[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Rise in remittance: Momentum needs to be maintained

After a period of two years marked by sluggishness, the inflow of remittance has finally rebounded, offering a glimmer of hope for the economy. This is undoubtedly positive development at a time when the economy is under pressure due to high inflation and fast depletion of the foreign exchange rese

thefinancialexpress.com.bd

Rise in remittance: Momentum needs to be maintained
Published :
Jul 03, 2024 21:38
Updated :
Jul 03, 2024 21:38

After a period of two years marked by sluggishness, the inflow of remittance has finally rebounded, offering a glimmer of hope for the economy. This is undoubtedly positive development at a time when the economy is under pressure due to high inflation and fast depletion of the foreign exchange reserve. According to provisional statistics available with the Bangladesh Bank (BB), Bangladeshi expatriates sent a total of U$$23.92 billion as remittances through official channels in the just-ended fiscal year (FY24), marking an increase of 10.70 per cent over the previous year's modest 2.76 per cent growth. It's worth noting that the inflow of remittance had sharply declined in FY22, by 15 per cent, after a record growth of 36 per cent in FY21.

A big depreciation of the local currency, around 9 per cent, against the US dollar is one of the critical factors that has contributed to the increase in inward remittance flow. However, it needs to be reviewed with caution. In FY23, the local currency depreciated by 11.84 per cent against the greenback when the growth of inward remittance was a modest one. So, a big depreciation of local currency only temporarily incentivises expatriates to send money in bigger volumes home. Depreciation of Taka coupled with increase in cash incentive from 2.5 per cent to 5.0 per cent might have encouraged a greater number of expatriates to send their earnings using formal channels. Besides, a notable rise in the number of outbound workers could be another reason for a modest surge in remittance earnings, although the same is yet to match the growth in the number of migrant workers during the last couple of years. For instance, there was a 15 per cent rise in manpower export in FY23, as per the Bureau of Manpower, Employment & Training (BMET), whereas the annual inflow of remittance registered less than 3 per cent growth in the year.

At least three factors contribute to the weak link between remittance earnings through the formal channel and manpower export. First is the primacy of informal money transfer channels, triggered by exchange-rate-related challenges in the domestic economy, as mentioned by the World Bank's Migration and Development Brief 40 released last month. It pointed out that the parallel market exchange rate premium affects the flow of remittances. So, there was also a diversion of remittances from formal to informal channels in Bangladesh. Second, a large number of outbound workers receive a tiny amount as compensation that may compel them to send a small amount of remittance. Third, the growing cost of remitting money home makes it more difficult for many wage earners abroad. The World Bank report showed that from the United Arab Emirates (UAE) to Bangladesh remittance corridor, the cost increased by 172 per cent from 5 per cent, the sharpest increase in all the corridors in South Asia.

In this situation, the government must put rigorous efforts into supporting the formal banking channel to bring more remittance and support the country's overall balance of payments. The recent surge in remittance inflow is a positive sign amidst a tight reserves situation. The government must do the needful not only to maintain the momentum but also to give it a greater push.​

 

[Saif]

$14b export data puzzle is unnerving

You can lie with data or illuminate the truth with data. And there’s something in between -- half-truths.

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$14b export data puzzle is unnerving

You can lie with data or illuminate the truth with data. And there's something in between -- half-truths.

A $14 billion correction in export figures by the central bank is necessary because it addresses one economic half-truth.

But half-truths are unnerving.

The data revision that came on Wednesday through a regular update on the balance of payments raises disturbing questions about the country's economic performance and the policy that revolved around it.

The shocking revelation has sent economists scrambling for answers, but there are more questions than answers as the authorities are almost silent.

What's clear is that the discrepancy in export figures again underscores the importance of accurate macroeconomic data. A lack of statistical accuracy can upend many indicators. The calculation of gross domestic product is one of them.

Such a big discrepancy is "unbelievable", said MK Mujeri, an economist and former director general of the Bangladesh Institute of Development Studies.

Export and import data calculation is a simple task, but big mistakes such as this by officials raise questions over the authenticity of other components of the economy. "Entire GDP estimates should be revisited," said Mujeri.

His stance concurs with the views expressed by other economists.

"If the ratio of this discrepancy has significantly increased over time, then that should necessitate revisiting the growth estimates," said Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh.

With the disclosure, some other issues came to a head as well.

The statistical revision suggests that Bangladesh Bank and the finance ministry have finally accepted that no significant export earnings are retained abroad as exporters have claimed for years. That means the trade deficit is much larger than originally presumed. That also indicates that the target of reaching $110 billion in exports by 2027 is far from realistic.

"In other words, we should now formulate a more realistic export strategy and identify what exact constraints are hindering our export performance," Ashikur said.

The difference between export figures calculated by the Export Promotion Bureau and Bangladesh Bank persisted for at least 12 years, with the gap crossing $12 billion in fiscal 2022-23.

Economists have long been referring to the puzzle. Finally, the central bank woke up and reconciled the mismatch for the July-April period of fiscal 2023-24. As a result, exports fell 6.8 percent during this period, a sharp contrast with a 3.93 percent growth shown in the EPB's figures released earlier.

What's more, Bangladesh runs the risk of reputational damage abroad. The country's image as a garment powerhouse defined by the sheer volume of shipments will be seriously dented. Clothing exports, which make up about 10 percent of the economy, are an important indicator that sets the country apart from its peers.

SOME ESTIMATES ARE OBSOLETE NOW

It is going to create serious data chaos. Whatever Bangladesh has estimated in the past has now become "mostly irrelevant", said Fahmida Khatun, executive director of the Centre for Policy Dialogue.

The EPB publishes figures based on the data from the customs department. Apparently, for procedural reasons or otherwise, the customs department took into account the same export data more than once in many cases, known as double or triple counting.

As per the EPB data, exports were $47.47 billion in the July-April period of fiscal 2023-24. However, the amount stood at $33.67 billion after the correction, according to data released by the central bank on Wednesday.

But it's not clear for how long such wrong data entry has been going on.

Good policy framing depends on authentic data. Poor quality data gives wrong signals to the policymakers.

"If policymaking is done based on unreliable data, then policies become irrelevant and defunct," Fahmida said. Unfortunately, citizens have been misled about the real economic situation due to such anomalies perpetuated by government organisations, she said.

These errors show the extent of data governance or a lack of it in Bangladesh. Without quality information, informed policy-making is difficult, said MA Razzaque, chairman of the Research and Policy Integration for Development.

The export data mismatch will have an impact on GDP estimates because value addition from exports is included in the GDP calculation. The ratio of value addition is nearly 60 percent. So, the GDP impact will be as much as $6 billion, Razzaque said.

Md Deen Islam, associate professor of economics at Dhaka University, said this correction would lower the GDP growth rate, with exports contributing less to overall economic output, GDP growth rates for the period will need to be revised downward, and future projections for economic growth will need to be adjusted to reflect the more accurate export figures, potentially leading to more conservative growth estimates.

The significant revision could create temporary confusion and mistrust among stakeholders, including businesses, investors and international partners, he said.

"Revisions might lead to questions regarding the credibility and reliability of economic data published by national agencies," he added.

Deen Islam said policymakers may need to reassess their strategies to stimulate economic growth and stabilise the macroeconomic environment as the revised export figures indicate a significant decline.

However, the reconciliation of export data provides a more accurate picture of Bangladesh's economic landscape, which is crucial for effective policy-making and strategic planning, said Deen Islam.

Birupaksha Paul, a professor of economics at the State University of New York, said it was a positive move toward a proper accounting of the balance of payments.

A senior official of the EPB said it does not produce export data. The agency compiles export data based on numbers it receives from the customs wing of the National Board of Revenue and the central bank.

"We only see export data once the goods are shipped. If any consignment is returned, the EPB does not have the chance to find that out," he said, adding that it is monitored by the BB and NBR.

"Still, if we need to correct any data, we will do it," said the official. There is a committee comprising representatives from the EPB, the BB, the NBR and other agencies.

The EPB is yet to release data for the July-June period of FY24 although it usually publishes the figures early every month.

Saiful Islam, executive director of Bangladesh Bank, said from now on, the central bank will base the calculation on the corrected export data.

Asked about the previous mismatch in data between the BB and the EPB, he said there was no problem with the past data. There was a problem with the method of reporting. He did not elaborate.

Despite the big reset, the economy's health remains unchanged. The correction addresses anomalies but does not fundamentally alter the economic landscape.

[Refayet Ullah Mirdha and Md Mehedi Hasan contributed to this report]​

 

[Saif]

Making sense of revisions in balance of payments

Bangladesh Bank's latest data on the balance of payments has remarkably altered the narrative on the drivers of external stress without changing the signal on the overall stress. The bottom line on persistent external imbalance remains pretty much the same but the composition is palpably different

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Making sense of revisions in balance of payments

Chittagong Port. File photo

Bangladesh Bank's latest data on the balance of payments has remarkably altered the narrative on the drivers of external stress without changing the signal on the overall stress. The bottom line on persistent external imbalance remains pretty much the same but the composition is palpably different. The corrections made by the BB were long overdue. Hopefully, BB would appropriately correct the entire historic series to make sure the BOP data remain comparable over time.

The most significant correction is in the merchandize export data. The Export Promotion Bureau numbers on monthly exports in FY24 showing significant growth have been raising eyebrows among the exporters. The media did several stories highlighting the discrepancy between EPB, NBR and BB data. Stories on multiple counting of exports and discrepancies between data from different customs documentations proliferated. It appears BB has finally made a laudable attempt to present export values plausibly close to reality.

Surplus is deficit

Contrary to what was hitherto believed, merchandize exports declined 6.8% in July-April FY24 relative to the same period in FY23, driven primarily by a 6.7% decline in RMG exports. Note that EPB reported 3.9% growth in exports during the same period, driven by 5% growth in garments. Exporters as well as economists tortured their hairs trying to explain such growth amidst weak global demand and severe gas shortage, loadshedding and import controls. The corrected BB numbers may not restore the lost hairs, but they have alleviated the head aching puzzles.

The correction has dramatically altered the lay of the land on the subcomponents of external balance. The most remarkable is the transformation of the current account surplus into a large current account deficit. BB's previous data release reported a current account surplus of $5.8 billion during July-March of FY24. The latest data release shows a current account deficit of $4.1 billion during the same period, a correction of nearly $10 billion, reflecting almost entirely the difference in export data between the corrected and uncorrected data releases.

So much for the complacent claims of having resolved the current account deficit problem through import compression. The latter helped reduce the current account deficit that exceeded $10 billion in July-March FY23, but the deficit, which grew to over $5.7 billion in July-April, is still large. It would not have been worrisome if driven by a surge in investment induced imports. But the deficit came from a decline in exports, notwithstanding a 12.3% decline in merchandize imports. The decline in imports in turn reflected not just a 6.3% decline in RMG related goods but also 20.7% decline in import of capital goods. Weaknesses in both exports and investments make the current account deficit a big concern.

Deficit is surplus

The correction in export data had a countervailing effect on the financial account. It transformed the previously reported $9.25 billion financial account deficit in July-March FY24 to $653 million surplus! How did that happen?

The answer is in the trade credit line in the financial account. The standard practice is to treat the excess of the shipment value of exports over the payments received against exports as a debit entry in the trade credit account. The over-reporting of the shipment value of exports resulted in huge debit entries in the trade credit account, amounting to $12.2 billion (net outflows) during July-March. The correction in exports has reduced this to slightly over $2.1 billion (net outflows), a decrease of about $10 billion that closely matches the size of the correction in exports.

The cumulative net outflows via trade credit narrowed to $1.68 billion during July-April as exports in April amounted to $2.72 billion, well below the nearly $3.4 billion monthly average in the first ten months of FY24. Exports receipts in April may have exceeded export shipments. Additionally, import shipments--$5.67 billion in April (above the monthly $5.24 billion average during July-April)—may have exceeded import payments. Both result in outflow reducing credit entries in the trade account.

Deficit is deficit

The opposing changes in the current and financial account balances washed each other, leading to virtually no change in the overall deficit in the balance of payments. It increased slightly from $4.44 billion in the uncorrected to $4.75 billion in the corrected BOP during July-March, FY24. The overall deficit increased to over $5.5 billion during July-April, compared with $8.8 billion during the same period of FY23. The decrease relative to the previous fiscal year is attributable entirely to the decrease in the current account deficit.

Does this mean that all the hue and cry about the external payment pressures and capital flight were just statistical artifacts? The answer is both yes and no.

It is yes in that the size of the problem pertaining to the non-repatriation of export receipts is a lot less than previously thought. The 6.6% increase in net aid flows despite a 21.7% increase in amortization payments also helped cutting the overall BOP deficit.

The answer is no because the $2.4 billion net inflows on account of trade credit in July-April FY23 morphed into net outflows of $1.68 billion in July-April FY24. So, the problem of non-repatriation of export proceeds has not disappeared. Net outflows on account of other short-term loans remained large and slightly higher in FY24, indicating the drying out of new short-term loans. Unaccounted outflows have remained persistently large at around $2.4 billion, symptomatic of capital flight.

Implications

The most pressing implication of the correction of the shipment value of exports is for the GDP growth estimate. Recall that BBS has projected GDP growth at 5.8% for FY24. In making this calculation, they projected 5.63% growth in the real exports of goods and services. According to the corrected BOP data, the fob value (in US dollars) of the exports of goods and services declined by 7.5% during July-April in FY24 relative to the same period in FY23. If the decline in the real value of export of goods and services equals the decline in dollar value, and remained at 7.5% for the entire FY24, it means GDP growth is about 1 percentage point lower than BBS's preliminary estimate. Thus the 5.8% GDP growth could be 4.8% due to the shortfall in actual export growth relative to the export growth projected, other things equal.

There is also the possibility of under invoicing for exports motivated by capital flight and/or undervalued official rate for export dollars. The best way of detecting under invoicing is to check the data from the export destination countries.

According to the US Census Bureau data, the dollar value of US imports from Bangladesh during January-April 2024 was 13.7% lower than the corresponding period of 2023. US imports from Bangladesh was 23.8% lower in 2023 relative to 2022. One suspicion is that more apparel imports came into the US through the de minimis (the minimum value of goods below which no duties are charged by customs). According to Euromonitor, about 40% of US apparel retail sales were achieved through e-commerce in 2023, a substantial increase from 9.4% in 2010. However, US customs tightened controls on "small package shipments leading to entering through the standard procedure in recent months.

I could not readily find similar data on EU imports from Bangladesh except that their imports from Bangladesh declined 21.2% in FY23. Imports of textiles and clothing into the EU from countries outside the EU declined in value and volume in 2023 calendar year as well, according to Textiles Intelligence. There is therefore no patently obvious evidence of export under invoicing. Capital flight may nevertheless have happened through other channels and the exporters are likely to have managed the exchange rate undervaluation problem through other means. The point is BB's corrected export data seem quite credible.​

 

[Saif]

How we entered the era of digital money

Rahman Ali, a 68-year-old retired primary school teacher, begins his day in a serene village in the northwestern district of Bogura with a routine he has perfected over the decades.

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How we entered the era of digital money
A Bangladeshi tale of transition from money orders to electronic payments

Photo: PALASH KHAN

Rahman Ali, a 68-year-old retired primary school teacher, begins his day in a serene village in the northwestern district of Bogura with a routine he has perfected over the decades.

He methodically prepares tea, reads the newspaper, then walks around the locality, visiting the school premises or taking a stroll through the market.

Today, however, he has a different purpose. He is going to the local post office to send a money order to his daughter in Dhaka, just as he has done countless times before. But when he goes there nowadays, something feels different -- the once bustling post office has only a few people.

THE COMFORT OF TRADITION

For Rahman, the process of sending a money order is more than a mere transaction – it is a ritual.

He meticulously fills out the form, carefully counts the notes, and hands them over to the postmaster with a familiar nod.

"I trust this method," he says with a sense of nostalgia. "It's reliable. I know my daughter will receive the money safely."

In contrast, Ayman Siddique, a 25-year-old entrepreneur, runs a handicraft business from his small office in Dhaka. He is busy with orders and payments. For him, time is of the essence.

"I used to hate the wait at the post office," he recalls. "But now, thanks to mobile financial services, I can send and receive money in seconds. It's a game-changer."

A GENERATION GAP

The contrasting experiences of Rahman and Ayman highlight the generational divide in Bangladesh's financial landscape. While the older generation continues to hold onto the familiarity of money orders, the younger generation has swiftly adapted to the convenience of digital payments.

According to the Bangladesh Bureau of Statistics, the heyday of money orders came over a decade ago in 2011-12, when 2,218 transactions, totaling Tk 625.92 crore were conducted. These figures illustrate the significant reliance on this traditional method at the time.

But by 2015-16, the number reduced by nearly two-thirds as only 796 money orders amounting to Tk 197.91 crore were dispatched. This represents the initial phase of digital adoption.

Fast forward a few years, the decline became even more apparent: by 2019-20, transactions plummeted 62.19 percent to 301 worth Tk 114.34 crore.

In July-December of 2023-24, the last fiscal year, only 99 money orders were booked, involving Tk 22.76 crore, underscoring a near-complete transition to digital methods.

Also reflecting the increasing reliance on digital financial transactions has been the significant growth of the mobile financial service (MFS) sector in Bangladesh over the years. The number of cash-out transactions and the money involved have consistently increased.

In January 2019, the total amounted to Tk 13,282 crore. It skyrocketed to Tk 42,230 crore by March 2024, according to Bangladesh Bank data. This reflects both higher frequency and larger individual transaction values.

The remarkable transition of Bangladesh from traditional money transfer methods to digital payments through internet banking is also worth showcasing. Over the years, the number of internet banking customers has steadily risen, hitting over 85 lakh in April.

Simultaneously, the volume and value of internet banking transactions have significantly increased, with the total transaction amount surpassing Tk 97,100 crore in April, a substantial leap from Tk 3,790 crore in December 2018.

Sayema Haque Bidisha, research director at the South Asian Network on Economic Modeling, and a professor of economics at the University of Dhaka, said technologies are more advanced nowadays, allowing technological adoption to take place for both senders and receivers.

Digital systems have increased convenience as there is no need to drive home or face traffic to get services. Covid-19 was also a big push towards adoption of digital services as people needed to get everything without going outside.

Speaking of the challenges, Prof Bidisha highlighted that the whole cashless economy system depends on electricity and internet, which are not always available in rural areas.

"A lack of digital and financial literacy is another barrier as the full process is self-administered. For example, sharing your PIN code can harm customers because they can be tricked, but many do so due to a lack of awareness."

The digital money transfer system impacts the economy since the more money is transacted, the more money spreads and circulation increases. Also, people, especially females, who are out of the market system, can get involved through such services, which fosters an inclusive economy, she added.

The Directorate of Posts has an electronic money transfer service (EMTS) at a very low cost, said Farid Ahmed, postmaster general for metropolitan circle in Dhaka.

"But the facility must be strengthened at the union level to make it more effective by including rural parts of the country. Notably, sub-post offices of upazilas provide EMTS effectively."

EMBRACING CHANGE

Sharifa Oishee, a third-year university student, shared her experience.

"Managing finances was always a hassle. I remember my parents sending money orders to my grandparents before festivals. It was a slow process."

"Nowadays, I never use money orders. With bKash and Nagad, I can pay tuition, buy books, and even split bills with friends instantly. I even get the tuition from the students who receive lessons privately."

Oishee's story echoes those of millions of young Bangladeshis who have embraced digital wallets. These platforms offer unprecedented convenience – no long waits, no need for physical currency, and the ability to handle transactions anytime, anywhere.

Muhammad Zahidul Islam, vice-president and head of media and communications at Nagad Ltd, opined that the maximum utilisation of technological advancement has been possible in the last 13 to 14 years regarding digital money transfer.

"Sending money now takes a fraction of a second. If we can ensure the benefits of digital banking, rural communities will easily adapt to the process."

Awareness must be raised to make the rural people more knowledgeable about these facilities and systems, he added.

THE STRUGGLE TO ADAPT

However, not everyone finds the transition easy.

Yasmin Ara, a 55-year-old, struggles with the technology-based service. "I have always trusted the post office," she confesses. "This digital system feels complicated and confusing. I once sent money to the wrong number, and it was a nightmare to get it back."

Her experience is not unique. Many older Bangladeshis find digital payments intimidating and worry about security. They also miss the personal interaction and assurance that comes with traditional methods.

Yasmin, with the help of his tech-savvy younger son, recently started to make payments through digital transactions. "It was easier than I thought," she admitted, though still wary of abandoning her trusted money orders entirely.

As Bangladesh continues to innovate, the future of financial transactions looks increasingly digital. The decline in money orders is not just a statistic but a reflection of a broader shift towards a more connected, efficient, and inclusive financial ecosystem.

For Ayman, Oishee, and millions like them, digital payments are a testament to progress and convenience. For Rahman and Yasmin, they represent a challenging but inevitable transition.

The journey from money orders to digital payments is a story of adaptation, resilience, and the promise of a better, more efficient future. In the heart of the bustling city and the quiet corners of rural villages, the echoes of this transition resonate.

Ali Ahmmed, chief commercial officer of bKash, added: "If time-befitting guidance from the regulator continues along with support from stakeholders, it won't be hard to strengthen the country's digital financial ecosystem with continuous innovation in the MFS sector."

There are 22.6 crore MFS accounts in the country, of which 56.21 percent are owned by people living in rural areas. Women account for 57.07 percent of rural MFS users.

These numbers indicate that people living in the countryside are ahead in terms of owning MFS accounts compared to urbanites. Such financial inclusion, especially for women, through MFS has multifarious impacts on rural communities.

At its heart, it is a tale of two generations, each navigating the changing tides of technology in their own way. As Bangladesh steps boldly into the digital age, this transformation promises to bring greater convenience and financial inclusion to every corner of the nation.

Tahira Shamsi Utsa​

 

[Saif]

undefined | The Financial Express

thefinancialexpress.com.bd

Bangladesh has been 'fantastically successful'
FE ONLINE REPORT
Published :
Jul 04, 2024 12:53
Updated :
Jul 04, 2024 12:53

Sir Paul Collier

An eminent development economist has termed the more than five decades of development journey of Bangladesh as a 'fantastically successful' despite its terrible political leadership.

In a long interview with the Financial Times (FT) regarding the success of developed and developing nations, Sir Paul Collier, referred Bangladesh as a great example of advancement from the bottom.

"My favourite example of bottom-up is Bangladesh" he told FT. "If we go back to 1971, it was the epicentre of global poverty. Now it's just on the cusp of middle income."

"It's been fantastically successful," added the professor at the Blavatnik School of Government in UK. "And political leadership in Bangladesh has been terrible throughout."

Paul was of the view that the bottom-up in Bangladesh is world famous.

"It's BRAC, which is the biggest NGO in the world. It's [social entrepreneur] Muhammad Yunus. It's a bottom-up movement, which is functioning with these amazing NGOs," he continued.

Terming the just spawned Youth Policy Forum as 'a marvellous NGO,' he added that it is growing very fast.

"It is trying to create a cadre of young, Bangladeshi civil servants who are learning from examples elsewhere," said Paul. "That's so exciting because the vital characteristic of a society trying to catch up is the capacity to learn fast."

The economist was of the view that we learn from others where possible and we also learn by trying things out — from failures as well as from successes.

"But we need experiments in parallel," he added.​