[🇧🇩] Monitoring Bangladesh's Economy

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Economy can be brought back to pre-Covid state: FM

Finance Minister Mahmood Ali on Saturday said the economy of the country can be brought back to the pre-Covid state through implementing the fiscal measures envisaged in the FY2025 budget. Delivering his closing speech on budget in the House, the minister hoped that the implementation of the budge

thefinancialexpress.com.bd

Economy can be brought back to pre-Covid state: FM
Published :

Jun 29, 2024 20:45
Updated :
Jun 29, 2024 21:11

Finance Minister Mahmood Ali on Saturday said the economy of the country can be brought back to the pre-Covid state through implementing the fiscal measures envisaged in the FY2025 budget.

Delivering his closing speech on budget in the House, the minister hoped that the implementation of the budget would help continue the ongoing development spree aimed at materialising the Vision 2041, which envisages a prosperous and 'Smart' Bangladesh.

While formulating the budget for the 2024-25 fiscal year, the minister said, he has undergone the 'difficult' task of balancing between expansion and contraction to maintain the growth momentum and contain inflation.

Listing the fiscal policies to curb inflation, he said the repo rate was enhanced to 8.55 per cent, the interest rate was made market-based, and a crawling peg system was introduced for the foreign exchange rate.

All these steps will help keep inflation at 6.5 per cent in the next fiscal year, he hoped.

The minister said that in the last one and a half decades, the country has been enjoying over 6.7 per cent GDP and has emerged as the 33rd largest economy in the world.

In line with the electoral manifesto of the Awami League, huge steps were taken to improve the social and physical infrastructure, agriculture and food production, to ensure food security and to shore up resource mobilisaton, the minister pointed out, adding that, through these initiatives, the country will achieve the GDP target of 6.7 per cent in the midterm and the growth rate will reach 7.25 per cent.

He said the per capita income will reach 12500 dollars by 2041, and the poverty rate will come down to zero per cent in the country by that year.

Due to the inclusive economic policy, the government has been able to reduce the poverty rate to 18.7 per cent from 31.5 per cent, the minister mentioned.

He said the allocation for the social safety net is 12.3 Per cent higher in the proposed budget, and a massive food rationing programme is ongoing to enable low-income people to absorb the shock of the high commodity prices.

He also stated that a lot of measures are being taken to make tax administration efficient and people-friendly.

Several acts have been enacted in this regard, including the Customs Act, which was amended recently and has been effective from June 6, this year, the minister said.

In the six ministries, online databases are installed to make the collection of indirect taxes more effective, he said.

The minister said that he has had consultation with different stakeholder groups before formulating the budget, and he sought the help of all in implementing the proposed budget.​

 

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Economy in FY25: Is there any light at the end of the tunnel?

There is hope that the major challenges Bangladesh is facing due to high inflation and the foreign reserve crisis will stabilise gradually in fiscal year 2024-25, but consistency in maintaining a strict policy stance will be imperative to that end.

www.thedailystar.net

Economy in FY25: Is there any light at the end of the tunnel?

There is hope that the major challenges Bangladesh is facing due to high inflation and the foreign reserve crisis will stabilise gradually in fiscal year 2024-25, but consistency in maintaining a strict policy stance will be imperative to that end.

While most countries, including the US, India and even cash-strapped Sri Lanka, succeeded in controlling inflation, the consumer price index (CPI) of Bangladesh has kept rising.

Inflation in the country has persistently hovered above 9 percent since March last year and the Bangladesh Bank (BB) failed to control it for two major reasons.

The first is that the central bank was very late in its response to rising inflation and the other is that the interest rate cap, which persisted in various forms until May 8 this year, made the government's monetary policy ineffective.

The central bank also injected fresh money into the economy by providing loans to the government, stimulus packages after the pandemic, and liquidity support for some weak Islamic banks, fuelling inflation.

However, positivity is in the air as the central bank has finally adopted some reform initiatives as per the prescription of the International Monetary Fund (IMF) for a $4.7 billion loan programme.

One of the biggest reforms was made by the banking regulator when it scrapped the interest rate ceiling and allowed banks to fix interest rates based on market factors.

In April 2020, the BB first introduced a 9 percent interest rate ceiling. Although that was withdrawn at the beginning of FY24, the banking regulator introduced a new interest rate system based on the six-month moving average rate of treasury bills, abbreviated as SMART, which served as another cap.

Among other reforms, the BB hiked the repo rate or policy rate several times, bringing it to 8.50 percent, in a bid to make money costlier and tame skyrocketing inflation.

Not only that, after huge criticism from different corners, the central bank decided to stop providing loans to the government from FY24.

Another major reform came in the foreign exchange rate as the central bank made it flexible by introducing the crawling peg system.

In May, US ratings agency Moody's projected that Bangladesh's foreign exchange reserves position would stabilise over the next few months despite the country repeatedly failing to fulfil the IMF's reserve target due to a drastic fall in forex holdings over the past two years.

So, there is a scope for all the initiatives taken by the central bank and the government to lead to positive outcomes in the new fiscal year, but consistency in regard to a strict policy stance is important.

The Bangladesh Bank is going to announce the monetary policy for the first half of FY25 in the third week of July, with the main objective of controlling inflation and achieving the GDP growth target set by the government.

Ahead of that, the question on everyone's mind is regarding the kind of policy stance that will be adopted, especially as lower and middle-income people have been bearing the brunt of rising prices.

On a 12-month average between June 2023 and May 2024, the inflation rate stood at 9.73 percent, much higher than the BB's target of 7.5 percent for the outgoing fiscal year of 2023-24.

The government aims to contain the CPI to 6.5 percent for FY25.

In its latest publication, the IMF said the macroeconomic outlook of Bangladesh is expected to gradually stabilise as policy actions start to take hold.

Bangladesh Bank executive director and spokesperson Md Mezbaul Haque told The Daily Star yesterday that the forex market is liquid now due to higher inflows of US dollars.

He added that remittance earnings had been increasing after the flexible exchange rate was introduced.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the dynamism in the economy depended on policy measures.

If the central bank and the government maintain strict policy measures, it will help reduce inflation, as per the economist.

The government has also set high bank borrowing targets for the new fiscal year, but banks are facing liquidity shortages, he said, adding that the central bank will have to be strict about its decision to refrain from granting loans to the government.​

 

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No visible progress in signing Cepa with India

Bangladesh and India are yet to begin the formal negotiation to sign the Comprehensive Economic Partnership Agreement (Cepa) although nearly two years have passed since both countries agreed to kick off the talks.

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No visible progress in signing Cepa with India

Bangladesh and India are yet to begin the formal negotiation to sign the Comprehensive Economic Partnership Agreement (Cepa) although nearly two years have passed since both countries agreed to kick off the talks.

Dhaka needs to pen bilateral deals with trading partners in order to retain preferential market access in the post-LDC era since duty-free export facilities end once the country becomes a developing nation.

Bangladesh and Bhutan signed a preferential trade agreement (PTA) in December 2020, the first bilateral trade pact for the former. The deal came into effect in July 2022, much ahead of Bangladesh's scheduled graduation from the group of the least-developed countries (LDCs) in November 2026.

There has not been visible progress when it comes to inking trade deals with other countries, including India.

Dhaka needs to pen bilateral deals with trading partners in order to retain preferential market access in the post-LDC era since duty-free export facilities end once the country becomes a developing nation

No specific timeline to begin the talks about the Cepa was cited in the joint statement issued after the meeting of both Bangladeshi Prime Minister Sheikh Hasina and her Indian counterpart Narendra Modi in New Delhi in the third week of June.

Both prime ministers talked about the Cepa during the meeting, State Minister for Commerce Ahasanul Islam Titu told The Daily Star.

After the meeting, the Indian Ministry of External Affairs, in a statement, said Bangladesh and India agreed to strengthen trade and investment ties, including through an early commencement of negotiations for a Cepa.

The statement also talked about an early operationalisation of two special economic zones offered by Bangladesh to India in Mongla and Mirsharai, the opening of new border haats, trade facilitation to enhance bilateral commerce, and improving road, rail, air, and maritime connectivity, and trade infrastructure.

Both Hasina and Modi welcomed the findings of a joint study on the Cepa in a statement in September 2022 and agreed to start the negotiations, saying a Cepa would be beneficial for both countries.

The Bangladesh Foreign Trade Institute and the Centre for Regional Trade of India conducted the study based on trade data between 2015 and 2020.

Titu said Bangladesh is ready to hold the first formal dialogue with India.

He is optimistic that the inaugural dialogue will be held this year. "Our team is ready."

"The political signal for beginning the formal Cepa negotiation is important," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.

He said perhaps both countries are taking more time to begin the talks. Had there been strong political commitment, the process would have fast-tracked.

Also, maybe, the negotiators are taking more time to study further before signing the Cepa, he said.

Inking a trade deal would be important for both countries because they are increasingly becoming an important trade partner for each other.

India is the second-largest import source for Bangladesh after China.

Imports from India stood at $9.49 billion in the fiscal year of 2022-23 while exports to the country amounted to $2.13 billion, figures from Bangladesh Trade Portal and Bangladesh Bank showed.

Bangladesh mainly imports textiles and fabrics, industrial raw materials and intermediate goods, food items, cotton and chemicals for industrial use.

If Bangladesh can sign bilateral deals, it would be able to access LDC-induced benefits for three more years after graduation.

"Bangladesh's strategy should be enjoying the LDC scheme as long as possible. Simultaneously, we should be well-prepared for the Cepa," said Rahman.

Bangladesh might not make a large gain from the Cepa since it would lose the duty-free market access as an LDC, said the joint study. On the other hand, India will make a larger gain primarily through the removal of existing high tariff rates.

"The fear of losing the revenue from import duties may be another factor for the delay in launching the formal negotiation," CPD's Rahman said.

Bangladesh, however, has the potential to benefit from trade in services in tourism, transport and educational cooperation, and also through the creation of jobs by attracting Indian investments.

The Cepa is expected to boost Bangladesh's exports by 190.15 percent, and even more, if transaction costs are reduced through improved connectivity, according to the study.

India's exports to Bangladesh are expected to surge by 188 percent.

The Cepa will expand the size of Bangladesh's GDP by 1.72 percent and India's by 0.03 percent, the study found.​

 

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BB halts daily repo facility to meet IMF condition

The BB said the repo auctions, through which banks borrow funds from the central bank, will take place twice a week from now, according to a circular issued yesterday.

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BB halts daily repo facility to meet IMF condition

Photo: Star/File

The Bangladesh Bank (BB) has stopped the daily repo facility for banks in line with one of the conditions provided by the International Monetary Fund (IMF) for a $4.7 billion loan programme.

The BB said the repo auctions, through which banks borrow funds from the central bank, will take place twice a week from now, according to a circular issued yesterday.

The BB said that auctions will take place on Monday and Wednesday every week. If there is a holiday, the auctions will be held on the next business day.

Repurchase agreements, or repos, are a form of short-term borrowing by banks.

The lenders keep government securities with the central bank with the condition of buying them back at a specific date, usually for a higher price, to get funds and meet their liquidity requirements.

Banks can generally borrow from the central bank through repo, assured liquidity support facility (ALSF), and standing liquidity facility (SLF). Islamic bank liquidity facility (IBLF) is also offered to Shariah-based banks.

The BB said auctions of the remaining instruments would be held every working day.

The central bank took the decision in line with the recommendations of the IMF, which approved $4.7 billion in loans for Bangladesh last year.​

 

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Remittance hit $24b in FY24, highest in three years

After hovering around the $21-billion mark for the previous two fiscal years, total remittances sent home by Bangladesh’s migrant workers reached nearly $24 billion in the just concluded fiscal year of 2023-24, providing some breathing space amid the forex crunch.

www.thedailystar.net

Remittance hit $24b in FY24, highest in three years

After hovering around the $21-billion mark for the previous two fiscal years, total remittances sent home by Bangladesh's migrant workers reached nearly $24 billion in the just concluded fiscal year of 2023-24, providing some breathing space amid the forex crunch.

As per the latest data from the Bangladesh Bank, remittance inflow stood at $23.91 billion in FY24, rising by 10.66 percent compared to the year prior.

"We put all our efforts to collect remittance as banks were very thirsty for foreign currencies to pay import bills. This helped boost remittance earnings," said Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank.

Bangladesh's migrant workers sent home an increased amount of foreign currencies in the last two months of FY24 as the gap between the formal exchange rate and informal exchange rate narrowed due to the introduction of a flexible exchange rate, he added.

On May 8, the central bank introduced the crawling peg exchange rate system, allowing banks to buy and sell US dollars within a fixed band at around Tk 117.

The inter-bank exchange rate stood at Tk 118 per dollar yesterday.

In June, the last month of FY24, remittance inflow stood at $2.54 billion, up 15.59 percent year-on-year. Remittance inflow stood at $2.25 billion in May and $2.04 billion in April, BB data also showed.

Rahman, also a former chairman of the Association of Bankers Bangladesh (ABB), said remitters sent more money through banking channels in FY24 as the dollar rate was better than in previous years.

He added that some banks were providing incentives from their own fund, adding to the government incentives, which further boosted remittance inflow.

Rahman also attributed the increased remittance inflow to higher manpower exports.

Until May of FY24, around 11.42 lakh people left Bangladesh for work compared to 11.37 lakh in FY23, according to data from the Bureau of Manpower, Employment and Training (BMET).

In FY22, around 9.88 lakh individuals went abroad, the data also showed.

Rahman hoped the upward trend of remittance inflow would continue.

Bangladesh received a record $24.77 billion as remittance in FY21 because of the disruption of the hundi system -- an illegal channel that facilitates cross-border transactions -- due to the halt of international travel amid the Covid-19 pandemic.

The amount fell to around $21 billion in both FY22 and FY23 after the rules for travelling were relaxed.

At the same time, the gap between the formal and informal exchange rates adversely impacted remittance inflow through banking channels.

Mohammad Ali, managing director and CEO of Pubali Bank, told The Daily Star that remittance inflow increased in FY24 due to policy initiatives, including the introduction of a flexible exchange rate.

He said the use of hundi had come down in the final months of FY24, which positively impacted remittance earnings.

Ali added that over-invoicing and under-invoicing had also been curbed by strict monitoring.

He also said that the country's forex market is liquid now because of the increased remittance earnings.

Industry insiders alleged that some banks were providing a higher rate for dollars than the official rate in case of collecting remittance, which the banking regulator was not addressing.

In the first 21 days of June, Islami Bank Bangladesh received the highest remittance, amounting to around $441 million, BB data showed. Agrani Bank received $171 million and Janata Bank $127 million.

The growing trend of remittance will provide breathing space in the upcoming months as the country has been contending with a foreign exchange crisis for the past two and a half years.

Since August 2021, the forex reserves have fallen by $24 billion.

As per the calculation method used by the IMF, Bangladesh's gross forex reserves stood at around $22 billion on June 26 this year.

The foreign exchange market has been volatile because of higher US dollar outflow despite the government's austerity measures, including controlling import payments.

The $4.7 billion loan provided to Bangladesh by the International Monetary Fund (IMF) has also played a big role in tackling the ongoing crisis.​