[🇧🇩] 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]

Bangladesh has been ‘fantastically successful’

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 developi

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.​

 

[Bilal9]

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
View attachment 6680

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.​

We should let CEPA with India stay on paper only and let it die its well-deserved natural death.

No country wins in trade with India.

We should diversify our import sources and move away from trade with India altogether. Period.

We have seen what has happened in the last fifty years. No give, only take, take and take.

#IndiaOut

 

[Saif]

The large cracks in Bangladesh that IMF missed

The high incidence of corruption, some of which have erupted openly in the public domain.

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The large cracks in Bangladesh that IMF missed

VISUAL: SALMAN SAKIB SHAHRYAR
In January 2023, Bangladesh entered into a $4.7-billion IMF programme, spanning over 42 months, to fight the pressures on the macroeconomy and arrest the associated economic downslide. These pressures, triggered by a series of external shocks emerging from Covid-19, global inflation and the Ukraine War, had accumulated over a number of years owing to weak economic management. The policy corrections, therefore, involve macroeconomic adjustments, structural reforms and institutional strengthening.

The core IMF programme was broken down into six reviews, and the associated policy reforms were designed to become progressively more challenging. The government should take some comfort in successfully negotiating the release of the second review on June 24. While the government succeeded in ticking many of the conditionalities for the first and second review and convinced the IMF to be more flexible on some others, in substance, the two most important policy reforms implemented so far are the flexibility of the exchange rate and interest rate. However, fiscal correction has not happened, and the structural reforms in taxation, subsidies, state-owned enterprises, trade policy, and the banking sector have not made adequate progress.

Against this backdrop, the IMF has identified nine specific risks and uncertainties that could jeopardise progress with implementation of the IMF programme and constrain the ability of Bangladesh to successfully stabilise the macroeconomy and resume the growth process on a sustainable path. Five of these risks are global in nature and four are domestic.

The global risks include intensification of regional conflicts, commodity price volatility, abrupt global slowdown, systemic financial instability, and deepening geoeconomic fragmentation. The domestic ones relate to failure to maintain a market-based flexible exchange system, failure to address banking sector reforms, insufficient international support in resolving the Rohingya crisis, and higher frequency and severity of natural disasters related to climate change.

The global risks are well identified. It is hard to quarrel with them. Regional conflicts and deepening geoeconomic fragmentation are of particular concern. Yet, it is fair to say many of these risks have prevailed over the decades. The main policy implication of these risks is to make an all-out effort to stabilise the macroeconomy and resume the momentum of sustainable growth as quickly as possible. Growing economic resilience is the best way to absorb external shocks and take corrective actions in the future.

The list of domestic risks is way too conservative and misses out some big-ticket items. Regarding the Rohingya crisis, this is more in the nature of an external risk. Bangladesh is doing its best to drum up international support. Progress with fiscal reforms will help create more space to fund Rohingya needs.

Concerning climate-related natural disasters, this is more a long-term challenge, although admittedly, Bangladesh's response in instituting policies and programmes to build greater climate resilience so far has been weak. It is not clear whether the IMF programme's $1.4-billion climate resilience component has been very effective in strengthening this policy response, especially in regards to mainstreaming climate change policies in planning, budgeting, incentives and institutional capabilities. I would like to throw the ball back at the IMF's court and ask it to reassess this component to see if the programme design was adequate to secure substantial climate reforms with potential long-term benefit.

The two remaining domestic risks are both very relevant and fall in the high risk category. It has now been 18 months since the IMF programme was approved, and little progress has been achieved in the banking sector. If anything, downside risks have increased. The volume of non-performing loans and distressed assets continues to increase, and there is little sign that a reversal is coming anytime soon. Without meaningful progress on banking reforms, the overall quality of the IMF programme will suffer.

On the exchange rate, an encouraging beginning has been made with the reform on May 8. The unification of the exchange rate and adoption of the interim crawling peg regime is a sound reform. Steps must be taken to quickly move to a fully flexible market-based exchange system. The risk of slippage is high, but the IMF must remain vigilant in monitoring this risk and engage with the government to stay on track.

Several substantial domestic risks have not been identified in the IMF risk matrix. These risks are not only high but present more immediate adverse consequences for the macroeconomy and resumption of growth momentum than the seven other risks noted by the IMF (the five global, the Rohingya, and the natural disaster ones).

First and foremost is the weakness of fiscal policy. This is the Achilles heel of Bangladesh's development strategy, and progress has been faltering for a long time. The 18 months of the IMF programme has brought in some marginal progress, but most of the institutional and structural aspects of the tax reform programme have not been addressed.

Of immediate concern is the consistency of the FY2025 budget with monetary policy for inflation control. At 4.6 percent of GDP, the budget deficit is way too high to allow the credit tightening that is needed to control inflation. There is a high risk that the budget will either crowd out private credit or cause a loosening of monetary policy thereby jeopardising inflation control.

A big missing item in the budget is the absence of reform of the state-owned enterprises (SOEs). The financial return on investments in SOEs is very low and net budgetary transfers to sustain these poorly performing SOEs are way too high. Reform of SOEs is an easy win and surprisingly not emphasised in the IMF programme.

On the spending side, the budget subsidy target is too high while the allocations for health, education, training, agriculture, water, and social protection are too low. At a time when job creation is constrained, the economy is slowing down, and inflation is high, the low level of spending on social protection (0.8 percent of GDP excluding civil service pensions) is very disturbing and must be corrected.

Another major structural reform where very little progress has been made concerns trade protection. This again is a long-standing challenge. The tax revenue's excessive dependence on customs duties, including supplementary and regulatory duties, has prevented any meaningful progress with trade reforms even after 18 months of the IMF programme. Consequently, the anti-export bias of trade policy prevails, which constrains export diversification and growth of non-RMG exports. Indeed, the slowdown in export growth to a mere 2 percent in FY2024 is a hugely worrisome development for both the sustainable management of the balance of payments and recovery of the growth momentum.

The final missing risk area is governance and institutions. The high incidence of corruption, some of which have erupted openly in the public domain, especially at a time when inflation is high and the economy has slowed, is a huge threat to social and economic stability. The government has adopted a policy of zero tolerance for corruption. This is comforting to know but it must now act decisively to implement its policy of zero tolerance. It must dig down to the root causes of corrupt practices and implement the required institutional and regulatory reforms that eliminate/minimise the scope for rent seeking.

Dr Sadiq Ahmed is vice-chairman of the Policy Research Institute of Bangladesh (PRI).​

 

[Saif]

Increased export earnings, remittance, FDI needed to increase forex reserve: experts

Experts at a seminar on Sunday stressed on boosting revenue collection by expanding the tax net which would enable the government to borrow less from the...

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Increased export earnings, remittance, FDI needed to increase forex reserve: experts
Bangladesh Sangbad Sangstha . Dhaka 07 July, 2024, 22:50

Experts at a seminar on Sunday stressed on boosting revenue collection by expanding the tax net which would enable the government to borrow less from the market as foreign borrowing increases vulnerability to external conditions and potential currency depreciation.

To increase reserves, they also said that increased export earnings, remittance and FDI were important to stabilise the exchange rate side by side austerity in expenditure, increasing revenue collection and promoting fiscal reforms was a must to maintain fiscal discipline.

The speakers said this at a seminar on 'Salient Features of Finance Act 2024: Investment Perspective' organised by the Institute of Chartered Accountants of Bangladesh at its auditorium on the day, said a press release.

AKM Badiul Alam, member (tax policy), National Board of Revenue spoke at the seminar as chief guest. Nasiruddin Ahmed, former chairman of the NBR, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, and Md Farid Uddin, ex-member of customs and VAT of the NBR, were the panel speakers and were connected through online zoom with the seminar.

Snehasish Barua, partner, Snehasish Mahmud & Co, Chartered Accountants presented the keynote paper while ICAB president Mohammed Forkan Uddin delivered the address of welcome.

Mohammed Humayun Kabir, chairman, TCLC, council member and former ICAB president, moderated the session while Md Johirul Islam, vice-president (technical and regulatory affairs), ICAB gave the closing remarks.

In the seminar, the keynote presenter provided an overview of the changes brought in the Finance Act 2024 and the SROs issued thereafter.

With the detailed examples of impacts on businesses by the changes provisions of the Finance Bill 2024, the paper presenter Snehasish Barua aimed to provide accurate and updated facts and figures citing from the Bill.

About inflationary pressure, he said that the increased money supply and demand could push prices up. 'However, demand for consumption must be contained and price must be monitored to keep the current trend of inflation stable,' he added.

The speakers at the seminar also said that the government's borrowing might raise interest rates, deter private investment, which needed to be addressed prudently.

They said that the provision in the finance bill stating all receipts and income must be transacted through bank transfer for every single transaction above Tk 5 lakh and annual transaction over Tk 36 lakhs of expense and investment would bring a positive impact on the economy.

They said that under the new finance bill TDS on payment to non-residents should not be applicable for the cases like payment made to any authority of the foreign country, payment for subscription fee of professional body, expenses of liaison office, international product development and marketing expense, tuition fees and any type of security deposit.

Therefore, it will reduce hassle in making outward remittance and reduce tax burden as well. They also suggested widening further the tax net by introducing a new withholding entity.

The speakers also said that the government employees and individuals having total assets more than Tk 50 lakh needed to submit assets and liabilities statements which will enhance transparency and accountability within the public sector and give some relief for the individual taxpayers other than the government employees.

They also mentioned that mandatory PSR submission for obtaining and renewing licenses of hotels, restaurants, motels, hospitals, clinics and diagnostic centres located within the city corporation areas will widen further the tax net.​

 

[Saif]

BB rolls out generous exit policy to borrowers

The Bangladesh Bank today unveiled the latest iteration of its exit policy that offers borrowers the option to close off their loan account within three years by paying only 10 percent as down payment and no interest

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BB rolls out generous exit policy to borrowers

Photo: Star/File

The Bangladesh Bank today unveiled the latest iteration of its exit policy that offers borrowers the option to close off their loan account within three years by paying only 10 percent as down payment and no interest.

The move, which comes at a time when interest waiver facilities are being widely criticised in the parliament, is aimed at window-dressing the country's bad loan scenario.

At the end of March, defaulted loans soared to a record Tk 182,000 crore -- which is 11.11 percent of total outstanding credit -- much to the displeasure of the International Monetary Fund. The exit policy is expected to make the situation more palatable.

"The financial condition of clients has been adversely affected by various uncontrollable factors -- that's why an exit policy is needed to recover the loans from them," the BB said in a notice yesterday.

The exit policy applies to defaulted loans, loans with a low probability of recovery and loans taken by defunct companies.

Borrowers will have to provide a minimum of 10 percent down payment in cash by the borrowers and in return, they will get an interest waiver under the policy.

However, the interest waiver facility cannot be extended to loans created by forgery and wilful defaulters, as per BB's notice.

Clients can repay the loans in one instalment or more than one instalment but the maximum repayment tenure will be two years. However, banks can extend the tenure by another year, read BB notice.

Under the facility, borrowers will not be eligible to get new loans until they have adjusted the full loan amount.

The central bank said that this facility would not be considered as rescheduling or restructuring of loans.

BB asked banks for proper provisioning against the loans and taking security before adjustment of the loans, it added.

Banks will have to take legal action to recover the loans if the borrowers fail to repay the loans after getting the facility.

Earlier in May 2019, the central bank introduced a one-time exit policy for defaulters to bring down the high bad loans in the country's banking sector. The bad loans then amounted to Tk 110,873 crore.

"The exit policy should have been left to the banks' discretion," said Monzur Hossain, research director of the Bangladesh Institute of Development Studies (BIDS).

This policy will affect the banks' profitability, while the loan defaulters will be tempted by the facility, he said.

Mohammad Nurul Amin, former chairman of the Association of Bankers of Bangladesh, echoed the same. "Defaulters are likely to be encouraged to not repay loans due to the facility."​

 

[Saif]

PM asks AIIB to lower interest rates of loan

Prime Minister Sheikh Hasina today asked the Asian Infrastructure Investment Bank (AIIB) to further cut the interest rates on its loan for Bangladesh

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PM asks AIIB to lower interest rates of loan

Photo: BSS

Prime Minister Sheikh Hasina today asked the Asian Infrastructure Investment Bank (AIIB) to further cut the interest rates on its loan for Bangladesh.

She made the request when the Beijing-based bank's President Jin Liqun, along with its high officials, paid a courtesy call on her at her place of residence in Beijing.

During the meeting, the financing for infrastructure building, river dredging and the climate sector of Bangladesh, particularly building climate resilient houses in the country's coastal areas came up for discussion.

Foreign Minister Hasan Mahmud briefed reporters about the outcome of the meeting on the second day of the prime minister's official visit to China.

The PM said AIIB played a very important role for Bangladesh in the past.

She said the multilateral development bank and lender can also play a significant role in the future in the development journey of Bangladesh and help fulfil the dream to transform it as a developed and prosperous country by 2041.

"The PM requested the AIIB to reduce its loan interest further for Bangladesh," said the foreign minister.

In response, the AIIB officials said Bangladesh is one of the biggest borrowers from AIIB. The bank has given Bangladesh a special concession in case of the interest rate.

The issue of giving a special concession for Bangladesh in future was discussed with importance, according to the foreign minister.

Finance Minister AH Mahmood Ali and PM's Press Secretary M Nayeemul Islam Khan were present at the briefing.​

 

[Saif]

No relief for consumers as inflation hits 12-year high

Lack of proper government actions is costing citizens dearly

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No relief for consumers as inflation hits 12-year high
Lack of proper government actions is costing citizens dearly

VISUAL: STAR

The government's inability to keep annual inflation anywhere near its target of 7.5 percent is deeply concerning. As reported by this daily, the annual average inflation has surged to 9.73 percent in the just-concluded fiscal year, according to Bangladesh Bureau of Statistics (BBS). This is the highest inflation experienced in 12 years since 2011-2012, when annual inflation was 10.62 percent. What is even more concerning is that this is the second consecutive year that the Consumer Prices Index has stood at more than 9 percent. This means that the tremendous inflationary pressure experienced by citizens has actually persisted for two straight years.

The resulting erosion of people's real income and the deterioration of their living standards—particularly of low-income groups—are there for all to see. According to an earlier survey by the South Asian Network on Economic Modelling (SANEM), as many as 70 percent of the households in Bangladesh had to change their food habits involuntarily to cope with rising prices. It further discovered that food insecurity among the poor had increased drastically, meaning that the prospect of malnutrition and various health concerns has also risen considerably. Despite such warnings, the fact that the government has failed to bring inflation down by now is completely unacceptable. True, there have been some measures to address it, but those were taken too late, and because of the "time lag effect," we are yet to see them really kick in.

The good news is that some of those measures may eventually pay dividends down the line. However, as experts have said, the government needs to do more. For starters, perhaps it should increase the interest rate further to tame inflation. Moreover, its failure to properly regulate the market means that a section of business groups is continuing to artificially prop up prices. These businesses, unfortunately, are either politically connected, or have acquired monopoly powers due to failed government policies, which makes holding them accountable difficult. But that is exactly what the government must do, without exception.

So, while its focus—although late—has so far been on demand containment, now it must also shift to addressing the distortions in the market and the problems in supply chain. And these issues have persisted in our country for years and have somewhat become entrenched. Despite that, the government needs to take a holistic approach to finally fix them. Parallel to that, it must ramp up its support for lower-income groups. That should include its rice distribution programme, as well as selling essential food items at subsidised rates to low-income earners.​

 

[Saif]

Cashless economy: a tech leap with inclusion hurdles

Cashless payments are driven by innovations like online banking, cryptocurrencies, and mobile payments, delivering enhanced convenience, security, and efficiency. Countries like Norway, Sweden, and China lead with minimal cash usage and robust digital infrastructures.

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Cashless economy: a tech leap with inclusion hurdles

Cashless payments are driven by innovations like online banking, cryptocurrencies, and mobile payments, delivering enhanced convenience, security, and efficiency. Countries like Norway, Sweden, and China lead with minimal cash usage and robust digital infrastructures.

In Bangladesh, rapid strides towards a cashless future through digital finance, mobile financial service (MFS), and e-commerce align with the SMART Bangladesh framework 2041, targeting 100 percent cashless transactions by 2031. With 1.77 million agents and 223 million registered clients in the MFS sector, Bangladesh aims to accelerate financial inclusion and economic efficiency.

Bangladesh's path to financial inclusion began with branch banking and microcredit. The introduction of MFS and agent banking in the 2010s was pivotal, particularly during the Covid-19 pandemic, enhancing transparency, introducing new financial products, and fostering inclusion.

The digital ecosystem also saw a surge with 36 million debit cards, 2.4 million credit cards, and 5.8 million prepaid cards. Internet banking engages 8.5 million users with monthly transactions totaling Tk 1 lakh crore.

Hindrances to a cashless Bangladesh

Insufficient digital infrastructure, limited internet access, lack of service points, and inadequate public education on digital transactions hinder the move towards a cashless economy. The lack of seamless integration among diverse payment systems impedes efficient cashless transactions and a smooth user experience.

Weak cybersecurity measures, encryption protocols, and insufficient monitoring leave digital payment systems vulnerable to cyber risks. Frequent technical glitches and power outages, coupled with inadequate backup systems and infrastructure resilience, undermine service continuity and user trust.

The significant urban-rural digital gap also limits equitable access to smartphones, and digital literacy, restricting inclusive participation in the cashless economy. Furthermore, insufficient regulations, monitoring, and authentication processes increase the risk of fraud and money laundering, eroding trust in digital transactions.

Building bridges: approaches for inclusion

Bangladesh's 8th Five-Year Plan emphasises ICT-driven financial inclusion while achieving a cashless economy requires collaborative efforts across the government, financial institutions, civil society, and the private sector to bridge the digital gap effectively. The BASIS has made some recommendations:

The Finance Bill 2024 mandates that software and IT-enabled service providers conduct transactions via bank transfers from July 1, 2024, to qualify for tax exemption until June 30, 2027. Although it aims at promoting cashless transactions, this requirement conflicts with SMART Bangladesh's goal for a cashless vision by 2031, presenting infrastructure scalability challenges and reliance on cash for daily expenses unsupported by current banking systems.

According to the Finance Bill 2024, thriving services like cloud computing and IT outsourcing could face adverse impacts if taxed, potentially displacing local businesses and deterring new entrants. Government investments in rural internet infrastructure and partnerships with telecom operators for fibre optic cables and Wi-Fi hotspots are crucial for enhancing accessibility.

Essential financial literacy programmes in local languages through radio broadcasts, mobile tutorials, and community outreach are vital for rural citizens to adopt safe digital practices. Cybersecurity awareness campaigns are essential to educate citizens about online threats, complemented by robust security measures and data encryption technologies in financial institutions to protect user information.

Bangladesh's path to a cashless economy requires meticulous planning and collaboration among policymakers, financial institutions, and technology providers. Despite high expectations, numerous challenges must be effectively tackled. Addressing these issues is pivotal for realising Bangladesh's vision of a comprehensive cashless economy, paving the way for a more inclusive and efficient financial landscape.

The author is senior vice-president of the Bangladesh Association of Software and Information Services.​

 

[Saif]

Reserves come down to $20.46 billion after ACU payment

$1.42 billion of import bills for May and June were paid through Asian Clearing Union (ACU)

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Reserves come down to $20.46 billion after ACU payment
$1.42 billion of import bills for May and June were paid through Asian Clearing Union (ACU)

Bangladesh's foreign exchange reserves fell below $21 billion after the payment of $1.42 billion in import bills through the Asian Clearing Union (ACU).

The ACU payments for May and June were cleared this week, said a senior official of the Bangladesh Bank.

After the payment, reserves stood at $20.46 billion.

The forex reserves were at $21.78 billion as on June 30 this year, BB data showed.

The ACU is an arrangement for settling payments for intraregional transactions among eight countries: Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka.

The reserves data was calculated based on the formula of the International Monetary Fund (IMF).​

 

[Saif]

NBFIs’ bad loans surge to a record Tk 23,208 crore

Defaulted loans at non-bank financial institutions (NBFIs) soared 38 percent to a record Tk 23,208.7 crore at the end of 2023, raising concerns over the sector’s deteriorating health.

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NBFIs' bad loans surge to a record Tk 23,208 crore

Defaulted loans at non-bank financial institutions (NBFIs) soared 38 percent to a record Tk 23,208.7 crore at the end of 2023, raising concerns over the sector's deteriorating health.

The toxic assets accounted for a record 32 percent of the total disbursed loans of Tk 73,560.5 crore in the sector, up from 31.55 percent a year earlier, according to data from the Bangladesh Bank.

The data on 35 NBFIs' bad loans comes when economists have raised concerns over vulnerabilities in Bangladesh's financial sector due to rising defaulted loans and a lack of corporate governance.

Industry insiders said the central bank is largely responsible for the state of the NBFI sector as its supervision was not strict.

The toxic assets are legacy loans from the large scams and irregularities seen in the sector a few years ago, said Kanti Kumar Saha, chief executive officer of Alliance Finance.

For instance, PK Halder, former managing director of NRB Global Bank, which was later renamed Global Islami Bank, swindled at least Tk 3,500 crore from four NBFIs: People's Leasing, International Leasing, FAS Finance and BIFC, according to a BB probe report.

As a result, the four NBFIs have become ailing institutions with more than 90 percent of their loans going bad.

Saha, also vice-chairman of Bangladesh Leasing and Finance Companies Association (BLFCA), said the loans that were disbursed in the last one or two years are regular.

"Now, most of the NBFIs are trying to do better," he said, adding that the industry is looking to upgrade its manpower for improved performance.

Md Golam Sarwar Bhuiyan, chairman of the BLFCA, said that not only the NBFIs, but the overall economy is now facing multiple challenges, and that is why the bad loans in the sector have increased.

Bad loans jumped after the central bank in 2022 withdrew the deferral facility extended during the pandemic for paying back loans, said Bhuiyan.

Due to the confidence crisis in the sector, deposits in NBFIs fell to Tk 44,304 crore in the January-March quarter from Tk 44,830 crore in the previous quarter.​

 

[Saif]

Inflation outpaces wage growth for 29th month straight

Although wage growth in Bangladesh has been slowly climbing since July 2021, it has remained below the inflation rate for the past two and a half years, government data shows.

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Inflation outpaces wage growth for 29th month straight

Although wage growth in Bangladesh has been slowly climbing since July 2021, it has remained below the inflation rate for the past two and a half years, government data shows.

Wages of low-paid and unskilled workers grew 7.95 percent in June, which was 1.77 percentage points below the inflation rate of 9.72 percent in the same month, showed the Wage Rate Index (WRI) of the Bangladesh Bureau of Statistics (BBS).

This trend has been continuing for the past 29 months, as per data from the BBS.

This widening gap is forcing low-income and unskilled workers to cut consumption amid falling real incomes, according to analysts.

The nominal wage rate growth stood at 7.88 percent in May while the inflation rate was 9.89 percent, it added.

"When high inflation persists for a long time, it will definitely impact the poverty rate and create many new poor," said MM Akash, a former chairman of the economics department at the University of Dhaka.

People who are now struggling to keep their heads above water may be dragged below the poverty line, he added.

Rizwanul Islam, an economist and former special adviser for employment at the International Labour Office in Geneva, said high inflation, especially high food inflation, has been affecting the purchasing power of low-income people.

This also reduces coping strategies and gradually narrows opportunities for low-income and low-skilled people.

"More than 40 percent of the population of Bangladesh is in real difficulty because of continuously elevated inflation, especially food inflation," Islam said, adding that it has been affecting low-skilled, self-employed and middle-income individuals.

In June, food inflation slipped to 10.42 percent from 10.76 percent a month ago. However, food inflation has hovered above 9 percent since May 2023. It crossed 9.5 percent every month of fiscal year 2023-24 except February.

In FY24, the highest rate of food inflation was witnessed in October, when it hit 12.56 percent. If effective trade unions existed, there would have been an uproar regarding the situation, according to Islam.

"But we don't see such issues. Rather, everyone is more focused on how to cope with the situation," he said.

The WRI takes into account the wages of informal workers, who get their payments on a daily basis, across 63 occupations in the agriculture, industry and services sectors.

Asked about the impact on the labour market due to the persistently higher inflation, Islam said there is an inverse relationship between inflation and unemployment as illustrated by the Phillips curve.

"However, in Bangladesh, it's not clear if such a relationship will work because there are other factors such as import compression working that are simultaneously having an adverse effect on growth."

So, one cannot expect employment to grow, he said.

"Employment was not growing even when output growth was normal. That's why the informal sector continues to be the major source of employment," Islam said.

He added that inflation may also adversely affect the labour market situation through the consumption and demand route. Elevated levels of inflation have an adverse effect on demand, which in turn affects output growth in various sectors.

Prof Akash added: "It should be mandatory to provide rations or adjust their wages in line with inflation to give a cushion to the workers."

The economist suggested providing cash incentives to low-income people, similar to initiatives during Covid-19, and expanding social safety net programmes.

He also urged the government to extend support to the urban poor, who usually remain out of safety net, by providing essential commodities and cash support for house rent.

"The nominal wage rate climbed from 7.39 percent in June 2023 to 7.7 percent in December 2023. In April 2024, it was 7.85 percent. Despite being less than inflation, the pay index increase significantly represented the current inflationary wave," the Bangladesh Bank said in its monetary policy review yesterday.​

 

[Saif]

BB signals further monetary tightening as inflation rages

The central bank has signalled that it would go for more tightening of the monetary policy since inflationary pressure shows no signs of cooling.

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BB signals further monetary tightening as inflation rages

The central bank has signalled that it would go for more tightening of the monetary policy since inflationary pressure shows no signs of cooling.

The Bangladesh Bank gave the hints about its upcoming measures in its monetary policy review for the just-concluded fiscal year. The report was released yesterday.

"Monetary policy would need to be restrictive for sufficiently long to return inflation to around the 7.5 percent target sustainably in the medium term, and further tightening would be required if there were evidence of more persistent inflationary pressures," it said.

Annual inflation rose to 9.73 percent in 2023-24, the highest since 2011-12 when it was 10.62 percent, overshooting the government's target of containing it to 7.5 percent, according to the Bangladesh Bureau of Statistics (BBS).

This is the second year in a row that the Consumer Price Index (CPI), a measure of the increase in the prices of a basket of products and services, crossed 9 percent. This means the monetary policy of the central bank could do little to bring it down although it initiated several measures, albeit belatedly.

With global components of inflation turning down, most countries have experienced a significant fall in inflation relative to its peak, said Lisa DeNell Cook, a member of the Federal Reserve Board of Governors of the US, at the Australian Conference of Economists in Adelaide of Australia, on Wednesday.

Even cash-strapped Sri Lanka succeeded in controlling inflation. On the other hand, consumer prices have kept rising in Bangladesh. The government aims to contain it to 6.5 percent in the fiscal year of 2024-25, which begins on July 1.

In the review, the central bank said the lag effect of marked global commodity price hikes, partly exacerbated by the weaker exchange rate of the taka against US dollars, has prolonged the persistently high inflation.

"Inflationary pressures have also broadened within the core basket, reflecting spillover and second-round effects as well as the pass-through of costs associated with electricity generation."

It said despite decreasing trend of global commodity prices, Bangladesh's economy could not benefit due to the significant domestic currency depreciation, which subsequently raised import prices, thereby contributing to inflationary pressures.

The taka has lost its value by about 35 percent against the US dollar in the past two years.

In FY24, the central bank adopted a tight monetary policy stance and raised the policy rate -- at which it lends to commercial banks -- on several occasions to lift it to 8.5 percent. The rate was hiked by 400 basis points since the middle of 2022.

The International Monetary Fund (IMF) has suggested the central bank raise the policy rate by 50 basis points by December this year since its monetary tightening is yet to rein in inflation.

However, most central banks stopped raising their policy rates over the past year. Some are considering how long to keep rates at restrictive levels or, if inflation picks up again, whether to raise rates further, according to Lisa DeNell Cook.

The BB said over the past year, fluctuations in fuel, food, and energy prices have been the predominant drivers of headline inflation, with food and fuel costs largely mirroring global commodity price trends.

It blamed higher food prices for the spike in demand ahead of Ramadan and Eid-ul-Fitr celebrations.

Among the components of non-food inflation, the highest rate was recorded in the health sector at 13.69 percent. followed by 11.34 percent in furnishings, household equipment, and routine maintenance of the house, according to the report.

In the review, BB Governor Abdur Rouf Talukder said Bangladesh economy was not immune to the impact of global issues, though it performed fairly well a couple of years after the Covid-19 recovery.

However, since 2023, the economy began feeling the pressures of persistently high inflation and the exchange rate depreciation, particularly through geopolitical tension and trade uncertainties, he added.

Despite the challenges, provisional estimates from the BBS indicate that gross domestic product (GDP) grew 5.82 percent in FY24, up from 5.78 percent in FY23, reflecting a modest improvement in the country's economic performance.

"To mitigate inflationary pressure and restore the stability of the exchange rate, BB upheld a hawkish approach to monetary policy throughout last year and continued the contractionary stance for the second half of the last fiscal year," he said.

The BB has not gained much success in curbing higher inflation because of the lack of a market-based interest rate system. In April 2020, the BB first introduced a 9 percent interest rate ceiling.

Although it was withdrawn in the first month of the last fiscal year, the banking regulator introduced a new interest rate system based on the six-month moving average rate of treasury bills known as SMART, which was still considered as another cap.

Finally, in May this year, the BB allowed banks to determine a market-driven interest rate in line with the IMF's prescription.

At a webinar recently, Birupaksha Paul, a professor of economics at the State University of New York, said the interest rate cap was largely responsible for the current inflationary pressure.

He explained when interest rates were increased all over the world to tackle inflation, the central bank walked in the opposite direction. The lending cap was withdrawn following the advice of the IMF.

In May, the BB also rolled out a more flexible exchange rate policy, moving away from its practices where banks would determine the price of the dollar in line with the verbal instructions of the central bank.

The governor hoped that the crawling peg will help to tackle the present challenges.

Amid the persisting macroeconomic challenge, the BB is going to announce the monetary policy for the first half of FY25 in the third week of July. The main objective will be to control inflation and achieve the GDP growth target set by the government.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, recently said the policy rate would have to be hiked to control inflation.

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

The government has also set high bank borrowing targets for FY25, but banks are facing liquidity shortages. This prompts the economist to suggest the central bank be strict about refraining from granting loans to the government.​

 

[Saif]

Why are we shy of signing FTAs?

Free trade agreements (FTA) are made between countries to lower trade barriers through little to zero government tariffs or subsidies and other means.

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Why are we shy of signing FTAs?

Free trade agreements (FTA) are made between countries to lower trade barriers through little to zero government tariffs or subsidies and other means.

Most countries sign multilateral FTAs to increase regional trade such as the North American Free Trade Agreement (Nafta), the world's largest free trade bloc, where commerce among Canada, Mexico and the United States tripled in 2017.

Bangladesh is economically at a stage where it needs foreign direct investments (FDI) to create more jobs and set up infrastructure for sustainable development, which can be accelerated by FTAs.

So, what is stopping Bangladesh from entering into such deals? Bangladesh, along with Saarc countries, signed the South Asian Free Trade Agreement in 2006. Even though there are special provisions in the treaty to support the growth of least-developed countries (LDCs) like Bangladesh, concerns have been raised about the effectiveness of those provisions.

One apparent flaw is its incapability of addressing, and consequently tackling, the extensive negative list maintained by India. This includes Bangladesh's major exports such as RMGs and chemicals. Subsequently, the Safta failed to deliver on its promises of accessible trading and higher gains, becoming ineffective as an agreement.

After such a tainted start to multilateral FTAs, Bangladesh is no doubt shying away from future agreements, encouraged to support local entrepreneurs in market diversification. But allured by the benefits of accessing new markets, Bangladesh entered into a preferential trade agreement (PTA) with Bhutan in 2020.

For successful FTAs that bring true economic growth, we need FTAs with economic powerhouses such as India and China, but bureaucratic entanglements and geopolitics tend to get in the way.

Though our prime minister mentioned possible FTAs with 11 countries, as of today, we do not have an FTA with any country. It is being discussed that some policymakers are averse to the idea of FTAs. Tariff commission people often make the plea of revenue loss due to FTAs. Many analysts felt high tariff in Bangladesh is also a barrier to signing FTAs with partner countries.

To me, it seems that FTA is the logical way to go forward in increasing investment in a country.

Bangladesh's average nominal tariffs are higher than in low-income, middle-income and high-income countries, as well as most of its competitors. This impacts adversely the process of export diversification.

It does not make sense to create higher tariff barriers and import duties. I believe the average rate of tariffs can be brought down. The so-called revenue loss argument can be more than offset by progressively taxing the wealthy segment and people in the higher income bracket.

More people must be brought under the taxable income fold. Our tax-to-GDP ratio is still low compared to other countries. Domestic savings also need to be increased.

While negotiating FTAs, we have to protect our interests in the sectors where there is high export potential. One should follow a sector-by-sector approach. Expertise, experience and competence are needed, and recommendations should be taken from all stakeholders.

Bangladesh is set to graduate from the LDC group and become a developing country by the end of 2026. So, we must prepare accordingly as we will lose some of the benefits given to LDCs. Negotiating skills in concluding agreements are vital to deriving maximum benefits.

The author is chairman of Financial Excellence Ltd.​

 

[Saif]

Govt short of taka, USD due to financial distress

The government does not have adequate taka and US dollars to implement the budget because of financial distress and its failure to raise enough revenues, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, yesterday.

www.thedailystar.net

Govt short of taka, USD due to financial distress
Says economist Ahsan H Mansur

The government does not have adequate taka and US dollars to implement the budget because of financial distress and its failure to raise enough revenues, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, yesterday.

"Due to the crisis of the taka and US dollars, the government is now unable to pay the bills for various sectors, including the energy sector. Many foreign companies also can't repatriate funds from Bangladesh to their home countries," he said.

Mansur made the observations while addressing a discussion on the "Reason for the bad state of Bangladesh's banking sector" at the Economic Reporters' Forum (ERF) auditorium in the capital's Paltan.

Owing to liquidity shortage, Bangladesh is increasingly becoming dependent on debts day by day. The country's borrowing capacity from internal sources is gradually shrinking since banks are facing a liquidity crisis.

In the case of foreign debts, disappointment came from India and China as they did not respond to Bangladesh's requirements as expected, Mansur said.

"On the other hand, the government is not able to raise enough revenues."

Mansur, also a former economist of the International Monetary Fund, said banks are now showing profits by transferring the interest on loans to the income account without receiving it.

"We are selling the plates to buy biriyani."

The economist added banks are also distributing dividends from these profits, and the government is collecting taxes as well.

He said before the national election that took place in the first week of January, it was said that there would be mega reforms in the financial sector.

"However, six months have passed, and nothing has happened. This is very disappointing."

The economist said reforming the banking sector is crucial for the sake of the country.

"It is good that the IMF has given the loan to Bangladesh and has tagged some reforms with it. However, the reforms should be executed for our own sake."

He also talked about money laundering. "If the outflow of assets from the country continues, the current crisis will not be resolved. Political will is needed to deal with the crisis."

Mansur called for publishing a white paper on the state of the banking sector.

"There are more data anomalies in the banking sector than any other sector, including the export data mismatch."

He claimed actual non-performing loans (NPLs) are around 25 percent in the banking industry although it is hovering around 10 percent on paper.

"There is a question about whether savers will get back their bank deposits."

The economist recalled the banking sector was in bad shape in 1990 when a reform programme was initiated. The current regulations were borne out of the reform programme and the sector had received positive outcomes as well.

The second financial sector reform programme was initiated in 2001, which also yielded good results. The bad loans at both state-run banks and private banks came down.

Other indicators of the sector also showed improvements and the momentum continued till 2009 or 2010, Mansur said.

"Since then, the banking sector has been witnessing a downward trend."

"When the structure of governance changed, it has adversely affected not only the banking sector but also other sectors."

The economist urged the government not to support ailing banks by providing liquidity, and the central bank should stop supporting Islamic banks by printing money in the name of protection.

"If it continues, inflation will increase further."

Annual inflation rose to 9.73 percent in 2023-24, the highest since 2011-12. This is the second year in a row that the Consumer Price Index crossed 9 percent.

There are four components in the financial sector: banks, the stock market, the bond market, and the insurance sector.

Mansur said while the bond market has never fared well, the performance of the three other components worsened.

He criticised the unsuccessful bank merger initiative of the central bank.

Mansur said the foreign currency reserves are now being augmented by borrowing from other countries. "In this way, the reserves can't be increased for a long time."

In June, several bilateral and multilateral lenders approved $4.8 billion in loans for Bangladesh.

The economist said the reserves should be increased using sustainable methods like export incomes and remittance inflows and by tackling money laundering.

The gross reserves stood at $41.83 billion in June 2022 before falling to $26.81 billion at the end of 2024, BB data showed.

Mansur recommended discontinuing the 2.5 percent incentive given on remittance inflows. "This is because these incentives are being gobbled up by some firms in Dubai."

He said since the exchange rate is market-based, incentives are not required.

On May 8, the central bank relinquished its unwritten grip on the exchange rate and allowed banks to trade the US currency freely within a band.

ERF President Refayet Ullah Mirdha chaired the discussion, which was moderated by General Secretary Abul Kashem.

Daily Samakal's Special Correspondent Obaidullah Rony and Prothom Alo's Senior Correspondent Shanaullah Sakib presented a paper on the banking industry.​

 

[Saif]

Has Generative AI triggered a vicious cycle?

Generative artificial intelligence (Gen AI) does not create original knowledge in the form of texts, images, or videos. Instead, it compiles existing bits and pieces of knowledge from numerous websites and recasts them as revenue-generating new products. As a result, instead of visiting all those w

thefinancialexpress.com.bd

Bangladesh's economic outlook for 2024-25
MUHAMMAD MAHMOOD
Published :
Jul 13, 2024 21:33
Updated :
Jul 13, 2024 21:33

Even in the very recent past Bangladesh was hailed as a great success story for achieving rapid economic growth and raising millions of people out of poverty. A World Bank (WB) report published in last October wrote, "From being one of the poorest nations at birth in 1971, Bangladesh reached lower-middle income status in 2015. It is on track to graduate from the UN's Least Developed Countries (LDC) list in 2026."

The report then further lauding Bangladesh's economic achievements said, "Bangladesh has an inspiring story of growth and development, aspiring to be an upper -middle income country by 2031." In fact, Bangladesh aspires to become a developed, prosperous and higher-income country by 2041. The IMF has assured its continuing support to achieve this aspiration.

Recent data published by the Bangladesh Bureau of Statistics (BBS) reveal a bleak trajectory for the economy unravelling the country's hard earned economic gains. Bangladesh has gone from an economic miracle to needing help from the International Monetary Fund (IMF). The country's hard-won economic optimism is now being sorely tested.

The economy is faltering. Now there is a growing fear that the much-admired economic growth model of Bangladesh has got unstuck and falling short of expectations. But it just did not happen all on a sudden; it has been in the making for quite some time. The Economist on March 1 last year published an article titled "Bangladesh's economic miracle is in jeopardy" providing a critical analysis of what has gone wrong with the economy.

In fact, the economy is facing challenges at multiple fronts such as rising inflation, balance of payment deficit along with budget deficit, declining foreign exchange reserves, contraction in remittances, a depreciating currency, rising income inequality and the demand supply imbalance in the energy sector. Now added to these challenges is the fragile banking sector crippled by loan defaults. Above all, Bangladesh is particularly vulnerable to the effects of climate change.

The World Bank (WB) recently downsised the GDP growth forecast for Bangladesh by 0.1 percentage point to 5.7 per cent for the next fiscal year, 2024-25. The global lender also said high inflation, food and fuel shortages, import restrictions, and financial sector vulnerabilities weighed on the economic outlook.

With inflation hovering around 10 per cent with food price inflation at around 10.5 per cent annually, the country is now in the grip of a cost-of-living crisis. But many consider that the figure is an underestimate, the real figure is much higher. It is not uncommon for governments to choose the method to estimate inflation that suits them well.

While inflation has put a squeeze on private consumption, public consumption continues to expand, now accounting for 13.02 per cent of GDP. Rising inflation is also contributing to the higher cost of production which is further fuelling inflation. The inflationary surge was largely driven by rising food and fuel prices and the depreciation of the taka.

Bangladesh Bank adopted a contractionary monetary policy to stem the rising inflationary pressure. However, monetary policy transmission mechanism is impaired by regulations on lending interest rates by commercial banks. Also, private sector credit growth remains sluggish making the policy rate less effective.

The banking industry in the country is currently undergoing intense instability due the massive accumulation of non-performing loans and continues to face tight liquidity conditions.The banking industry also suffered a major setback in 2022 when 11 banks faced a collective shortfall of US$ 3.1 billion. The recent bank merger proposals further added to the speculation about the stability of the banking sector. Any further increased instability in the banking sector can lead to a crisis of confidence and that rapidly will move to the broader financial system. This will have serious consequences for the economy.

Industrial output growth has slowed down due to stagnant private investment, import restrictions on inputs and higher energy costs. Over the last decade or so, the private investment/GDP ratio remained at around 20 per cent. This was caused by tight liquidity conditions, rising interest rates, import restrictions, and increased input costs stemming from rising energy prices.

Foreign direct investment (FDI) also remains at a very low level at around 2 per cent of GDP. The industrial sector experienced a decline of 3.7 per cent in output growth in 2023-24. The picture is not very different in the services sector. Together these two sectors account for 87 per cent of GDP.

Corruption, bureaucratic delays, often a confusing foreign exchange regime and a complex regulatory regime have created a negative perception among foreign investors. A report published by the United Nations Conference on Trade and Development (UNCTAD) in 2021 said, "Despite steady economic growth in the country over the past decade, FDI has been comparatively low in Bangladesh compared to regional peers. Bangladesh suffers from a negative image: The country is seen as being extremely poor, underdeveloped, subject to devastating natural disasters and sociopolitical instability."

Furthermore, the Industrial sector is marked by the high concentration risk from an over reliance on the readymade garments (RMG) industry accounting for about 10 per cent of GDP and 85 per cent of exports. Bangladesh is the third largest exporter of RMG in the world. While the government appears to be aware of the need for diversification of the export basket, nothing much seems to have happened.

Bangladesh is not only running a deficit on the current account but in the financial account as well in its balance of payments. If the financial account becomes negative, it creates further pressures on foreign exchange reserve. The very low level of FDI inflow is further adding to the problem. It is to be noted that a financial account measures the increase or decrease in a country's ownership of international assets.

As balance of payments difficulties intensify, the scope for monetary policy actions become increasingly constrained by the need to protect foreign currency reserves. Bangladesh Bank is tightening its grip on import flows as the reserves decline. In fact, trying to address the reserve problem via import controls can lead to problems somewhere else such as growth, inflation and revenue collection.

Furthermore, Bangladesh's imminent graduation from least developed country status in 2026 will affect its preferential market access for exports, especially RMG exports. With low trade diversification, this will create further problems for the country's exports.

The current foreign exchange reserve is estimated to be about US$20 billion. Continuing balance of payments difficulties and an overreliance on remittances have exposed the economy to external shocks.

Very early this month Bangladesh Bank detected "accounting anomalies" in exports data for the first ten month of fiscal year 2023-24 which resulted in US$13.8 billion reduction in exports revenue. According to the Financial Express (July 12), about US$20 billion shortfall in export revenue has been detected by the Export Promotion Bureau for the last two fiscal years.

This further highlights the long-standing concerns of the country's leading economists about the reliability of published data by various government institutions including the Bangladesh Bureau of Statistics (BBS). Reliance on unreliable data can lead to worrying distortions in governments' policy planning.

Bangladesh also runs a budget deficit which stands at 4.6 per cent of GDP for the fiscal year 2024-25. Almost two-thirds of public revenue is derived from indirect taxes and a third from direct taxes. Reliance on indirect taxes, especially consumption taxes, are viewed as regressive. Such taxes not only negatively affect income redistribution via the taxation system but also further erode consumer purchasing power in periods of high inflation as is the case now in Bangladesh.

Many economists believe that a budget deficit leads to current account deficit. In macroeconomics it is known as the twin deficit hypothesis. The twin deficit problem will make Bangladesh a debtor to the rest of the world and will weaken the value of the taka, thereby further aggravating external imbalances.

Overall, to address these economic challenges Bangladesh needs to build enhanced state capacity and reorient its economic policy approach by embarking on a new phase of structural transformation. This structural transformation will focus on innovation by harnessing the new technological frontiers using skilled labour with an increased emphasis on stimulating investment including FDI. Such a reorientation of economic policy will help the country to accelerate recovery and strengthen its capacity to withstand future shocks, therefore, enabling the country to achieve sustainable economic growth and development in the long run.​

 

[Saif]

Rethinking ways to tackle inflation

The annual inflation rate last month was 9.72 per cent, a welcome decline from seven-month high at 9.89 per cent in the previous month of May. Despite this temporary easing in comparative terms, there is nothing reassuring for the common consumers in this small numerical fluctuation of the figures

thefinancialexpress.com.bd

Rethinking ways to tackle inflation
SYED FATTAHUL ALIM
Published :
Jul 14, 2024 21:48
Updated :
Jul 15, 2024 21:37

The annual inflation rate last month was 9.72 per cent, a welcome decline from seven-month high at 9.89 per cent in the previous month of May. Despite this temporary easing in comparative terms, there is nothing reassuring for the common consumers in this small numerical fluctuation of the figures that represent price levels of consumer goods in the market. In fact, there is hardly any substantial change in the prices of essentials in the kitchen market. Even so, those tasked with calculating the inflation rate at the Bangladesh Bureau of Statistics (BBS) may find some solace in seeing the changes, however small that might be in real terms. But the figures representing the inflation rate have remained close to 10 per cent during the past two fiscal years belying the government's effort to bring it down to 7.5 per cent.

True, last month witnessed a slight decline in the inflation rates of food and non-food items from 10.76 per cent and 9.19 per cent respectively to 9.42 to 9.15 per cent. Obviously, the changes contributed to the slight improvement in the inflation figure. One wonders, if the BB's move (as part of its contractionary monetary policy) that raised the rate of interest against the credit it extends to the commercial banks (policy rate), which increased borrowing cost of money from banks, has finally worked to lower the inflation rate! However, experts are not convinced if it has anything to do with the BB's monetary policy as the inflation rates in the past months did not demonstrate any consistency. The IMF, on the other hand, held the constantly depreciating Bangladesh Taka (BDT) against US dollar (USD) as an important driver of the rising inflation rate.

Notably, in the last two years, BDT lost its value against USD by 35 per cent. Considering that in three months ending in December last year (2023), Bangladesh's imports in goods and services on an average cost Tk888.18 billion, while the exports during the same period were worth Tk613.84 billion, it is not hard to understand why the country is constantly under pressure to foot its import bill and why USD is getting costlier against BDT by the day.

Costlier dollar means rising cost of import. So, until the volatility of the forex market is tamed, the cost of imported fossil fuels will continue to rise, leaving its knock-on effect on everything from domestically produced industrial to agricultural commodities, let alone other imported commodities. In that case, any impact that tightening of money supply may have on inflation rate is offset by further drop in BDT's purchasing power. In that event, the poor, the fixed-and-low-income people find that their real incomes have eroded further. In fact, it is a vicious circle that only tightening of money supply cannot address. On the other hand, costlier credit discourages investment leaving its dampening effect on business in general.

When business is in the doldrums, unemployment situation in the economy worsens. It is, again, the poor who are engaged mostly in the informal economy, either as employers or employees, are the worst hit. Consider that between 35 and 88 per cent of the country's workforce is employed in the informal economy, mostly in the agriculture sector, which contributes from 49 to 64 per cent to the Gross Domestic Product (GDP). The large variations in the percentages of the actual size of the informal economy and that of the workforce are due to the fact that there is a lack of appropriate data on the subject. The fact remains that the livelihood of a substantial segment of the population is linked to the informal sector. So, the policymakers need also to assess how tightened money supply is affecting this sector. Any economic shock hurts the poor more than the rich.

In this connection, the BB in its report for the just ended fiscal year (FY2023-24)'s monetary policy review has hinted at going for further tightening of money supply in the market. Interestingly, though the contractionary monetary policy has yet to demonstrate its efficacy in cooling down inflation, the banking regulator wants to extend it for another term. Understandably, its aim is to push down the inflation rate sustainably to the targeted 7.5 per cent in the medium term.

But in case inflation refuses to calm down, the central bank would see to it that the contractionary monetary policy is further intensified and remains in force far longer. If the contractionary monetary policy has failed to produce its intended result so far, what is the guarantee that it would work in the future? With increased government borrowing, what amount of liquidity would be left with banks to support business and others in need of credit?

No doubt, the contractionary policy is the best tool so far in practice to rein in inflation in the advanced economies in the northern hemisphere. Indeed, it worked successfully in that part of the world. Even Sri Lanka, according to the World Bank, has been showing signs of stabilisation and is projected to grow by 2.2 per cent this year (2024) defying the serious downturn it suffered in 2022.

But going by previous experience, Bangladesh has thus far proved to be an exception when it comes to combating inflation by using tested monetary tools.

So, it is time policymakers took stock of the situation before they embark on a more ambitious target of achieving 6.5 per cent inflation rate in this fiscal year (2024-25).

Though, in theory, Bangladesh's economy is market-driven, here, in practice, non-market forces are the dominant players in controlling the movement of goods and services. That would require the policymakers to go for a mix of measures, rather than going exactly by the book, to control the recalcitrant inflation.​

 

[Saif]

ADB to review $13b projects next week

The Asian Development Bank (ADB) will review its nearly $13 billion projects in Bangladesh next week as many are struggling for implementation delays, officials said on Tuesday. The Manila-based lender would sit with all the project implementers in the Bangladesh government for analysing the proje

thefinancialexpress.com.bd

ADB to review $13b projects next week
FHM HUMAYAN KABIR
Published :
Jul 17, 2024 00:36
Updated :
Jul 17, 2024 00:36

The Asian Development Bank (ADB) will review its nearly $13 billion projects in Bangladesh next week as many are struggling for implementation delays, officials said on Tuesday.

The Manila-based lender would sit with all the project implementers in the Bangladesh government for analysing the project execution status, they added.

"All the ongoing ADB-funded projects will be reviewed at the tripartite meeting next week. Any problems are expected to be resolved at the meeting," said a senior official at the Economic Relations Division (ERD).

According to the ERD, the meeting between the ADB, the ERD and the projects implementers will be held in Dhaka from July 22 to 24.

Currently, the ADB has made a commitment of nearly $13 billion funds for 79 ongoing projects in the public sector.

The moneylender is the second largest multilateral development partner of Bangladesh in terms of its amount of foreign aid for implementing different projects and programmes after its independence.

"Some ADB-funded projects are struggling for implementation delays due to different reasons. We are hopeful of resolving the problems in the next tripartite review meeting (TPRM)," said the ERD official.

A senior official at the finance ministry said: "Some delays are taken place due to the under-performance of the implementing agencies and some are for the complex procurement approval process of the ADB side. So, we'll discuss all the problems in the next meeting for reducing the delays."

The ADB is bankrolling some mega projects in Bangladesh, including the Dohazari-Ramu-Cox's Bazar railway line, Dhaka Mass Rapid Transit Development Investment Project (Line 5, Southern Route), and South Asia Sub-regional Economic Cooperation Dhaka-Northwest Corridor Road Project, Phase 2 (Tranche 3).

The official said the bank will review the projects it is bankrolling in Bangladesh next week as some of them are 'slow-moving' and 'problematic'.

It is an important meeting from the perspective of the Bangladesh government side as this would remove many obstacles which are not resolved through writing letters on the way to the implementation, he said.

The ADB in the last TPRM called the government agencies for streamlining the implementation of slow-moving projects or it would divert funds to other schemes, another government official told the FE.

The last review also prepared an action plan for the ongoing ADB-funded projects which would be discussed at the next week's review meeting, he added.

In the July-April period of the fiscal year 2023-24, the ADB disbursed $1.499 billion worth of assistance and $1.787 billion in FY2023 to Bangladesh, ERD data showed.​

 

[Saif]

Meeting post-graduation challenges facing the country

As Bangladesh is all set for LDC graduation, it is imperative that it accelerated its efforts to meet the post-graduation challenges such as continued access to the various trade benefits including duty-free ones against its exports to the markets of advanced economies, especially the European Unio

thefinancialexpress.com.bd

Meeting post-graduation challenges facing the country
Published :
Jul 16, 2024 21:53
Updated :
Jul 16, 2024 21:53
As Bangladesh is all set for LDC graduation, it is imperative that it accelerated its efforts to meet the post-graduation challenges such as continued access to the various trade benefits including duty-free ones against its exports to the markets of advanced economies, especially the European Union (EU). Notably, as an LDC, the country has been the beneficiary of an arrangement called the Generalised System of Preference (GSP) under which it enjoys exemption of import (customs) duties on two thirds of the EU's tariff lines. But once Bangladesh joins the group of developing countries after graduation in 2026, it will lose much of these trade facilities after three years' grace period.

However, there is a special incentive arrangement called GSP+ available for vulnerable low-and-lower middle-income economies. In that case, Bangladesh will have to implement 27 international conventions related to labour and human rights, environmental and climate protection and good governance. This special incentive is for sustainable development and good governance. Naturally, following graduation, the government will be required to qualify for these facilities under GSP+ if it fulfils the conditions. Now, implementation of the labour sector reforms through revision of the country's labour laws under the proposed National Action Plan (NAP) is an important step in this direction. In this connection, outgoing head of European delegation in Dhaka, Charles Whiteley, during a recent interview with journalists, following his farewell call on Bangladesh's foreign minister, Dr Hasan Mahmud, reiterated the urgency of the issue.

The required labour law reforms under the proposed NAP involves issues including framing the country's labour law so that it is compliant with the standards of the International Labour Organization (ILO). Needless to say, those standards include freedom of association and collective bargaining right of workers and elimination of all forms of child labour by 2025. Notably, Bangladesh has been under pressure on these issues since long from different international quarters. Now, those issues have assumed a renewed importance when the country is on the verge of upgrading its status as a developing economy. Evidently, issues like ridding the country of child labour, for instance, and that too by not a distant deadline has indeed been a tall order in a populous and unequal society. Yet successive governments have been working relentlessly to address the issue to the satisfaction of the international community whose support is vital for Bangladesh's continued economic progress. Facing the prospect of Bangladesh's post-graduation loss of trade facilities it benefited from so far thanks to its longstanding trade relations with the EU under the Everything but Arms (EBA) trade regime, it has to redouble efforts to comply with their conditions. This is required to access the next most generous post-EBA arrangement, the GSP plus incentives. As the timelines for meeting the conditions of the different international conventions are drawing to a close, the government needs to expedite its work to fulfil its commitments to that effect.

The amendment to the Bangladesh's labour act is critical in this connection. Repeated reminders from the EU envoy on this subject at different discussion events arranged from time to time in the past only stress the point. Not surprisingly, a high-level European Commission monitoring mission will reportedly be visiting Bangladesh in November this year to review work progress in this regard. Since 58 per cent of Bangladesh's total export and 64 per cent of its apparel export are dependent on EU market, the government would, hopefully, be well-equipped to meet the EU GSP+ challenges.​

 

[Saif]

Economy with deep scars limps along

Business and industrial activities resumed yesterday amid a semblance of normalcy after a spasm of violence, internet outage and a curfew that left deep wounds in almost all corners of the economy.

www.thedailystar.net

Economy with deep scars limps along
Businesses, factories reopen amid curfew break

People queue up at a bank counter as services resumed after days. The photo was taken at the Sonali Bank in Motijheel yesterday. Photo: Palash Khan

Business and industrial activities resumed yesterday amid a semblance of normalcy after a spasm of violence, internet outage and a curfew that left deep wounds in almost all corners of the economy.

Violent clashes, stemming from the quota reform demonstrations, shuttered garment factories and shops and choked port activities when the country was grappling with the toughest economic challenges in decades: high inflation, falling exports and a persistent dollar crisis.

Economists predict that the impact of the widespread unrest and internet blackouts will be much greater than the fallout of the Covid-19 pandemic. By one estimate, the economy bled out about $1 billion a day for a stretch of five brutal days that saw deaths and destructions of a scale never before seen in independent Bangladesh.

Amid economic gloom, garment factories restarted production yesterday to meet the tight deadline for delivery. Shipments of export containers and delivery of imported items gained pace, and trucks began to roll as the broadband internet was restored.

However, factories faced a scarcity of raw materials due to supply chain disruptions, according to Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association.

"Had the government given importance to resolving the quota issue through dialogues, the situation would not be so dire," he added.

Banks reopened their gates to provide services to customers, who lined up for cash withdrawal, encashment of inward remittances and payment of utility bills after a three-day general holiday announced in the wake of the unrest.

Despite the pressure, most banks were able to provide services by and large, said Selim RF Hussain, chairman of the Association of Bankers Bangladesh.

The moribund stock market nervously resumed trade at 11:00am yesterday, but the key index of Dhaka Stock Exchange sank 1.76 percent, the steepest decline in almost two years.

Retail shops in Dhaka, the main hub of trade, reopened but salespeople were disappointed by the thin presence of customers.

Alam Sheikh, a salesman at a clothing store at Nurjahan Supermarket, opposite to Dhaka College, was one of them.

"Customers seems to be afraid of the risk of violence," he said.

Between 10:30am and 1:30pm, Alam Sheikh's sales stood at Tk 3,000, a third of his sales revenue on a regular business day.

All these bleak data point to Bangladesh's plunge into an economic stasis, however short-lived. Save for agricultural activity, trade, manufacturing and all other economic activities were almost suspended for a week.

In the months to come, consumer prices may go further up. New investments will be on hold and jobs will evaporate. Bangladesh also runs the risk of losing export orders and many companies will struggle to pay their employees on time.

"This is a huge loss for Bangladesh when the country is already facing an economic crisis. The latest unrest has a significant impact on the economy," said Ahsan H Mansur, executive director of the Policy Research Institute, sharing his estimate that the country lost around $1 billion a day over the last few days.

"Supply chain disruptions will fuel inflation, which is already high," he said.

His grim prediction has a basis as annual inflation rose to 9.73 percent in fiscal 2023-24, the highest in 12 years, overshooting the government's target of containing it to 7.5 percent.

Ahsan Mansur, a former economist at the International Monetary Fund, warned that export orders might be diverted to other countries in the wake of the recent crisis in Bangladesh.

Zahid Hussain, another noted economist, described the crisis as the nation's double jeopardy: a real-life lockdown and a virtual lockdown.

"Its impact will be more severe than the Covid-19 pandemic, as people could run businesses at the time. During the pandemic, online payments were unhindered. But this week, everything was closed due to internet outage," he said.

The unrest killed at least 154 people, according to The Daily Star's count based solely on hospital sources, although it could be higher as this newspaper could not reach all the hospitals where many critically injured patients were taken for treatment. Also, many friends and families reportedly collected the bodies of their loved-ones from the scenes, and this newspaper could not contact them. Additionally, many hospitals did not even record the deaths, and asked the relatives to take them away.

All these will hit the confidence of foreign buyers and dent the image of the country which registered about 6 percent GDP growth over the last one and a half decades thanks to the political calm, Hussain said.

"The internet blackout was suicidal for the economy. How deep the injury is and how long it will stay remains to be seen," he said. "But we cannot count the loss of lives, which is countless."

With additional reporting from Sukanta Halder​

 

[Saif]

ADB lowers growth forecast for Bangladesh

Asian Development Bank (ADB) has revised down the economic growth projection for Bangladesh but said inflation might creep up further during the current fiscal year of 2024-25.

www.thedailystar.net

ADB lowers growth forecast for Bangladesh
Inflation to creep up further, it says

Asian Development Bank (ADB) has revised down the economic growth projection for Bangladesh but said inflation might creep up further during the current fiscal year of 2024-25.

According to Asian Development Outlook July 2024 published last week, Bangladesh's economy might grow 6.5 percent in this fiscal year, which is lower than its forecast in April of 6.6 percent, owing to sluggish growth of the industrial sector.

The Manila-based lender's projection is lower than the government's 6.75 percent growth target for the economy.

The ADB's forecast came just before the country witnessed five days of severe disruptions in economic activities amidst an internet outage, violence centring a movement for reforming quota at public jobs and subsequent curfew to control the situation.

The multilateral lender said monthly inflation rates in Bangladesh continued to be near double digits in the first 11 months of FY2024 and may persist due to high domestic food prices.​

 

[Saif]

National revenue collection takes a hit

With the internet blackout and nationwide shutdown comes a host of problems for internal revenue generation. According to a report published in this newspaper on July 22: "State exchequer counts an estimated domestic revenue loss of Tk 8.73 billion daily as production, trade and services falter for

thefinancialexpress.com.bd

National revenue collection takes a hit
SYED MANSUR HASHIM
Published :
Jul 24, 2024 11:17
Updated :
Jul 24, 2024 11:17

With the internet blackout and nationwide shutdown comes a host of problems for internal revenue generation. According to a report published in this newspaper on July 22: "State exchequer counts an estimated domestic revenue loss of Tk 8.73 billion daily as production, trade and services falter for the ongoing nationwide quota-protest shutdown coupled with internet blackout." The domino effect on production, trade and services due to the cumulative loss of internet access, production and distribution of products and the halting of digital services is contributing to this loss in revenue.

The stakes could not be higher for the economy right now. The volatility on city streets and in various districts around the country will hopefully see some respite as the Appellate Division has delivered its verdict on the quota situation. The gazette publication of the same should take place as soon as possible, and then the question will come whether this will lead to a negotiated settlement with protesters.

Leaving that aside, the current situation has brought economic activity down to a trickle. As stated by revenue officials, a large portion of revenue generation comes from value-added-tax (VAT) on products and services. The internet blackout has hit revenue hard since millions of people use digital services, both on cell phones and broadband. Financial institutions have by and large gone online with their services, as have utility services (gas, water, electricity). Hence, there are serious financial implications to shutting down internet services in the country.

Since VAT collection forms a cornerstone of direct revenue for the National Board of Revenue (NBR), there is simply no way to take this matter lightly. The hospitality industry with its thousands of restaurants, hotels and inns, vacation resorts all depends on daily sales of services. These have taken a serious hit because an increasing percentage of consumers depend on credit / debit card facilities to make payment. With the onset of curfews, few people are venturing out and most commercial establishments have shuttered their shops, not simply due to the fact that there are few people coming, but there are serious security concerns. The relative security enjoyed by the diplomatic enclave is not enjoyed by the rest of Dhaka residents, and why on earth would establishment owners bother to keep their respective shops open when there is serious supply chain disruption?

Moving on, Chattogram Customs House (CCH) ordinarily collects Tk 1.86 billion per day. Indeed, CCH's annual revenue collection in the just-concluded financial year was Tk 680 billion. According to an analysis by this newspaper, the revenue board may suffer a loss up to Tk 3.19 trillion - a mammoth loss! Of course this is not the final tally. With disruption of digital services, customs officials have instructed stations across the country to accept any bank document on releasing perishable items and this makes sense.

It is essential at this time to keep the supply chain for foodstuffs flowing because the main wholesale markets in the city, including Kawran Bazaar which serve as a hub for other retail markets in the city, have been suffering from intermittent supply of various items including vegetables. Indeed, price per kilogram of green chilli (a wholly domestically produced essential food) has shot up to Tk 600/kg. Better it is to forget about revenue loss and keep the goods flowing. This is a national priority. Stock taking on the revenue part can be done later. Imports of raw materials (including food and industrial inputs) need to clear customs on a war-footing so that essentials can get to people and factories can keep operating.​