is perennially high. The severe dollar crisis has drastically slowed down the import of raw materials and capital machinery for industries, mills and factories to operate. Foreign investment has been, for obvious reasons, dull over the years. The net result is that the job market in the country has remained almost shut.

A consistent rise in loan defaults has been a major cause of concern for the banking sector and economy. According to the Bangladesh Bank, as of March 2024, loan default stood at Tk 182,000 crore, which is an increase of Tk 36,000 crore since December 2023. In terms of percentage, the loan in default is 22 per cent of the total loan. It seems the so-called business icons of the country have been let loose to do whatever they wish.

They launder millions of dollars and buy properties in Malaysia, Singapore, Thailand, Australia, Dubai, England, Europe, Canada and America with the money borrowed from the banks almost 'free' of any liability to repay the loan. The result is the staggering amount of loan default to the tune of Tk 182,000 crore out of the tax payers' money. They were supposed to expand businesses, build industries and create jobs, but they did nothing of the sort except make their own fortune.

Money laundering has been another major concern for the economy in recent years. As revealed at a conference held on June 20, 2024, by the agro-economists' association of the country, $7–8 billion, equivalent to Tk 97,000 crore, are being transferred out of the country every year. This massive illegal transfer of money, either through money laundering or export-import manipulation, has resulted in a severe dollar crisis. This has, in turn, made the import of any item all the more costly. The result is a price hike for essentials beyond common men's reach.

No wonder millions of people, young or old, male or female, educated or uneducated, keep standing in the queue in front of the manpower export bureau or agencies for hours and days to go abroad for a job (any job), be it in the Middle East, Malaysia or Europe, knowing well the risk involved in terms of money and even life.

Although, officially, 24 per cent of people in this country live below the poverty line, in reality, the figure must be much higher than one can imagine. It could be as high as 50 per cent, if not more. It is not rocket science to understand that a huge number of people, from what we used to know as the middle-income group, have been pushed down to the low-income group by high inflation and a dull job market.

The term 'per capita income', so often talked about by economists and financial experts, has always been a puzzle for ordinary people. They don't understand how their country's per capita income of $2,854 could make any impression on them when they earn such a meagre income that they have to remain half-fed or ill-fed for days, months and years and when they cannot buy milk for their babies or pay for the medical care of their children, let alone other family members.

Who will tell them that the real answer lies in the stark inequality of wealth between the rich and the poor? Who will tell them that the income share of the poorest 10 per cent of the country's populace is 3.8 per cent compared to 26.92 per cent for the richest 10 per cent of the population? Who will tell the government that the ever-increasing inequality in the distribution of wealth and opportunities between the rich and the poor is bound to create social unrest leading to anarchy in the near future?

The government, the financial experts, the think tanks and the policymakers of the country ought to find ways to come out of this economic anarchy sooner than later so that people can breathe a sigh of relief and lead a life that is bearable, if not comfortable.​