[đŸ‡§đŸ‡©] Monitoring Bangladesh's Economy

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Budget through layperson's lens
by Abdul Bayes 12 May, 2024, 00:00

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| New Age/Mehedi Haque

THE finance ministry is busy preparing the national budget for the 2024–25 financial year. In tandem, pre-budget discussions are held with stakeholders, with the finance minister presiding over. In fact, such discussions have been a regular exercise for a long time to capture different perceptions about the economy. The preparation of the national budget in any country has always been challenging amidst what economists call 'limited resources and unlimited wants'. But the preparation for the forthcoming budget is going to be more challenging than the preparation of the earlier ones, especially the ones prepared before the Covid outbreak, as the realities on the ground have reversed by 180 degrees.

A sense of optimistism in resource allocation once prevailed as global trade and investment conditions remained favourable. However, internal and external economic conditions have dramatically deteriorated since the Covid outbreak. The wounds have been worsened by the Russia-Ukraine war and the threat of disruption in the supply chain, especially of oil and essential food items, and the Iran-Israeli conflicts could cause a catastrophic condition.

On the domestic front, soothing signs of macroeconomic stability are seemingly things of the past. Various constraints have creeped up to thwart macroeconomic stability. These are, among others, an inflation rate running on an average at 10 per cent for two consecutive years, the foreign exchange reserve running down fast, constraining imports and, thus, growth, an increasing exchange rate, one of the lowest tax-to-GDP ratio for a prolonged period, massive capital flight, rampant corruption and massive loan default. The associated misconceived monetary and fiscal policies just went on to aggravate the situation. All of these adverse factors put the economy under a great pressure, particularly in terms of the mismatch between the demand for and the supply of resources. The drivers of these deviations are well documented and there is no need for elaborate discussions now.

Against this backdrop, it would, however, be wise to go for a contractionary budget, slashing the size of the budget by, say, 5–6 per cent. This would be in sharp contrast with pre-Covid budgets rising by 10–15 per cent in a row for a decade. Of course, a cut in budget size would adversely affect the economic growth rate for a year, but the tradeoff is very much needed to rein in inflation and reduce pressure on the foreign exchange reserve. It is needless to say that a firm political commitment is needed to economise on the use of scarce resources.

To mention a few, the so-called 'political projects' should not be patronised at all, wasteful projects should be set aside and financially viable large-scale projects should be prioritised. Of course, these measures are suggested until the economy cools down. In other words, instead of focusing on achieving a higher gross domestic product growth rate, the priority should be to restore macroeconomic stability. Again, economist Ahsan Mansur argues, 'In the current situation, it would not be right to borrow too much from the domestic banking system and the needs of the private sector must be considered. The interest rate on Treasury bills has already gone up to 11 per cent due to the government's heavy borrowing. It may increase further. But this interest rate should not be 18 or 19 per cent by any means.'

By and large, we are of the view that the next budget should focus on controlling consumer goods price spiral, expanding social safety net programmes and provide more allocation for education and health sectors. We also expect that the subsidy syndrome that has prevailed for ages should come under serious scrutiny and be reflected in the budget speech. Why should the 40-year-old apparel sector need subsidy while nascent industries are crying for for meagre assistance from the exchequer? Why should 12 per cent of export earnings be allowed to be retained abroad even now? It is our view that, first, only the agricultural sector and small and medium industries should be sheltered by subsidy and, second, tax rebates should be reduced after rationalisation.

Given political commitments, domestic resource mobilisation could be beefed up by relying more on direct taxes, expanding the tax net and introducing automation in tax collection. Indirect taxes and distorting trade taxes should be avoided as far as possible. Mohammad Farashuddin, an eminent economist, estimates that out of 8.7 million highly solvent people, only 900,000 people pay taxes. The economist also showed tax collection from 25 million people with per capita income of $5,000, if ensured and spanned over a period, it could provide for a significant increase in tax-GDP ratio.

Likewise, the arrest of capital flight a year of $700 crores, if addressed with earnest and commitment, could improve the fragile foreign exchange reserve situation. We can possibly mention many other sources of resource generation such as privatising the loss-making public-sector enterprises, the persuasion of a truly shared austerity measures with lesser allocation for unproductive sectors and economising on revenue expenses of ministries.

The banking sector doldrums and the associated solutions should claim a lot of attention from the finance minister as the sector is in shambles. Is merger of bad banks with good ones a solution? Without a revolution in the governance of the banking sector, with political interference, without putting criminals to justice? Would it not sound like old wine in a new bottle?

Keeping drastic institutional reforms at bay, a routine work of allocating resources covering revenue and development budget might fail to pull the economy out of the crisis. A zero-tolerance to loan default, tax evasion, corruption and capital flight warrant firm political commitment and wisdom where words will not count, but deeds will. A government is known by the commitment it keeps.

Abdul Bayes, a former professor of economics and vice-chancellor, Jahangirnagar University, is now an adjunct faculty at East West University.​
 

Are foreign investors shying away from Bangladesh?
ASJADUL KIBRIA
Published :
May 11, 2024 22:23
Updated :
May 11, 2024 22:23

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When the then finance minister presented the national budget for the current fiscal year in parliament in June last year, he had taken into consideration at least six points while making proposals regarding duties and taxes at import stages. One of the points was improving the country's position in terms of foreign investment. He also mentioned that 100 economic zones (EZs) were being established to ensure environment-friendly industrialisation and to 'enhance domestic and foreign investment along with youth employment.' In his speech, the minister also underscored the importance of foreign investment.

The issue of foreign direct investment (FDI) needs some explanation. Mentioning it in the annual budget speech is consistent with the country's medium-term development plan. A key strategic focus of the 8th Five-Year Plan (8FYP) is to accelerate FDI flows into Bangladesh through 'a massive drive to improve the investment climate and strengthen the capabilities of BIDA to do policy-based research, advocacy and deliver speedy and efficient services to foreign investors.' According to the plan document, some one-fourth of the projected 9.1-percent increase in private investment will come from FDI by the end of fiscal year 2024-25 (FY25), the terminal year of the planning period. It also set a goal to increase the FDI-GDP ratio to 3 per cent in FY25 from 0.54 per cent in FY20.

Nevertheless, available statistics showed that the country has yet to attract adequate foreign direct investment (FDI). In the last calendar year, the net inflow of FDI declined by 13.80 per cent, according to the latest statistics of Bangladesh Bank. It also showed that the net inflow of FDI decreased to $3.0 billion in 2023 from $3.48 billion in 2022.

Net FDI declined by 7 per cent to $3.20 billion in FY23 from $3.44 billion in FY22. As FY24 is yet to end, it will take some more months to get the data on the total volume of FDI in the current fiscal year. Net FDI in the first half (H1) of the current fiscal year, however, dropped by 14 per cent to $1.56 billion from $1.80 billion in the same period of FY23. So, it is unlikely that the annual inflow of FDI in the current fiscal year, which ends on June next, will cross the last fiscal's amount. Instead, there is a high chance of it falling below the FY23 as overall economic trend is sluggish in the current fiscal year.

Despite the government's efforts to attract foreign investors by relaxing rules and regulations, the annual FDI inflow data for the last calendar year suggests that the country is not yet seen as an attractive investment destination. This underscores the need to address several barriers that hinder the improvement of the investment climate. These include regulatory uncertainty, trade logistics and infrastructure inefficiencies, labour productivity and skill development, and a challenging business taxation environment.

Last year, the Foreign Investors' Chamber of Commerce & Industry (FICCI), representing more than 200 foreign companies operating in the country, prepared and published a comprehensive paper focusing on the challenges and opportunities of FDI in the country. The paper outlined a series of barriers and also presented a set of recommendations to overcome these. Thus, the challenges and barriers to attracting more FDI are well known.

It is also well known that developing countries like Bangladesh require more institutional frameworks to encourage investors to remain in the country. Inconsistent institutional and legal frameworks may lead to a lack of confidence in the domestic economy, leading foreign investors to divest, withdraw, or reduce their investments.

The central bank's annual statistics also showed that the gross inflow of FDI was $3.97 billion last year due to a decline of around 18 per cent from $4.83 billion in 2022. The amount of disinvestment was $1.34 billion in 2022, down to $0.96 billion last year. Disinvestment includes capital repatriation, reverse investments, loans given to parent firms and repayments of intra-company loans to parent firms. The amount of net FDI is derived after deducting the amount of divestment from gross FDI,

For FDI, disinvestment is not an unusual thing. Nevertheless, the ratio of disinvestment in terms of gross FDI has increased for the last couple of years. In 2017 and 2018, the ratio was 20 per cent, which jumped to 28 per cent in 2019. It moderated in the next two years to 24 per cent and 25 per cent and again increased to 28 per cent in 2022. The disinvestment to gross FDI ratio in the last year stood at 24.30 per cent. As disinvestment is almost one-fourth of the gross FDI for the last half-decade, it needs some examination.

Again, economic zones (EZs) have attracted a tiny amount of FDI in the last two years. In 2022, the EZs received a net FDI worth $2.47 million, which increased to $8.2 million in the previous year. So far, only six government-owned EZs are in operation, although in total, 68 EZs got approval. In addition, 29 EZs have also got permission for setting up by private investors. Yet, only five EZs are in operation. Currently, around 50 factories are operating in 11 government and private EZs. So far, the proposed amount of FDI stood around $1.40 billion in these EZs. Thus, the high expectation that EZs will draw a big chunk of FDI within a decade will take more time to be realised. The crisis and instability in the country's foreign exchange market during the last two years may also discourage potential foreign investors. And there is no quick fix to attract a higher amount of foreign investment within a year or two.​
 

Reserves fall below $19 billion, first time in 11 months
$1.63 billion of ACU payment was settled today

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Bangladesh's foreign exchange reserves fell below the $19 billion-mark for the first time in 11 months.

It hit $18.26 billion today after the central bank settled $1.63 billion worth of import bills of two months through the Asian Clearing Union (ACU), an arrangement for settling transactions, Bangladesh Bank Spokesperson Md Mezbaul Haque told The Daily Star.

The country's gross foreign exchange reserves were at $19.82 billion on May 8, as per the calculation method of the International Monetary Fund (IMF).

Bangladesh Bank began calculating forex reserves according to the method of the IMF in July 2023.

On July 13 last year, foreign exchange reserves were $23.56 billion.

However, Bangladesh Bank says, according to its calculation, the forex reserves now stands at $23.71 billion after the ACU payment, down from $25.27 billion on May 8.​
 

A catch-all tax dragnet likely in new budget
Finance minister-NBR meet agrees on IMF cues
DOULOT AKTER MALA
Published :
May 13, 2024 00:03
Updated :
May 13, 2024 00:03

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Zero-rated import taxing is no more as a catch-all tax dragnet is being set in the upcoming budget to spare none, nor even the special- privilege-enjoying lawmakers, sources say.

A provision of nominal taxes is envisaged to replace the complete waiver, as part of a latest plan to enhance Bangladesh's low tax-GDP ratio.

In the first place, the National Board of Revenue (NBR) may withdraw the duty-free benefit on import of cars by the lawmakers in the next fiscal year.

The government revenue authority, on the other hand, is considering slashing corporate-tax rate by 2.5 per cent by tagging some conditions for availing the benefit in the FY 2024-25.

Sources in the NBR said the proposals were placed in a meeting Sunday with Finance Minister Abul Hassan Mahmood Ali and State Minister for Finance Waseqa Ayesha Khan, at the pinnacle of budget-making process.

Officials said the proposals received "positive nod" from the finance minister and might be finalised in a meeting with Prime Minister Sheikh Hasina, scheduled for tomorrow (May 14).

As per the Customs Act, a number of capital machinery, agriculture inputs and some raw materials for manufacturing sector are entitled for zero-duty import.

In the meeting with the NBR, held at its office, the minister instructed framing fiscal measures with sights on "current economic perspectives and in a business-friendly manner" so as to strike a balance between government vision and recommendations of the International Monetary Fund (IMF).

"Make a cautious move on phasing out tax exemptions considering survival of the local industries," the finance minister was quoted as saying in his direction.

The minister also suggested keeping the tax benefit for Information and Communications Technology (ICT) in a modified form for next year.

The tax benefit for ICT sector is destined to expire on June 30, 2024.

Income Tax, VAT and Customs wings of the NBR placed their budget proposals in separate meetings with Mr Mahmood.

The customs wing proposed to phase out tax benefit from import of finished goods and cut a bunch of tariff protections to encourage domestic industries to export their goods.

Tax officials said take it as an "uphill task to frame fiscal measures balancing two aspects -- increasing tax-GDP ratio and focus on business-friendly taxation.

As per the IMF prescribed target, the NBR will have to raise its tax-GDP ratio, currently 7.9 per cent, by 0.5 percentage point in the next FY.

NBR officials said they have to phase out the tax breaks from the industries that became self-reliant with the fiscal incentives and developed capacity to pay taxes.

On imposing a nominal tax replacing zero rate, the officials said industries "will have to develop tax- payment culture by starting to pay a nominal amount of taxes".

Currently, Customs have six base rates as Customs Duty (CD) such as 0, 1, 5, 10, 15, 25 per cent. As per graduation criteria for Bangladesh to be a middle-income country by 2026, the customs will have to cut down the highest slab by 5.0 percentage points to 20 per cent.

It will also have to cut back on the minimum value of import goods as per Trade Facilitation Agreement (TFA) of the World Trade Organisation.

Currently, a Member of Parliament is entitled to duty-free benefit on import of one car in his/her tenure. The provision was introduced during the Ershad rule, on May 24, 1987.

Almost all MPS availed the duty-free benefit earlier to import luxury cars, which raised controversies on alleged handing over the car to a third party earlier.​
 

Make budget tight, control inflation
PM asks finance ministry

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Prime Minister Sheikh Hasina yesterday directed the finance ministry to formulate a contractionary budget for the upcoming fiscal year to control inflation.

During a meeting with officials from the finance ministry, Bangladesh Bank, and the National Board of Revenue (NBR) at the Gono Bhaban, PM Hasina mentioned that developed countries like the United States and Japan increased their policy interest rates to curb inflation and suggested similar measures in Bangladesh.

She asked for prioritising pledges made in the government's election manifesto while preparing the next budget and directed the continuation of the existing austerity measures for different ministries and divisions.

The PM also directed the NBR to broaden its tax net rather than putting pressure on taxpayers and to take various measures to increase revenue collection.

She discouraged the import of luxury items and expressed dissatisfaction over the import of items like plastic flowers.

Hasina asked the finance ministry to consider increasing the number of beneficiaries of social safety net programmes.

According to meeting sources, finance ministry officials assured the premier that pressure on the country's foreign currency reserves would ease and inflation would fall starting in December.

The meeting saw a presentation on the next budget prepared by the finance ministry.

According to the presentation, the government plans to design a Tk 7,96,900 crore outlay in the new budget with a focus on tight spending as economic headwinds are expected to persist.

The draft budget is 4.6 percent bigger than the original budget for the current fiscal year.

The next Annual Development Programme (ADP) allocation will be Tk 2,65,000 crore, an increase of 0.76 percent.

Finance Minister AH Mahmood Ali, State Minister for Finance Waseqa Ayesha Khan, Finance Secretary Khairuzzaman Mozumder, Bangladesh Bank Governor Abdur Rouf Talukder, and NBR Chairman Abu Hena Md Rahmatul Muneem attended the meeting.​
 

Rooppur, Matarbari, metros to get highest ADP allocation

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The government is set to increase budget allocation for quick completion of the Rooppur nuclear and Matarbari coal-fired power plant projects.

Several metro rail projects are also going to get more funds.

The Tk 2,65,000 crore Annual Development Programme (ADP) will be placed at today's National Economic Council meeting where allocations will be finalised.

Planning ministry officials say the aforesaid projects may get Tk 34,043 crore, which is 12.84 percent of the ADP.

Six projects related to Rooppur Nuclear Power Plant are the top recipients of funds. The projects will get a total Tk 12,544 crore, up from the current fiscal year's Tk 11,621 crore.

The 2,400MW power plant, worth Tk 1,14,225 crore, is the biggest ever development project in Bangladesh. As of December last year Tk 68,248 crore has been spent. In the 2023-24 fiscal year, it got Tk 9,706 crore, while in the 2024-25 fiscal year it will get Tk 10,502 crore.

The government hopes to see it generate power by March 2025 or sooner.

Six transmission lines from the plant are being set up. Four of the lines are almost 90 percent complete, according to Power Grid Company of Bangladesh.

When the lines are set, a unit of the plant will start operation, officials said.

Setting up of lines across the Padma, which saw 40 percent progress, will be done by October, said Delwar Hossain, the project director.

There are five projects -- totaling Tk 88,492 crore -- related to the power plant in Matarbari, Cox's Bazar. In 2024-25, the projects will get Tk 14,962 crore, up from Tk 12,161 crore in 2023-24.

A unit of Matarbari 1200MW Ultra Super Critical Coal Fired Power Plant was formally inaugurated in November last year and it has been generating power without hiccups. The other unit is set to begin operation by July.

An official of the power division said a substation needed for the plant is being built.

Project Director Abul Kalam Azad told The Daily Star that the work related to power transmission will hopefully be complete by June.

"The existing lines are able to supply up to 900MW. When the work is done, it will be able to handle 1,200MW," he said.

As per the proposed ADP, construction of the power plant will get Tk 6,105 crore. The power transmission system costs Tk 1,024 crore, and Tk 656 crore of it has been spent.

Three projects related to Matarbari port are worth Tk 35,614 crore. In the next fiscal year, they will get Tk 8,758 crore, up from Tk 2,666 crore in 2023-24.

Three metro rail projects worth Tk 1,28,687 crore, are going to get Tk 6,537 crore.

The Uttara-Motijheel part of MRT line 6 is complete, and the ADP proposes Tk 1,975 crore to build the part from Motijheel to Kamalapur.

Two other metro rail projects -- MRT Line 1 (Airport-Purbachal-Kamalapur) and MRT Line 5 (Hemayatpur-Bhatara) -- are making progress. The initial activities are done. The main construction work will begin in the upcoming fiscal year.

The MRT-1 would cost Tk 53,977 crore, and MRT-5 Tk 41,238 crore. The proposed ADP allocates Tk 3,594 crore and Tk 968 crore for them respectively.​
 

Next budget will be challenging than previous years: Debapriya
High inflation, rising pressure on external account to slow down economy, the economist said

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Preparing national budget for the next fiscal year will be more challenging than any previous years as the Bangladesh economy is passing through a tough time and the geopolitical developments are influencing the economy, Debapriya Bhattacharya, a distinguished fellow at the Center for Policy Dialogue (CPD), said today.

The economy is reeling from high inflation and rising pressure on the external account, he said, adding that economic activities are slowing down too.

"Under the circumstances, ensuring macroeconomic stability should be the topmost priority. It is like diabetes. If we cannot control it, it affects the rest of the organs of the body."

The economist made the comments at a discussion on the budget for 2024-25 fiscal year.

Private television channel NTV organised the programme at Pan Pacific Sonargaon Dhaka this evening.

Steps to control inflation will get priority in the upcoming national budget, Waseqa Ayesha Khan, state minister for finance, said at the event.

Along with this, there will be a system to ensure social security, she said, adding the fiscal measures will be designed to attain the commitments made in the Awami League's manifesto declared before the election.

She said the upcoming budget will incorporate the measures to reduce unemployment.

Mashiur Rahman, economic affairs adviser to the prime minister, said they will take measures to ensure socio-economic progress.

Moderated by Mahbubul Alam, president of the Federation of Bangladesh Chambers of Commerce and Industry; Saleh Uddin Ahmed, former governor of Bangladesh Bank; Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association, and Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh, also spoke at the occasion.​
 

Bangladesh expands offshore banking in hunt for forex

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Offshore banking is increasingly becoming a key window for banks in Bangladesh to facilitate investments and international trade by attracting deposits in foreign currencies.

Industry people say offshore banking can even play a crucial role in mitigating the persisting foreign currency crisis in the country by extending liquidity support and stabilising the local currency.

"Deposits of offshore banking will be a major source for US dollars," said Mashrur Arefin, managing director and chief executive officer of City Bank, which has stepped up efforts to draw foreign deposits through offshore banking operations (OBOs).

It started its journey in 1985 as the central bank created financing opportunities for factories at the export processing zones – the estates set up to drive the country's export earnings – by providing banking service to importers, exporters, and financial institutions.

The segment received more attention in recent years, particularly after Bangladesh began to feel the pinch following a sharp depletion of foreign currency reserves.

In March this year, parliament passed the Offshore Banking Act 2024 to give a much-needed boost to the country's desperate efforts to improve the US dollar supply, which has squeezed in the past two years owing to higher outflows compared to inflows.

The BB has relaxed rules and policies to allow both Bangladeshis and foreign nationals to avail the service. It has permitted domestic commercial banks' OBOs to offer an interest or profit rate markup over a benchmark rate for term deposits in foreign currencies to eligible customers.

The customers include individuals and entities residing outside the country, non-resident Bangladeshis, persons of Bangladesh origin, foreign nationals, companies registered and operating abroad, and external institutional investors.

The central bank has allowed domestic banking units to receive funds from OBOs up to 40 percent of their regulatory capital to settle payment obligations.

OBOs can be executed in five currencies: the US dollar, the British pound, the euro, the yen, and the yuan.

Currently, about 40 banks have offshore units. At the end of September, the total outstanding loans of OBUs stood at Tk 83,826 crore.

Investors enjoy tax-free profit of up to 8.40 percent on fixed deposits in the USD or the euro for terms ranging from three months to five years. They are also able to transfer funds internationally without any restriction along with profit.

"The offshore banking system has become a new avenue for the dollar supply apart from exports and remittance. Offshore banks' fixed deposits can be used to cover the cost of imports," Arefin said, adding that the dollars obtained through OBOs are sold on the interbank foreign exchange market.

Currently, City Bank has deposits amounting to $23 million under its offshore banking unit. "Our target is to raise it to $1 billion," the noted banker said.

There are two ways to open offshore banking accounts: one is for those residing in Bangladesh and the other is for those who live abroad.

Any representative of expatriates, such as family members and relatives, or partner of a foreign investor residing in Bangladesh can open accounts. Similarly, expatriates and foreign investors can do the same.

"We call it international bank accounts. City Bank mobilised $29 lakh through the accounts opened from abroad," Arefin said.

City Bank is providing the facility to open dollar accounts for offshore deposits at its 175 branches.

Mohammad Ali, managing director and CEO of Pubali Bank, said the offshore banking has a huge potential in Bangladesh.

"Our reserves are small. If we can promote it properly, every bank can mobilise billions of dollars through the offshore banking."

Pubali Bank is developing software and a mobile app so that anyone can open accounts and do banking from abroad.

"We hope to complete all procedures by next two months."

Mohammad Ali said if Bangladeshi expatriates deposit money at OBOs, import obligations can be met with the funds as well as from remittance and export earnings.

"Then, the forex reserves will go up automatically."

Speaking about the prospect of offshore banking, both Arefin and Mohammad Ali gave the example of Mauritius, an Indian ocean island nation with only about 1.3 million population.

"This country has a balance of $800 billion under offshore banking," Arefin said.

"We have a huge economy with 17 crore population. If more people are informed about the advantages of this banking relationship, there is a possibility of bringing $50 billion under OBOs."​
 

Hasan Mahmud invites Spanish investment in SEZs, Hi-tech parks
Published :
May 17, 2024 23:51
Updated :
May 17, 2024 23:53

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Foreign Minister Hasan Mahmud has invited Spanish investment in special economic zones (SEZs) and hi-tech parks in Bangladesh availing various fiscal and non-fiscal incentives for mutual benefit.

Highlighting the contributions of Bangladesh's sixty thousand expatriates to the economies of both Bangladesh and Spain, the Foreign Minister suggested that the two countries may consider concluding a bilateral instrument for legal migration of professionals and skilled workers from Bangladesh to Spain.

Hasan also underscored the ample opportunity of emboldening cultural exchange and cooperation between the two friendly countries, according to a UNB report.

The issues were discussed when Ambassador of Spain to Bangladesh Gabriel Sistiaga Ochoa de Chinchetru had his maiden courtesy meeting with the Foreign Minister on Thursday.

Hasan congratulated Gabriel Chinchetru for his appointment as the Ambassador of Spain to Bangladesh and hoped that bilateral relations between our two friendly countries would be further strengthened during his tour of duty in Dhaka.

The Foreign Minister expressed satisfaction over the excellent bilateral relations between Bangladesh and Spain and thanked Spain for being the second largest destination of Bangladesh's merchandise exports as well as the second largest host of Bangladesh Diaspora in the European Union (EU).

The Spanish Ambassador stated that concluding a bilateral instrument on migration and mobility between Bangladesh and Spain in line with the spirit of EU's Pact on Migration and Asylum would be beneficial for both the countries.

He also assured to expand business and investment as well as cultural ties between the two countries, according to the Ministry of Foreign Affairs.

The Ambassador also met Foreign Secretary Masud Bin Momen.

They discussed the potential to broaden cooperation and harness mutual capacities in areas like bilateral commodity trade as well as orderly and skilled migration and mobility from Bangladesh to Spain.​
 

IMF satisfaction: Respite or disquiet for Bangladesh?
Farid Khan
Published: 18 May 2024, 10: 14

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The post-Covid global recession and spiralling costs of fuel import triggered by the Russia-Ukraine war, put considerable strain on Bangladesh's foreign currency reserves. Having no other alternative, Bangladesh turned to the International Monetary Fund (IMF), seeking a loan.

In January 2023 IMF pledged to lend Bangladesh USD 4.7 billion on certain conditions, including that subsidy on the energy sector be lifted.

IMF gave Bangladesh directives to increase the foreign currency reserves, to increase the tax-GDP ratio by 0.5 per cent within June 2023, and to move to a formula-based price adjustment mechanism by December 2023 to fix the cost of fuel oil.

Also, in its first review in December 2023, IMF advised Bangladesh to take up a contractionary monetary policy to control the prevailing high inflation rate in the country and to follow a flexible exchange rate policy.

With the January 2024 election ahead, the government refrained from fulfilling those conditions. However, in order to avail the next tranche of the loan, this month it has left the interest rate entirely to the market and so increased the policy interest rate by 50 basis points to 8.5 per cent.

After taking up a flexible exchange rate policy, the exchange rate of the dollar was hiked by Tk 7 to the highest the country has ever seen, at Tk 117, under the crawling peg exchange rate system.

Also, a formula-based energy price adjustment mechanism was implemented for petroleum products. The donor agency IMF is satisfied with these financial reforms carried out by the government.

And the end of the second review this month, the IMF mission chief Chris Papageorgiou apprised the media of its satisfaction, saying there needs to be more reforms in the banking sector and emphasis must be placed on tax and revenue collection. He also stressed the need on curbing subsidies in order for the economy to turn around.

The matter that must be given due consideration is how much respite will this satisfaction of IMF offer the country, and how must relief will these reforms give the people for whom the loan has been taken.

Ever since this loan was taken from the IMF, the country has seen one record after the other. There has been a record in the hike of energy prices, the dollar rate has hit a record high, the reserves have hit a record low. And above all, the people are floundering under the record hike in the prices of essentials. IMF's satisfaction has offered the people no respite. It has simply served to increase their distress further.

On the eve of receiving the loan, in January 2023 Bangladesh's central bank authorities said that fighting against inflation was Bangladesh Bank's top priority and that they aimed to bring down inflation to 6 per cent that year. That aim was not met. The prices of essential continue to increase in leaps and bounds.

Even by taking the path shown by IMF and following their prescription, the projected inflation rate could not be achieved. On the contrary, it has increased. They reason for this increase, the say, is the global contractionary financial policies, high commodity and food prices in the international market, and internal weaknesses.

Inflation is increasing steadily for these reasons and foreign currency reserves are dwindling. This is increasing pressure on the economy and macroeconomic challenges are growing more complex.

When the country's economy is unsteady amid the uncertain and tumultuous global circumstances, and the financial sector is fragile, it is certainly extremely daring to take up a new method of determining the exchange rate and deciding on formula-based energy price adjustment.

A handful of Latin American countries took up this strategy to determine exchange rates, but many of them later moved away from this system.

On one hand there is the post-pandemic weak economy and the war-hit global market. On the other hand there is forecast of economic recession and fear of an extreme food shortage. Under such circumstances, serious thought must be given to whether the unknown and uncertain path shown by IMF will lead the country's economy to happier climes or pose as a risk.

IMF has greeted this daring decision taken by the government for financial reforms. Liberalising the interest rates and taking up a contractionary monetary policy will help in relieving the pressure of inflation caused by reforming the exchange rate.

It is clear that there are all apprehensions that financial reforms will create new pressures, adding salt to the wound of the people squirming under the pressure inflation. Reforms in the exchange rate have pushed the price of the dollar up by 6 per cent, which in simple math translates directly into a 6 per cent rise in the prices of import-dependent. By the same formula, the import costs of fuel oil will increase proportionately, leading to increased import expenditure.

The bottom line is, Bangladesh in undoubtedly facing challenging times. Attempting to salvage an economy in deep crisis by entangling it a web of reform conditions, is akin to trying to teach a drowning man to swim, rather than just pulling him out of the water. The results in both instances can be disastrous.

The increase in dollar rates means costs on foreign loans will go up. This multidimensional effect of increased dollar rates will put added pressure on foreign exchange reserves, and these reforms will push inflation up further.

Also, in post-war times, the economic depression in western countries can have an effect on Bangladesh's export revenue in the coming days. Meanwhile, the Middle East is in a state of unrest due to the Israeli aggression in Palestine, which may have a negative impact on remittance. These factors may lead to a drastic drop in foreign exchange reserves and the writing is already on the wall.

At a juncture where the country's financial sector is already unstable and fragile, leaving the interest rate to the market may make this sector even more unstable.

If interest rates go up, loan expenditure in the private sector and investment costs will go up. This creates apprehensions that investments may decrease in the market. That may lead to increased capital flight, and many workers may lose their jobs.

There are strong misgivings that these multidimensional contractionary financial policies will ultimately dash to the ground all hopes of a fall in inflation and a durable foreign sector.

There is no doubt that we are bound to a larger extent to follow the IMF recommendations or directives for financial reforms. But there are questions regarding the logic in the timing selected to implement these reforms. This is questioning the capacity and sovereignty of our financial sector.

We are in a flurry to meet the IMF conditions, but are we able to uphold the interests of the people of Bangladesh? Past experience has left a bitter taste in our mouths.

In the past, IMF has never been able to be anyone's real friend or guardian. A study of Oxfam reveals that in countries that have been transformed into high debt-ridden countries due to IMF loans, it becomes impossible to repay the loans at the same as time as investing in the education, health, social welfare and development sectors.

The bottom line is, Bangladesh in undoubtedly facing challenging times. Attempting to salvage an economy in deep crisis by entangling it a web of reform conditions, is akin to trying to teach a drowning man to swim, rather than just pulling him out of the water. The results in both instances can be disastrous.

How can this challenge be tackled? That's a million dollar question. But if domestic revenue is increased, stern austerity measures are put in place, corruption is clamped down upon and good governance is established, it will at least put some wind in the sails.

* Farid Khan is a professor at the department of economics, Rajshahi University.​
 

Bangladesh financial sector in red zone: Oli Ahmed
UNB
Published :
May 18, 2024 23:44
Updated :
May 18, 2024 23:46

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Liberal Democratic Party (LDP) President Oli Ahmed on Saturday voiced concern over the country's "deteriorating" economic condition, saying that Bangladesh's financial sector has now entered the red zone.

Speaking at a press conference at his party's Moghbazar office, he also warned that if the prevailing economic situation persists, it could deeply harm the country's progress and development and undermine the social and economic stability of the nation.

"The Bangladesh bank reserves are now alarmingly declining amid a visible liquidity crisis of local currency. There is stagnation in business with inflation surpassing 10 per cent. The local currency has depreciated by 38-51 per cent over the last two years, and cash flow within banks has also decreased
 Bangladesh's financial sector has entered the red zone, indicating a significant economic risk," Oli observed.

The veteran politician said feared that the country's economy may seriously collapse anytime as it is now going through a unstable situation. "We think if this situation continues for long, the country will suffer further, leading to inevitable chaos. It might even go beyond control."

He also attributed the current state of the country to the government's failure in running the country. "The present government has been ruling the country in the Baksal style for the past 15 years. I will tell them, for the sake of Allah, stop it and give the people a chance to form the government through their votes."

The LDP leader called upon Prime Minister Sheikh Hasina to come out of her misconception that the country will not function without her.

Oli, a former minister, depicted a sorry state of the country by highlighting the issues of the growing unemployment rate, foreign debt, defaulted loans, corruption, irregularities in commodity prices, the spread of drugs, mismanagement of roads, the poor condition of the education system, and oppression of opposition leaders and activists, including implicating them in different cases and jailing them in false cases.

He alleged that the government is whimsically enacting new laws to stay in power illegally by repressing and suppressing its opponents and the common people. "Justice must be ensured in the country. Otherwise, peace will never return to the country, and the uncomfortable situation will never end."

In such a situation, he called upon people from all walks of life, including farmers, workers, youth, and students, to get united with fresh vigour for the establishment of democracy and justice in the country.

Oli said their party, together with BNP, will soon announce fresh programmes to unseat the current government from power. "All unite and prepare to oust this Baksal regime through united efforts."

He slammed the Indian government as he thinks it is directly and indirectly responsible for destroying democracy in Bangladesh and establishing dictatorship in the country.

"We have no negative attitude towards the people of India. It is our hope that the Indian government will focus on establishing friendship between the people of Bangladesh and the people of India, refraining from associating with any particular person or party," Oli said.​
 

NSC sales plunge amid high inflation in Bangladesh
Staff Correspondent 21 May, 2024, 22:08

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A file photo shows clients receiving services at a branch of a state-owned bank in the capital Dhaka. The net sales of national savings certificates plummeted in the July-March period. | New Age photo
The net sales of national savings certificates plummeted in the July-March period.

Bankers said that the sales of the instruments plunged, as people were living off their savings amid soaring commodity prices

According to Bangladesh Bank data, the net NSC sales were Tk 12,545 crore negative in the July-March period of the financial year 2023-24, compared with a negative Tk 4,161 crore in the same period in the previous year.

In March alone, the net sales figure plummeted to a negative Tk 3,653 crore, against negative Tk 652 crore recorded in the same month of the previous year.

This negative trend in net sales occurs when the repayment of the principal amount exceeds the sales, leading to a net outflow of funds from the government's exchequer or through loans taken from the banking system.

Bankers said that people were living off their savings due to acute and prolonged inflationary pressures in the country.

They said that many individuals lacked extra funds for savings and investments due to rising living costs.

Bangladesh's overall inflation rate reached 9.74 per cent in April, remaining over 9 per cent since March 2023.

To read the rest of the news, please click on the link above.
 
Per capita income increased to US$2784 in FY 2023-24: BBS
UNB
Published :
May 21, 2024 19:52
Updated :
May 21, 2024 21:35
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The per capita income of Bangladesh stands at US$2784 in the current fiscal year, slightly higher than the previous fiscal year.

Bangladesh Bureau of Statistics (BBS) released the periodic data on Monday. The end of the current fiscal year is just a few days away. The BBS prepared this projection from an existing trend of the economic situation.

BBS says that by the end of FY 2023-24, the provisional GDP growth will stand at 5.82 per cent, which was 5.78 per cent in the previous FY2022-23.

At present the per capita income in terms of taka is Tk 0.361 million, which in the last financial year was Tk 0.273 million. The amount of per capita income in the local currency increased due to the devaluation of taka.​
 
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Why is it taking so long to stabilise the economy?

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VISUAL: SHAIKH SULTANA JAHAN BADHON

Bangladesh's economy showed remarkable signs of swift recovery from the adverse effects of Covid-19, but this progress was cut short by the advent of serious macroeconomic imbalances in April 2022. These imbalances are reflected in high inflation, depleting foreign exchange reserves, pressure on the exchange rate, shrinking capital inflows, and pressure on the budget. To address the stabilisation issues, the government entered a four-year programme with the International Monetary Fund (IMF). Implementation of the second year of the programme is currently underway.

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How sharp depreciation of taka affects Bangladesh's GDP per capita

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The rapid depreciation of the taka against the US dollar has had a noticeable impact on the country's economic growth, as evidenced by the recent GDP data published by the Bangladesh Bureau of Statistics (BBS).

Per capita GDP in taka terms has shown a steady growth from the fiscal year of 2020-21 to 2023-24, rising from Tk 208,751 to Tk 294,191. It was Tk 262,868, meaning it rose 12 percent in the current financial year.

Per capita GDP in dollar terms, however, has not followed the same trend.

In 2021-22, per capita GDP in dollars rose to $2,687 from $2,462 in FY21. However, it fell to $2,643 in FY23 before slightly recovering to $2,675 in the current financial year, up 1.2 percent year-on-year.

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