[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Bangladesh could be a regional trade hub

Bangladesh could become a regional hub for trade and investment in the wake of ongoing geopolitical tensions and growing focus on the Indo-Pacific region, according to Paul J Thoppil, Canada’s trade representative for the Indo-Pacific.

www.thedailystar.net

Bangladesh could be a regional trade hub
Says Canadian trade representative

Paul J Thoppil

Bangladesh could become a regional hub for trade and investment in the wake of ongoing geopolitical tensions and growing focus on the Indo-Pacific region, according to Paul J Thoppil, Canada's trade representative for the Indo-Pacific.

However, the country would need to sign Foreign Investment Protection Agreements (FIPAs) in order to encourage foreign direct investment (FDI) to this end, he said.

A FIPA is an international treaty between two countries that imposes rules on how foreign investors from either side can be treated while doing business with the other, thereby protecting their interests.
Most countries have taken advantage of the huge low-cost labour force in China, Thoppil said.

"But given geopolitical tensions, a lot of foreign multinationals are considering adopting a combined China Plus One policy," he added.

China Plus One refers to a global business strategy where companies avoid investing only in China and opt for a more diverse portfolio featuring a variety of ASEAN countries.

Bangladesh has the opportunity to benefit from this strategy amid the changing global supply chain thanks to its low-cost and educated labour force, Thoppil said.

"I would like Bangladesh to leverage this attribute as demonstrated in the country's garments sector to increase trade and investment with Canada and other parts of the North American market," he added.
Thoppil made these comments in an exclusive interview with The Daily Star on May 21 during a three-day visit to Dhaka, where he held meetings with top government officials to promote bilateral trade and investment.

He said he observed vibrancy in the economy, confidence in the private sector, good infrastructure and a youthful population.

In fact, Bangladesh's economic progress in the past two decades has been so fast that it was not well observed by the outside world, he said.

"I think we should send the Canadian private sector a signal that Bangladesh is a fantastic place for investment as it could be a hub for exports to India, China and neighbouring countries," he said.

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[Saif]

Taxes on basic consumer commodities being halved

Taxes on numerous basic consumer commodities are getting cut to half as the government is set to bank on fiscal measures to combat high food inflation, sources say. Existing tax on procurement of rice, wheat, potatoes, onions, garlic, green peas, gram, lentils, garlic, turmeric, dry chili, p

thefinancialexpress.com.bd

Taxes on basic consumer commodities being halved
Inexorable inflation control dominates new budget's fiscal measures
DOULOT AKTER MALA

Taxes on numerous basic consumer commodities are getting cut to half as the government is set to bank on fiscal measures to combat high food inflation, sources say.

Existing tax on procurement of rice, wheat, potatoes, onions, garlic, green peas, gram, lentils, garlic, turmeric, dry chili, pulses, maize, coarse flour, flour, salt, edible oils, sugar, black pepper, cinnamon, nuts, clove, cassia leave, dates, cardamom, and all types of fruits would be cut to 1.0 per cent from the existing 2.0 per cent in the budget for the next fiscal, to be placed in parliament on June 6.

Also, procurement of jute, cotton, yarn, computer and computer parts would enjoy tax cuts in FY 2024-25.

Official sources have said the tax-cut decision has been made following instructions of the prime minister to combat food inflation through fiscal measure in the upcoming budget.

According to Bangladesh Bureau of Statistics (BBS), cost of food in Bangladesh increased 10.22 percent in April 2024 over the same month in the previous year.

Food inflation in the country averaged 6.83 per cent in 2024 over the past year, reaching an all-time high of 12.56 percent in October 2023, against a record low of 3.77 percent in February 2016.

Currently, banks or financial institutions deduct the tax on those commodities procured through letter of credit (LC) or other modes of financing agreement on paid or loan amount.

Former lead economist at World Bank, Bangladesh, Dr Zahid Hussain, however, finds the effort to tame food inflation through tax cuts not justified.

He rather suggests trying subsidizing food prices through increasing allocations, if the government could control 'market power'.

On tax cut he says, "The government has to address the need for mobilizing domestic revenue for social-safety net, higher allocation to education and health."

Meanwhile, blanket tax holiday for megaprojects and other physical infrastructures may also end in the current fiscal year.

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[Saif]

Dollar crisis deepens economic woes in Bangladesh

The persistent dollar crisis in Bangladesh has exacerbated various economic issues, including inflation, rising business costs, an energy crisis, and mounting government foreign debt payments...

www.newagebd.net

Dollar crisis deepens economic woes in Bangladesh
Mostafizur Rahman 29 May, 2024, 23:59

A file photo shows a man counting US dollar notes at a currency exchange house in the capital Dhaka. | New Age photo

The persistent dollar crisis in Bangladesh has exacerbated various economic issues, including inflation, rising business costs, an energy crisis, and mounting government foreign debt payments.

Bankers say that commercial banks in the country are having difficulty opening Letters of Credit because their holdings of foreign currency are evaporating rapidly.

In April, foreign currency reserves held by commercial banks fell to a 14-month low of $5,047 million, down from $5,439 million in March and $5,559 million in December 2023. This is the lowest level since January 2023, when reserves were $4,849 million.

Against the backdrop, banks received little support from the central bank, whose own foreign reserves are also dwindling, making it harder for banks to open LCs for importing essential products.

Many import payments have been delayed or renegotiated due to the dollar shortage, leaving banks desperate to acquire the necessary foreign currencies.

The country's foreign currency reserves, according to International Monetary Fund guidelines, dropped to $18.2 billion in May 2024 from $48 billion in August 2021.

To mitigate the depletion, the government has secured a $4.7 billion loan deal from the IMF.

On May 8, the central bank devalued the local currency from Tk 110 to Tk 117 per US dollar.

However, many banks are selling dollars at Tk 120–123 for opening LCs. This devaluation follows a series of declines from Tk 94.7 in July 2022 and Tk 84.8 in July 2021.

Bangladesh, like many other countries, has foreign debt denominated in US dollars. As the taka depreciates, it will take more taka to repay the same amount of foreign debt in dollars.

It can lead to higher debt repayment obligations for the government and businesses, putting further strain on their finances, economists said.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said that the persistent dollar crisis has forced banks to decline opening LCs.

As a result, the import of raw materials has been delayed or obstructed, significantly reducing business production.

He added that hampered imports have led to reduced production and increased product prices due to supply constraints.

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[Saif]

Budget deficit to remain high in next fiscal year also

Budget deficit in the next fiscal year is likely to be Tk 2.50 trillion as the government frames a slightly expansionary budget amid ongoing elevated inflationary pressure, officials said, although inflation control remains its high priority. The government is likely to frame a Tk 7.969-tril

thefinancialexpress.com.bd

Budget deficit to remain high in next fiscal year also
Taming inflation, higher expenditure contradictory, say economists
FHM HUMAYAN KABIR

Budget deficit in the next fiscal year is likely to be Tk 2.50 trillion as the government frames a slightly expansionary budget amid ongoing elevated inflationary pressure, officials said, although inflation control remains its high priority.

The government is likely to frame a Tk 7.969-trillion national budget for the fiscal 2024-25 with one-third of the outlay constituting a gap between income and expenditure targets.

Economists find such massive deficit amid the ongoing economic slowdown contradictory to government priority of inflation control in the upcoming fiscal year.

Bangladesh passes through a higher trajectory of inflation for over a year, which is still close to double-digit figure on a point-to-point basis.

In the last month of April, the inflation rate was recorded at 9.74 per cent in the Bangladesh Bureau of Statistics (BBS) data.

Ministry of Finance (MoF) officials say since the country's better economic growth will have to be kept continuing, they opted for a higher-expenditure target than the one in the current FY2024.

"We know that we need borrowing to bankroll the deficit budget, but we have planned to keep the economy growing," a senior official told the FE correspondent.

"At the same time, we are going to lay top priority on controlling inflation in the next national budget," he added.

According to the MoF officials, the government is likely to set a target of pegging inflation within 6.5 per cent in FY2025.

They hope to keep the budget deficit within 5.0 per cent of the targeted GDP or gross domestic product.

Meanwhile, the government kept the budget deficit at Tk 2.61 trillion, or 5.2 per cent of the GDP, in the outgoing budget worth Tk 7.62 trillion.

Noted economist Dr Debapriya Bhattacharya told the FE that the contractionary monetary policy and higher budget deficit do not fit in this moment properly.

"When you will prepare a budget with higher deficit, then you will definitely go for borrowing. You may go to local banks or to the foreign lenders to bankroll the deficit budget. If you go for local borrowing, there will be a crowding-out effect," he says about the budget arithmetic.

And then the credit flow to the investors will be lower and investment will be slower further.

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[Saif]

Time to exploit the potential of local partners and products

It is important to encourage all development players to invest money and energy to maximise their contributions towards the GDP growth.

www.thedailystar.net

Time to exploit the potential of local partners and products

Photo: Prabir Das

A successful political regime is expected to maintain formal and informal arrangements through which the government, private actors and non-government organisations (NGOs) cooperate to formulate and carry out key policy decisions. In a pluralistic society, power is not supposed to be concentrated on a single development actor, but should be spread between these three major actors so that a developmental balance is maintained and each can judge the performance of the others.

All three development actors have their respective circle of influence and are capable of reaching out to the household level through a variety of goods and services. While the Bangladesh government provides electricity, education and basic health directly to the people, NGOs provide micro-credit, income-generating activities and social awareness, and the private sector supplies consumer goods and services. Often the work of these development actors overlaps—e.g. the government funds micro-credit programmes and builds houses for the poor families, and NGOs are involved in education and health services, and have been running banks and industries. The private sector is also involved in social welfare activities and education sector. In fact, thousands of schools and most of the universities and medical colleges in Bangladesh are in the private sector.

Over the last two years, high inflation rates have affected the quality of life of the middle class and lower income groups. Economic inequality has risen in the country over the last two decades. The country built up high foreign exchange reserves as a result of positive balance of payment for several years. The forex reserves averaged $24.91 billion between 2008 and 2024, reaching as high as $48 billion in August 2021. But the situation has deteriorated in recent years and forex reserves slipped to $18.61 billion on May 21, 2024, because of higher import payments caused by the rise in prices in the international market, slow growth of foreign remittance and the taka's depreciation against international currencies. Economists made various recommendations to increase the country's foreign currency reserves: diversify export items; increase competitiveness of Bangladeshi products in the international market; use modern technology; encourage flow of foreign remittance through the official channel; and limit foreign borrowing.

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[Saif]

WB to give $500 million as budget support

After the IMF’s loan, the World Bank is now going to provide $500 million in budget support to Bangladesh, double from what it had initially planned, by the end of June, said finance ministry officials.

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WB to give $500 million as budget support

After the IMF's loan, the World Bank is now going to provide $500 million in budget support to Bangladesh, double from what it had initially planned, by the end of June, said finance ministry officials.

This will ease pressure on the country's dwindling foreign currency reserves.

The Washington-based multilateral lender's budget support is part of a $1.15 billion loan package, of which $650 million will be spent on building the Bay Terminal in the port city of Chattogram.

The WB in the last fiscal year had planned that it would give $250 million cash-based policy support under the Bangladesh First Recovery and Resilience Development Policy Credit (DPC).

The lender is now going to double the amount following the Bangladesh government's request as it is trying to rebuild the forex reserves.

The development comes at a time when the International Monetary Fund's (IMF) board is set to approve a $1.15 billion loan in the third instalment under its $4.7 billion loan programme in the last week of June.

Once the budget support from the WB and the IMF loan is approved, Bangladesh will receive a total of $1.65 billion.

The country's reserves stood at $18.72 billion on Wednesday from $41 billion in August 2021.

Bangladesh was supposed to receive the WB's budget support in the last fiscal year, but the release of the fund was delayed due to the government's inability to fulfill 12 conditions, including the implementation of the revised Bank Company Act, the development lender had tagged.

After meeting the conditions, the government sent the progress report to the WB requesting it to release the fund earlier this fiscal year, finance ministry officials told The Daily Star.

As the government fulfilled the condition of implementing the revised bank company law, the WB asked for an English draft of it.

The WB reviewed the draft and the implementation status for the other conditions of the reform programme. It also evaluated the measures taken by the Bangladesh Bank to bring reforms to the banking sector.

The central bank and the government took some bold steps, including introduction of a market-based interest rate policy by replacing the fixed interest rate policy, and launching the crawling peg system to determine the exchange rate of foreign currencies.

As the reforms took place, the WB is now set to place the loan proposal before its board.

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[Saif]

‘Booming’ economy, struggling people

When it comes to the simultaneous existence of growth and crisis, Bangladesh has become a model.

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'Booming' economy, struggling people
growth and crisis in Bangladesh

VISUAL: SHAIKH SULTANA JAHAN BADHON

When it comes to the simultaneous existence of growth and crisis, Bangladesh has become a model. There is a growth of per capita income on the one hand, and financial hardship, unemployment, hunger, malnutrition, and financial insecurity suffered by the majority of people on the other. Unprecedented expansion of private banks is happening while the banking sector faces a crisis with rising defaulted loans and big theft of bank money. Over the last decade, we have seen a construction boom on the one hand, and the highest rates of deforestation, air and water pollution, and land- and river-grabbing on the other.

The super active propaganda machine of the government as well as their local and foreign partners consistently try to make us believe that the country is on the highway of development, and they often point to big infrastructure projects—most of which are extremely expensive because of high corruption and inefficiency—as proof. Yes, many megaprojects have been taken up during this government's time. But a good number of these megaprojects will be dangerous and/or big liabilities for Bangladesh in the long term. For example, the Rampal Power Plant, in partnership with the NTPC of India, will harm our precious Sundarbans severely. This plant created the path for many more "red category" projects in the area, which means it will massively damage the environment.

There are more coal-based power plants in the coastal areas in collaboration with China and Japan, requiring big loans, which will make these areas more vulnerable to climate change effects. Another project is a combination of both catastrophic risks and immense loans (nearly $12 billion), which is the Rooppur Nuclear Power Plant, in partnership with Russia. There are also big import projects of LNG with the US and other countries. All these projects have contributed to a huge amount of foreign debt, which is putting pressure on the already depleting foreign exchange reserves. It is not possible to find any rationale behind these projects when there are much better alternatives, for example, for energy and power sectors, that are cheaper and environment-friendly.

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[Saif]

Narrowest budget deficit in a decade as govt to curb expenses

As the government wants to lower expenses, it is likely to contain the budget deficit to 4.6 percent of gross domestic product in the next fiscal year, a level seen a decade ago.

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Narrowest budget deficit in a decade as govt to curb expenses

As the government wants to lower expenses, it is likely to contain the budget deficit to 4.6 percent of gross domestic product in the next fiscal year, a level seen a decade ago.

The government usually keeps the budget deficit at around 5 percent.

During the political turmoil of 2013, ahead of the 2014 national election, the government placed the budget of which the deficit was 4.6 percent.

The upcoming budget will be the first one of the current government. The political situation is stable now, but the economy is facing a prolonged crisis.

In the 2019-20 fiscal year, the government was in a difficult place because of the shutdown of the economy due to coronavirus restrictions. The Ukraine-Russia war also made a global impact on economies in 2022.

Economists now believe that the dwindling foreign currency reserves are the biggest crisis.

Finance ministry officials say they are finding it hard to maintain macroeconomic stability due to the low foreign currency reserves.

According to Ahsan H Mansur, executive director of Policy Research Institute, macroeconomic stability should be the first priority in the upcoming budget, which will be placed in parliament on June 6.

"Earlier, the policymakers were in denial, thinking they could overcome the crisis in a matter of months. At least, they have realised now that they have to do something," he said.

The International Monetary Fund also suggested lowering government expenditure and raising revenue collection.

In the current, 2023-24, fiscal year, the budget deficit is Tk 2,61,785 crore. In the coming one, the amount is likely to be Tk 2,57,000 crore.

This is a departure from the norm because the deficit amount usually rises year on year, officials say.

A budget deficit means the gap between the government's revenue income and the expenditure. The government borrows from the domestic and global development partners to meet the deficit.

Most of the time, the budget size increases by 12 to 14 percent compared to the previous year's budget. But this time around, the Tk 7,96,900 crore budget is likely to be just 4 percent bigger than the previous one.

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[Saif]

Govt missteps led to economic deterioration

A series of missteps taken by the government are to blame for the country’s deteriorating economy, Muinul Islam, former professor of economics at Chittagong University, said yesterday.

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Govt missteps led to economic deterioration

Says Prof Muinul

A series of missteps taken by the government are to blame for the country's deteriorating economy, Muinul Islam, former professor of economics at Chittagong University, said yesterday.

Some quarters, who are now oligarchs by dint of blessings from the ruling class, have played major roles to bring on this crisis, he observed while presenting a keynote paper at a discussion programme.
Bangladesh Workers Party organised the event titled "Economic Reality of Bangladesh: Crisis and Ways of Transition" at the National Press Club in Dhaka.

Some kind of authoritarian rule is going on, and various policies were taken at the behest of some oligarchs, Muinul alleged mentioning some names.

Mentioning the name of one, he said it is indecent for the country to have a businessman like him. That businessman has "removed his name from the list of defaulters by depositing 2 percent".

Muinul said, "Money laundering is the biggest problem but no steps have been taken to control hundi."

Rather, he added, various benefits including tax exemptions have been offered to bring back the laundered money, but not a single taka has returned.

About loan money being laundered, he said, "Tk 5 lakh crore out of total Tk 18 lakh crore loans in the banking sector are defaulted. But Bangladesh Bank does not recognise it. Bank loans are being repaid with borrowed money. A loan is being rescheduled seven to eight times."

Speaking about the lingering high inflation, he said, "Other countries could reduce it, but Bangladesh couldn't. To the contrary, the prices have been pushed up further."

Muinul said now the names of the former police and army chiefs are being discussed. "They are being talked about only because the government wants them to be talked about. Where did former home minister Mohiuddin Khan Alamgir get the money to set up Padma Bank? Why is Bachchu (Abdul Hai) of BASIC Bank still missing? Where are the sons of Sikder who ruined the National Bank?"

He said that Russia has set up projects like Rooppur power plant in India at half the cost. "So why are we spending more money there? A lot of unnecessary infrastructure is being built. Money is being looted through it."

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[Saif]

Saarc nations contribute below 1% of remittance to Bangladesh

Of the $21.61 billion remittance Bangladesh received in FY23, only $44.99 million came from Saarc countries

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Saarc nations contribute below 1% of remittance to Bangladesh
Of the $21.61 billion remittance Bangladesh received in FY23, only $44.99 million came from Saarc countries

Below 1 percent of the remittance Bangladesh received in 2022-23 fiscal year came from the countries under the South Asian Association for Regional Cooperation (Saarc), according to a Bangladesh Bank report on trade among Saarc countries.

Remittance inflow to Bangladesh stood at $21.61 billion in FY23, of which only $44.99 million came from Saarc nations, according to the report titled "Export receipts, import payments, and remittances with Saarc countries".

The highest amount of remittance came from the Middle East, the European Union and North America, but the amount from the Saarc region was very negligible compared to other countries, it read.

Among the Saarc nations, the highest amount of remittance -- 64.46 percent -- came from the Maldives while 26.25 percent came from India and 3.31 percent from Sri Lanka. The amount from others were very negligible.

However, Bangladesh's import payments stood at $10.33 billion for the Saarc region in FY23, which was 15.07 percent of the total of $68.6 billion, the report showed.

Bangladesh made the highest import payment among Saarc nations to India, 91.84 percent, and 6.76 percent to Pakistan.

Of Bangladesh's total export earnings of $43.57 billion, only 4.4 percent originated from Saarc countries, the Bangladesh Bank report said.​

 

[Saif]

Govt not using full strength to restore macroeconomic stability

The government is not moving at full throttle in bringing discipline to the banking sector, implementing reforms wholeheartedly, taking measures against syndication, and bringing money launderers under the rule of law, said a top economist.

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Govt not using full strength to restore macroeconomic stability

Mustafizur Rahman, distinguished fellow of CPD

The government is not moving at full throttle in bringing discipline to the banking sector, implementing reforms wholeheartedly, taking measures against syndication, and bringing money launderers under the rule of law, said a top economist.

Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), said the government is taking various steps and embracing reforms to mitigate challenges in the economy and lower inflation.

"My concern is that they are not going at full strength. They are going one step forward, two steps backward," he added.

"I see half-hearted initiatives, but taking the steps to its logical conclusion is not there because that will hurt a number of people. Whether it will harm those people is at the end of the day a political decision."

According to Rahman, macroeconomic management, good governance, reforms, and zero tolerance to all forms of anomalies will be required if the upcoming budget is to achieve its objective of macroeconomic stability and bringing down inflation.

The former professor of accounting said the budget should look at the pressure heaped on marginalised groups, fixed-income groups and low-income people, and how they can be helped through budgetary allocations, fiscal policies and fiscal incentives.

He requested the government go a bit slow on transport infrastructure. However, the priority should be to complete ongoing projects rather than taking up new ones.

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[Saif]

Power, agriculture to drive up subsidies

The subsidies and incentive expenditures in the upcoming budget are going to be more than that of the current fiscal year.

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Power, agriculture to drive up subsidies

The subsidies and incentive expenditures in the upcoming budget are going to be more than that of the current fiscal year.

The subsidies are mainly increasing in the power, energy, and the agriculture sectors.

Even though the government plans to raise power tariffs four to five times a year, the highest subsidy allocation is likely to go towards the electricity sector.

Finance ministry officials said the increased subsidy allocation was largely due to the arrears in the power and agriculture sectors.

In the upcoming fiscal year, which begins on July 1, the subsidy allocation is likely to be Tk 1,12,000 crore, up from Tk 1,00,174 crore in the outgoing fiscal year.

Of the sum to be set aside for 2024-25, the power sector is likely to get Tk 42,000 crore. The government has earmarked Tk 35,000 crore for 2023-24.

Before 2021-22, the subsidy allocation for the power sector was between Tk 7,000 crore and Tk 9,000 crore.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said the main reason behind the rising subsidy allocation in FY25 is the higher energy prices in the international market and elevated capacity payments.

He said the government has planned to increase power tariffs several times, but the sector will require more subsidies as more power plants, including Rooppur nuclear plant, are ready to produce electricity.

"If the old and inefficient power plants are not phased out, the overall capacity charges will increase, which will deepen the subsidy burden," he told The Daily Star.

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[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.

www.thedailystar.net

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.

www.thedailystar.net

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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