[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Forex reserves rise by $180 million in a week

Reserves hit $18.61 billion on May 21, up from $18.43 billion on May 15

www.thedailystar.net

Forex reserves rise by $180 million in a week
Reserves hit $18.61 billion on May 21, up from $18.43 billion on May 15

Bangladesh's foreign currency reserves have risen to $18.61 billion on May 21, an increase of $180 million from a week ago, central bank figures showed.

It was $18.43 billion on May 15, according to a central bank calculation based on the International Monetary Fund's Balance of Payment Manual 6.

The Bangladesh Bank began calculating forex reserves in line with the new method in July last year as per suggestions of the lender, which approved a $4.7 billion loan in January that year.

Tuesday's reserves were far lower than the $41 billion the country reported in August 2021. Since then, import payments have risen faster than remittance earnings and exports, bringing the reserves to the current level.

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[Saif]

Budget For Fy25: 53pc rise in allocation for debt servicing

The government’s allocation to repay foreign debts may reach Tk 57,000 crore in the next budget, a 53 percent rise from the current year, putting further pressure on the country’s dwindling foreign currency reserves.

www.thedailystar.net

Budget For Fy25: 53pc rise in allocation for debt servicing
Spiralling amount will put strain on reserves, say experts

The government's allocation to repay foreign debts may reach Tk 57,000 crore in the next budget, a 53 percent rise from the current year, putting further pressure on the country's dwindling foreign currency reserves.

The interest payments for increasing levels of foreign loans in recent years and the tumbling value of the taka against the US dollar have forced the government to set aside more for debt servicing.

Allocation for foreign debt repayment has been Tk 37,076 crore in the current fiscal year, according to the finance ministry.

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[Saif]

Budget for FY25: Scope likely for legalising black money

The government is thinking about allowing again undisclosed money to be legalised and laundered money to be brought back home through formal channels in the next budget.

www.thedailystar.net

Budget for FY25: Scope likely for legalising black money
Govt also mulling ways to bring laundered money home

Illustration: Collected

The government is thinking about allowing again undisclosed money to be legalised and laundered money to be brought back home through formal channels in the next budget.

A finance ministry official said the National Board of Revenue and Bangladesh Bank are trying to find out ways this could be done.

The official said they were considering to impose a 15 percent tax on legalising black money.

Similar steps had been taken in the past, but the result was not as expected, the official added.

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[Saif]

Most economic indicators on the downtrend

Discover how economic indicators like inflation, dollar crisis, and foreign exchange reserves are worsening, putting pressure on Bangladesh's economy and banking sector.

en.prothomalo.com

Most economic indicators on the downtrend
Shanaullah SakibDhaka
Published: 27 May 2024, 11: 54

Most of the economic indicators--inflation, dollar crisis, foreign exchange reserves have worsened, resulting in mounting pressure on the overall economy.

The cost of doing business has gone up as Bangladesh Bank has increased the interest rate.

The banking sector has become fragile as money is being taken from banks in names, real and false.

Panic has spread due to the initiative for the forceful bank mergers. At least three banks are struggling to return depositors' money, according to the central bank and officials in the sectors concerned.

Although the Covid pandemic hit the economy, the economic indicators were better at the time.

The economic indicators started to worsen mid-2022.

Bangladesh Bank at the time said the crisis would end by December. Later, the crisis intensified. Now the central bank assures businessmen that the crisis will go by December this year.

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[Saif]

Why are IMF policies failing to stabilise our economy?

Why does macroeconomic instability continue to plague Bangladesh even after partnering with the IMF?

www.thedailystar.net

Why are IMF policies failing to stabilise our economy?

During its latest partnership with the International Monetary Fund (IMF), Bangladesh has been experiencing high inflation for the past 22 months, its economic crisis worsening gradually. Financial account deficits have surpassed $9.26 billion. With outstanding payments across various sectors like electricity, aviation, fuel imports, and various digital sectors, the net reserves have plummeted to just $13.8 billion, a situation reminiscent of nine years ago. The continuous dollar crunch and dollar payment crisis have persisted for the past 22 months, further strangling the country's business and employment sectors due to LC's substandard control.

Meanwhile, the government is also suffering from a local currency crisis. Being unable to make due payments in taka, it decided to issue special bonds worth nearly Tk 26,000 crore. Nearly half of the new foreign loans are being used to pay the interest and principal on unscrupulous loans taken in the past. The country has witnessed the highest depreciation in the value of taka during this time. So, the question arises: Why does macroeconomic instability continue to plague Bangladesh even after partnering with the IMF?

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[Saif]

Bangladesh could be a regional trade hub

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

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Bangladesh could be a regional trade hub
Says Canadian trade representative

Paul J Thoppil

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

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

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

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

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

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

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

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

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

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

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[Saif]

Taxes on basic consumer commodities being halved

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

thefinancialexpress.com.bd

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

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

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

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

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

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

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

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

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

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

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

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

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​

 

[Saif]

Dollar crisis deepens economic woes in Bangladesh

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

www.newagebd.net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[Saif]

Budget deficit to remain high in next fiscal year also

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

thefinancialexpress.com.bd

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[Saif]

Time to exploit the potential of local partners and products

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

www.thedailystar.net

Time to exploit the potential of local partners and products

Photo: Prabir Das

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

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

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

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[Saif]

WB to give $500 million as budget support

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

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WB to give $500 million as budget support

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[Saif]

‘Booming’ economy, struggling people

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

www.thedailystar.net

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

VISUAL: SHAIKH SULTANA JAHAN BADHON

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

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

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

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[Saif]

Narrowest budget deficit in a decade as govt to curb expenses

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

www.thedailystar.net

Narrowest budget deficit in a decade as govt to curb expenses

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[Saif]

Govt missteps led to economic deterioration

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

www.thedailystar.net

Govt missteps led to economic deterioration

Says Prof Muinul

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

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

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

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

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

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

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

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

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

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

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[Saif]

Saarc nations contribute below 1% of remittance to Bangladesh

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

www.thedailystar.net

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

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

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

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

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

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

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

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