🇧🇩 Monitoring Bangladesh's Economy (3 Viewers)

[Saif]

Govt’s overreliance on banking sector will create disorder in financial sector

The government’s overdependence on the banking sector to finance its budget deficit will affect the financial sector as well as hurt private sector investment and employment generation, according to experts.

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Govt's overreliance on banking sector will create disorder in financial sector
Experts say in post-budget discussion at Dhaka University

VISUAL: SALMAN SAKIB SHAHRYAR

The government's overdependence on the banking sector to finance its budget deficit will affect the financial sector as well as hurt private sector investment and employment generation, according to experts.

"Again, like every year, the government's overdependence on the banking sector to finance the budget deficit will create chaos in the financial sector," said M Abu Yusuf, director of the Centre on Budget and Policy at the University of Dhaka.

The centre organised the event on the campus premises.

While presenting a keynote paper, titled "Review of Proposed Budget 2024-25: Macroeconomic Reintegration, Education and Employment", he said the deficit in this year's budget stood at Tk 256,000 crore, which is 4.6 percent of the GDP.

To finance the budget deficit, the government has set a domestic loan target of Tk 160,900 crore, of which Tk 127,200 crore will come from the banking sector, he said.

However, if the budget deficit is financed by money collected from savings certificates or pension schemes, it will provide financial security to the middle class and provide safe credit facilities for the government, Yusuf added.

Although inflation is above 9 percent, food inflation is about 15 percent to 18 percent, he said.

"Reducing the double-digit inflation rate will be the biggest challenge for the government. It is having a direct impact on people's lives and causing social and political instability."

Yusuf added that some more measures could have been taken to tackle inflation.

The social and financial impact of inflation could have been controlled by reducing the size of the budget and lowering the value-added tax (VAT) and import duties on various commodities as an emergency measure, he said.

Moreover, the income tax ceiling could have been increased to give some relief to people from lower and middle-income backgrounds.

He added that 14 percent of the budget would be spent on interest payments, almost equal to the total allocations for the education and health sectors.

"This is a matter of concern for us as our reserves have dwindled a lot," he observed.

Former planning minister MA Mannan, Dhaka University Vice-Chancellor Prof ASM Maksud Kamal, and Research and Policy Integration for Development Chairman MA Razzaque were among others who spoke at the event.​

 

[Saif]

Three major barriers to economy’s progress

Strategic inefficiency, institutionalisation of corruption, and a lack of accountability are the three major barriers blocking the smooth progress of the economy, said economists, entrepreneurs and politicians yesterday.

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Three major barriers to economy's progress
Speakers say strong political will needed to address inefficiency, corruption and a lack of accountability

Strategic inefficiency, institutionalization of corruption, and a lack of accountability are the three major barriers blocking the smooth progress of the economy, said economists, entrepreneurs and politicians yesterday.

"To solve the existing problems of the economy, the country needs strong political will," said Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre, a think-tank.

The political will faces barriers such as an environment of no accountability, inefficiency in taking overall strategic steps, and institutionalisation of corruption, he said.

"These barriers need to be broken down for the development of the economy."

His comments came at a dialogue on budget at the Lakeshore Hotel in Dhaka. The Centre for Policy Dialogue (CPD) organised it.

Rahman, a former caretaker government adviser, said the country has a huge deficit in ensuring governance and development strategy.

For instance, job creation has not received the expected focus in the development strategy in the last one decade. "This is an important deficit as it is creating unemployment, and the younger generation is becoming disappointed," he said.

In a survey, the government itself has found that most of the youths are pessimistic about their future, he said.

"The country needs to raise the budgetary allocation for the education and health sectors and strengthen focus on the implementation of the budgetary plans."

Rahman, also the chairman of BRAC, said Bangladesh is trapped by inefficiency. "Ministries are showing their inefficiencies in implementing their budget."

Speaking about the quality of services, the noted economist said education and health-related investments don't just refer to infrastructural development alone. "The quality of education and health services should be upgraded."

He cited hard-working entrepreneurs and economic agents as the two golden geese of Bangladesh's economy. "Do we nurture them?"

"Entrepreneurs need a favourable business climate and reduced bureaucratic red tape.

However, the reality is they are prevalent. In order to solve these problems, a strong political will is essential."

While chairing the dialogue, Syed Manzur Elahi, a noted industrialist and a former caretaker government adviser, said governance is an important issue for the country, and if it can be ensured, 90 percent of problems of the economy will be tackled.

He said there is a leakage in both income and expenditure sides. "If these can be solved, the economy will benefit."

About the inefficiency in the energy sector, Anisul Islam Mahmud, deputy leader of the opposition in Parliament, said the capacity payment is not the main problem of the electricity sector.

"Mismanagement is the main problem. For instance, around 40 percent of power generation capacity has remained unused. Why should I pay for your mismanagement?"

He mentioned the latest chaos related to sending migrant workers to Malaysia. "People have suffered because of a syndicate."

Leakages and corrupt practices should be eliminated, and syndicates should be dismantled for the greater interest of economic development, he said. "Accountability and transparency are key to ensuring good governance in all spheres of society."

Workers and farmers have been offering much-needed lifelines to the economy year after year, but they were not given due importance in the budget, said Razekuzzaman Ratan, assistant general secretary of the Bangladesher Samajtantrik Dal.

To read the rest of the news, please click on the link above.​

 

[Saif]

Forex reserves rise by $538m in a week

Bangladesh's foreign currency reserves have reached $19.2 billion, an increase by $538 million from a week ago

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Forex reserves rise by $538m in a week
The improvement comes a month after the central bank relinquished its control over the rate-setting mechanism and introduced a more flexible exchange rate regime.
forex reserves of Bangladesh.

Bangladesh's foreign currency reserves have reached $19.2 billion, an increase by $538 million from a week ago.

The improvement comes a month after the central bank relinquished its control over the rate-setting mechanism and introduced a more flexible exchange rate regime.

The reserves were $18.67 billion a week earlier, Bangladesh Bank data showed. It was $19.82 billion on May 8. It has been calculated on the basis of the formula of the International Monetary Fund (IMF).

Central bank officials say the forex reserves are on the rise thanks to several reasons, including the flexible exchange rate known as crawling peg.

The banking regulator on May 8 introduced the Crawling Peg Mid-Rate (CPMR) for buying and selling foreign currencies and allowed banks to buy and sell US dollars freely at around Tk 117.

On June 13, the highest inter-bank exchange rate stood at Tk 118 per dollar.

Bankers are charging importers more than Tk 118 per USD. It is also offering the same rate to remitters, industry insiders said.

The relaxed rules governing offshore banking have been another reason behind the pick-up in the reserves, they added.

In March this year, the 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.

The reserves have been declining sharply since the beginning of the Russia-Ukraine war as the conflict sent the prices of commodities such as oil and gas higher, hurting import-dependent nations like Bangladesh.

However, mismanagement in the forex market, frequent policy changes by the central bank, and the gap between the official exchange rate and the unofficial one are also to blame, according to bankers.

Since August 2021, forex reserves have fallen by $24 billion.​

 

[Saif]

Economist questions growth and inflation targets for FY25

It may not be possible to simultaneously achieve both high growth and ensure macroeconomic stability as outlined in the proposed budget for the upcoming fiscal year, an expert said yesterday.

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Economist questions growth and inflation targets for FY25

It may not be possible to simultaneously achieve both high growth and ensure macroeconomic stability as outlined in the proposed budget for the upcoming fiscal year, an expert said yesterday.

Economist MA Razzaque said the policy intent in the finance minister's budget speech was clear in identifying the challenges, particularly in emphasising the need to contain inflation.

"There is no denying that Bangladesh has consistently achieved robust GDP growth for a long time. However, in light of the pressing need to address macroeconomic challenges, the strategy of stimulating economic activity through increased public spending presents a complex dilemma," he said.

He was presenting the keynote paper at a seminar, titled "FY25 Budget: An Assessment", organised by Research and Policy Integration for Development (RAPID) at the Jatiya Press Club in the capital.

Razzaque, chairman of RAPID, said some of the proposed measures suggest there is an aim to balance the dual objectives of managing growth and development ambitions while reinforcing stabilisation efforts.

However, in the end, it appears that, much like in previous years, the policy approach to those problems remains insufficient and lacks the decisive action needed to address the issues effectively, he said.

Razzaque also said that the budget deficit proposed for FY25 remained largely unchanged from FY24 at 4.6 percent of GDP.

So, even though there is a renewed emphasis on addressing rising price levels, there is no policy intent to reduce the budget deficit, which is known to be an important factor in inflation management, he added.

"Then there is the fundamental question of whether it is possible to achieve the high growth rate set for FY25 at 6.75 percent with the current inflation level of 10 percent," Razzaque said, adding that the proposed budget set the target to reduce inflation to 6.5 percent.

He said restoring economic stability is intrinsically linked with the government's ability to mobilise sufficient revenue.

But despite setting ambitious tax collection targets annually, those goals often remain elusive.

Binayak Sen, director-general of the Bangladesh Institute of Development Studies, said the government has adjusted policies based on global and local conditions.

He pointed out that the foreign exchange regime has been made almost market-based, and the interest rate control has been withdrawn.

However, Sen expressed his disappointment over the universal pension scheme, saying that there was a problem from both the demand and supply sides.

"The government should think about it."

In the proposed budget for the upcoming fiscal year, an ambitious revenue collection target of Tk 541,000 crore has been set, which is 13.2 percent higher than that in the revised budget of FY24, Razzaque said.

Additionally, the National Board of Revenue (NBR) has been tasked with collecting about 89 percent of the total revenue.

But that may not be achievable, according to Razzaque, especially since the tax authority could meet only 63 percent of its revenue collection target in FY24.

Speaking about the budget deficit, he said the annual development programme (ADP) spending had been fully financed through the budget deficit in recent years, with reliance on both domestic and external borrowing.

As external borrowing has been a critical source of financiering for the fiscal deficit, outstanding external debt has surged, recently surpassing $100 billion, which would be alarming in any normal situation.

To read the rest of the news, please click on the link above.​

 

[Saif]

Forex reserves to get $2b boost

Bangladesh’s foreign currency reserves are set to receive as high as $2 billion this month, which may send the total to nearly $21 billion, handing a much-needed relief to the US dollar supply.

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Forex reserves to get $2b boost

Bangladesh's foreign currency reserves are set to receive as high as $2 billion this month, which may send the total to nearly $21 billion, handing a much-needed relief to the US dollar supply.

On Wednesday, the reserves went up by $538 million to $19.2 billion from a week ago, showed central bank figures prepared based on the formula of the International Monetary Fund (IMF). This is the highest level of forex reserve holdings in the past one month.

In a major boost, $1.65 billion is expected to be added to the reserves from the IMF and the World Bank.

The IMF may release $1.15 billion in the third instalment of its $4.7 billion loan in the last week of June, said Finance Minister Abul Hassan Mahmood Ali last month.

The WB is going to provide $500 million in budget support also by the end of June.

This means the IMF and the World Bank's support would lift the reserves to at least $20.85 billion. It was above this level two months ago and at more than $21 billion in March.

Last week's improvement comes a month after the central bank relinquished its control over the rate-setting mechanism and introduced a more flexible exchange rate regime.

Central bank officials say the forex reserves are on the rise thanks to several reasons, including the crawling peg.

On May 8, the banking regulator introduced the Crawling Peg Mid-Rate to facilitate the purchases and sales of foreign currencies, allowing banks to trade US dollars freely at around Tk 117.

On Tuesday, the highest interbank exchange rate stood at Tk 118 per dollar.

Bankers are charging importers more than Tk 118 per USD. It is also offering the same rate to remitters, industry insiders said.

The relaxed rules governing offshore banking have been another reason behind the pick-up in the reserves, they added.

In March this year, parliament passed the Offshore Banking Act 2024 to give a boost to the country's desperate efforts to improve the US dollar supply.

The reserves have been declining sharply since the beginning of the Russia-Ukraine war as the conflict sent the prices of commodities such as oil and gas higher, hurting import-dependent nations such as Bangladesh.

However, mismanagement in the forex market, frequent policy changes by the central bank, and the gap between the official exchange rate and the unofficial one are also to blame. Since August 2021, forex reserves have fallen by $24 billion.

Speaking to The Daily Star yesterday, Monzur Hossain, a research director of the Bangladesh Institute of Development Studies, described the accumulation of more than half a billion dollar to the reserves in the span of a week and the impending $1.65 billion loans from the IMF and the WB as a good piece of news for the country.

He, however, added it would be too early to say whether the current forex crisis has eased.

He explained Bangladesh's financial account has been in negative territory for long. The deficit will have to be narrowed by taking foreign loans or attracting foreign direct investments, said the economist.

"If we can reduce the financial account deficit, it will be good news for the country."

The private sector's short-term foreign debt made a turnaround for the first time in more than a year in April. However, the FDI flow dropped 14 percent year-on-year last year, central bank data showed.

Hossain said the crawling peg would narrow the US dollar rate between the formal market and the informal market and bring more foreign currencies into the official channel.

The exchange rate that has been fixed through the crawling peg is close to the actual exchange rate, the economist added.​

 

[Saif]

Export gains as taka appears 'highly competitive'

Bangladesh's currency now appears "highly competitive" as the real effective exchange rate (REER) of the taka against a 15-currency basket of global trading partners dropped below 100, particularly spurring export. Measured by the central bank of Bangladesh against the currency basket, the R

thefinancialexpress.com.bd

Export gains as taka appears 'highly competitive'
BD currency's real effective exchange rate against 15-currency basket drops below 100
JASIM UDDIN HAROON
Published :
Jun 15, 2024 23:30
Updated :
Jun 15, 2024 23:30

Bangladesh's currency now appears "highly competitive" as the real effective exchange rate (REER) of the taka against a 15-currency basket of global trading partners dropped below 100, particularly spurring export.

Measured by the central bank of Bangladesh against the currency basket, the REER stood at 99.79 in May. The exchange rate was 104.89 in April 2024.

This change is due to higher depreciation of the local currency recently against the US dollar with the relaxation of exchange-rate controls. "Such deep depreciation of the taka in one go has not been seen in many years before," says an analyst.

This gauge can be used to assess the equilibrium value of a currency. A decrease from 100 is an indication that its exports are getting competitive and its imports expensive.

The end result: its trade-competitiveness is on the rise. It is an indicator of the international competitiveness of a nation in comparison with its trade partners.

Among Bangladesh's top trading partners are mainly China, the European Union, and India. The REER considers the currencies and inflation readings of the top 15 trading partners.

Both India and the EU had 2.6-percent inflation in May last while in China it was much lower as the world's second-biggest economy was experiencing deflation.

Such valued BDT in terms of the REER will help enhance the competitiveness of Bangladeshi-made goods on the international market, bankers and economists believe.

Central bankers told the FE that such value of the BDT is due to sharp depreciation of the local currency against the greenback. The latest taka-dollar adjustment took place on May 08 under a reform drive when the taka weakened by shedding it's value by Tk 7.0 to Tk 117.

"Yes, it is impacting the export receipts as May export expanded to over $4.0 billion. It was less than $4.0 billion in April," one senior central banker told the FE.

Economists say this effective-exchange position will enhance the country's competitiveness in external trade.

"Definitely, this will enhance the competitiveness," says Dr M. Masrur Reaz, chairman of local think-tank Policy Exchange of Bangladesh.

He notes that the country's export receipt has been on the rise and it will accelerate further if the REER becomes supportive.

Dr Zahid Hussain, a former lead economist of the World Bank, feels that the "REER picture is now appears to be near-true."

He also told the FE correspondent that the inflation measurement raises many questions as to whether or not it is calculated genuinely.

He questions the representative CPI and its inflation measurement. "The REER will be more truly reflected once the inflation data of Bangladesh become more reliable," Dr Hussain says.​

 

[Saif]

Macro challenges paramount, budget measures half-hearted

Economists on Thursday criticised the proposed national budget for FY25, arguing it does not have adequate focus on restoring macroeconomic stability. Speaking at a post-budget discussion hosted by the Economic Reporters' Forum (ERF), they said the budget flagged major challenges such as rising in

thefinancialexpress.com.bd

Macro challenges paramount, budget measures half-hearted
Say economists at ERF discussion
Published :
Jun 14, 2024 09:30
Updated :
Jun 14, 2024 09:30

Economists on Thursday criticised the proposed national budget for FY25, arguing it does not have adequate focus on restoring macroeconomic stability.

Speaking at a post-budget discussion hosted by the Economic Reporters' Forum (ERF), they said the budget flagged major challenges such as rising inflation, revenue generation, foreign-currency reserves, growth and job creation. But the proposed measures were incomplete and insufficient to tackle these issues effectively.

In a keynote presentation, Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said persistent high inflation remains a major concern for the economy, which continues hurting the livelihoods of common people.

While the central bank adopts contractionary measures to control inflation, she said, the proposed fiscal policy is expansionary -- which is "contradictory".

"Under such circumstances, bringing down inflation will be difficult," she noted.

Dr Fahmida Khatun questioned the projected GDP growth of 6.75 per cent for FY25, considering the current macroeconomic context. Achieving this ambitious target in a private sector-driven economy would require increased investment.

However, she said that the private investment-to-GDP ratio has remained stagnant at around 23-24 per cent for several years.

"It is unclear how the government plans to raise it to 27.34 per cent in the next fiscal year," the CPD executive director said during the discussion chaired by ERF President Refayet Ullah Mirdha.

The economist also talked about the consistently high revenue targets set for the National Board of Revenue (NBR) despite their history of falling short.

She said the bank borrowing target has been proposed at Tk 1.37 trillion, which is 2.50 per cent of the GDP. The gradual high dependency of the government on the bank borrowing would create a crowding-out effect that would hurt the private sector.

Former Bangladesh Bank (BB) governor Dr Salehuddin Ahmed said the budget has almost nothing that would bring smiles to the lower-income groups and businesses as the debt burden keeps rising, while the scope of employment continues squeezing. He criticised the apparent contradiction between the budget's "Smart Bangladesh" slogan and the proposed increase in mobile and internet taxes. "Such slogans should not mislead the public."

He argued that the budget should have prioritised three key issues: inflation, foreign currency reserves and energy. But the budget lacked concrete measures to address these pressing challenges. Dr Monzur Hossain, research director at the Bangladesh Institute of Development Studies (BIDS), advocated for a stronger focus on restoring macroeconomic stability, even if it meant compromising somewhat on projected growth figures.

"If the macroeconomic problems are not addressed properly, achieving the desired long-term growth trajectory will be difficult," he said.

He questioned the government's approach of reducing subsidies by simply raising energy prices. "Is this the most effective way to manage subsidies? Shouldn't alternative options, such as improving institutional capacity, be explored?"

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[Saif]

GDP output may rise 40% if women’s participation in economy widens

Bangladesh can increase its economic output by nearly 40 percent by closing the gender gap and increasing women’s participation in the economy, according to the International Monetary Fund (IMF).

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GDP output may rise 40% if women's participation in economy widens
Two IMF economists say on Bangladesh

As women played an integral role in the development of the garment industry of Bangladesh and the country's growth success in recent decades, they should be empowered to play an active role in green transition, say economists. Photo: Star

Bangladesh can increase its economic output by nearly 40 percent by closing the gender gap and increasing women's participation in the economy, according to the International Monetary Fund (IMF).

"Sizable gaps in women's economic empowerment undermine growth and exacerbate climate vulnerability in Bangladesh," said the multilateral agency in an article last week.

Per capita incomes in Bangladesh have risen seven-fold in the past three decades while poverty has been reduced to a fraction of former levels.

"Such progress has been driven in part by greater labour force participation by women, most notably in the garment industry, and has been accompanied by other meaningful improvements in women's empowerment," said the article jointly written by Jayendu De and Genet Zinabou.

"Our recent analysis, however, shows there is still large gaps between women and men. Notably, women's labour force participation is only half the rate of men."

Jayendu De is the IMF resident representative in Bangladesh while Genet Zinabou is an economist in the fiscal affairs department.

The writeup, citing an IMF's previous research, said closing the gap could increase Bangladesh's economic output by nearly 40 percent.

"Women also remain less likely than men to obtain tertiary education, and they face greater barriers in accessing financial services. Remedying both factors could raise the entire economy's productivity."

The article said Bangladesh's extreme vulnerability to climate change and natural disasters makes the efforts to close gender gaps challenging.

"Climate shocks generally affect the already poor and vulnerable the most. This means that Bangladeshi women, who on average have fewer resources than men, are likely to be disproportionately impacted."

It highlights several factors that render women uniquely exposed to the effects of climate change and natural disasters.

Women's employment is highly concentrated in agriculture and informal work and climate change directly affects agricultural production. Informal workers are often particularly vulnerable to climate shocks as they lack access to social insurance programmes.

The article said both international and internal migration are important climate adaptation strategies. But these are availed mostly by men: men are 16 times more likely to be employed overseas than women, who tend to be primary caregivers for children and the elderly, leaving them less mobile and more likely to remain living in areas highly exposed to climate change.

Women carry the primary responsibility for collecting drinking water and cooking fuel. As warming temperatures, rising sea levels, deforestation and more frequent cyclones and droughts render these tasks more time-consuming, women's time poverty is expected to be exacerbated, the IMF warned.

Bangladesh has already recognised the need to integrate gender perspectives in its 2009 Climate Change Strategy. Following this, the government adopted the first Climate Change and Gender Action Plan 2013, which it updated in March 2024.

"Renewed efforts will be needed to ensure successful implementation of the plan and achieve simultaneous progress on climate action and gender equality," it added.

"To this end, policymakers should capitalise as much as possible on the synergies between women's empowerment, economic growth, and increased resilience to climate change."

To read the rest of the news, please click on the link above.​