[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

PM urges ADB to help Bangladesh implement blue economy

Prime Minister Sheikh Hasina yesterday sought cooperation from the Asian Development Bank in implementing blue economy and extract every resources from country's maritime boundary

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PM urges ADB to help Bangladesh implement blue economy

Prime Minister Sheikh Hasina yesterday sought cooperation from the Asian Development Bank in implementing blue economy and extract every resources from country's maritime boundary

She made the request while visiting ADB vice president Yingming Yang called on her at her office in Sangsad Bhaban.

PM's press secretary M Nayeemul Islam Khan briefed reporters afterwards.

Hasina also sought help in agricultural research. She mentioned that the per capital income and purchasing capacity of the people of Bangladesh needed to be improved.

"We want to develop Bangladesh as a big market particularly for our own products," she said.

She put emphasis on the production of the agricultural products as she mentioned that ensuring food security is the priority for the government.

Hasina also sought logistic support from the ADB to strengthening Bangladesh's competitiveness for its export items after the graduation from the LDC status in 2026.

She briefly described various short, medium and long term programmes of the government to improve the country in to a developed one by 2041.

The prime minister asked the ADB to assist Bangladesh in integrated river management including river training, capital dredging and maintenance dredging.

Yingming said ADB has decided to increase their support in urban and water policy from 13 percent of the total support to 26 percent.

He mentioned that ADB wants to assist Bangladesh in health project and digital technology apart of collaborating in agricultural research in longer version.

He said ADB wants to help Bangladesh in primary education and healthcare skills development in their new five year plan.

The ADB vice president said ADB wants to develop a city master plan for Bangladesh to better usages of available resources.

In this connection, the premier asked them to consider upazilas in Bangladesh for their project.​

 

[Saif]

Net reserves now $16.77b, BB releases data for the first time

The central bank has shared data of the net international reserves (NIR) of Bangladesh for the first time.

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Net reserves now $16.77b, BB releases data for the first time
The central bank has shared data of the net international reserves (NIR) of Bangladesh for the first time.

The NIR now stands at $16.77 billion, Bangladesh Bank Spokesperson Md Mezbaul Haque told reporters yesterday.

The net reserves represent readily-available cash derived from gross reserves.

It is calculated by excluding short-term liabilities from the gross reserves in line with the International Monetary Fund's BPM6 formula.

The central bank usually calculates the foreign exchange reserves using two methods.

One is as per the Balance of Payments and International Investment Position Manual (BPM6), the method used by the IMF, while the other is produced using the central bank's own calculation method.

As per the BPM6 method, the gross reserves stood at $21.83 billion on June 30, up from $19.4 billion on June 26, the spokesperson said.

As per the central bank's own method, gross reserves stood at $26.88 billion on June 30.

Bangladesh's monthly import bill is around $5 billion, which means Bangladesh will be able to cover at least three months of import bills using the NIR.

Bangladesh also achieved the targeted foreign exchange reserves set by the IMF for the first time since agreeing to a $4.7 billion loan programme, which has also played a big role in tackling the forex crunch.

The target was set at $14.7 billion for June.

The reserves also received a boost on June 24, when the IMF approved $1.15 billion in the third tranche of the loan.

The country's foreign exchange market has been volatile because of higher dollar outflow despite the government's austerity measures, including controlling import payments.

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

 

[Saif]

Bangladesh eyes longer-term loans at fixed rates to manage debt better

The government aims to borrow more from the domestic sector at fixed rates and for longer periods and cut reliance on Treasury bills with a view to keeping debt risks lower and avoiding exchange rate volatility.

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Bangladesh eyes longer-term loans at fixed rates to manage debt better

The government aims to borrow more from the domestic sector at fixed rates and for longer periods and cut reliance on Treasury bills with a view to keeping debt risks lower and avoiding exchange rate volatility.

Although the risk posed by the ballooning debt is still moderate for Bangladesh, the exchange rate risk has heightened over time owing to its growing reliance on foreign loans, a government paper said.

This has prompted the government to rethink about its borrowing strategy.

According to the government's Medium Term Debt Management Strategy, the risk emanating from the existing debt portfolio is moderate primarily because most loans are denominated in the local currency while external loans have a long maturity period.

The domestic debt is, however, more expensive than external loans, it said. In the last financial year that ended on June 30, the weighted average cost of funds was 1.4 percent for external loans and 9.6 percent for domestic credits.

The data on Bangladesh's debt portfolio from the fiscal year of 2006-07 to 2022-23 highlights the shift in the composition of the total debt and the factors influencing it.

The total debt as a percentage of gross domestic product decreased from 35.9 percent in FY07 to 26.2 percent in FY17. There has been an upward trend since then, reaching 36 percent in FY23.

At the end of the just-concluded fiscal year, domestic debt is projected at 56 percent while the remaining is external debt.

The higher refinancing risk associated with domestic debts due to its shorter average time to maturity (ATM) and a higher percentage of debt maturing within a year (30.7 percent) indicates the necessity to further extend the maturity profile.

ATM is defined as the average remaining time to maturity for each security or contract composing a debt instrument, a commonly used measure for assessing interest rate sensitivity.

While a substantial portion of the debt has been secured at fixed rates, the shorter average time to refixing is 3.8 years for domestic debts compared to 8.8 years for external debts.

"This suggests that domestic debt is more vulnerable to interest rate fluctuations," said the document. The average time to refixing is a measure of weighted average time until all the principal payments in the debt portfolio become subject to a new interest rate.

"Strategies should, therefore, aim to increase the proportion of longer-term fixed-rate domestic debt."

Bangladesh's economy has grown at a faster pace over the past decade and a half, and the government plans to accelerate it.

In order to achieve the goal, the pace of investment in soft and physical infrastructure needs to pick up. Since revenue collections are not enough to cover the much-needed investments, Bangladesh has resorted to deficit financing, in line with standard practices around the world.

Sourcing this necessary financing through external as well as domestic sources is always competitive, the document said.

It said due to the terms of trade deterioration because of the war in Ukraine, Bangladesh's foreign currency reserve has come under severe pressure.

The gross reserves stood at $21.99 billion on Thursday, down from $41.7 billion in August 2021.

"The need to keep financing the growth-inducing investments and continue the reform in the fiscal sector with a keen focus on maintaining the debt sustainability is an imperative now," the document said.

The government has identified four alternative financing strategies, and they are being considered to cover the financing needs from FY24-25 to FY26-27.

Strategy 3 is the most preferred considering the cost and risk of new debt as it puts more emphasis on domestic market development, it said.

It examines an expansion in the issuance of medium-term and long-term T-bonds, consistent to support the development of the securities market.

The government has targeted to bring down the external debt to 16.7 percent of the total loan in FY27 from 22.9 percent in FY25. On the other hand, it aims to raise domestic debt to 83.3 percent in FY27 from 77.1 percent in FY25.

The share of T- bonds in gross financing needs to increase from 21.9 percent in the new fiscal year to 48.3 percent in FY27. The stake of T-bills will go down from 39.3 percent to 22.2 percent during the period.

The government is aware that as the liquidity position in the financial market remains tight, there will be some challenges to implement the strategy.

"The government will pursue external investment in the domestic debt market to alleviate the pressure," the paper said.

As per strategy, the government does not plan to issue any international sovereign bonds.

"The government's objective is to maintain the reforms already in place and plan and implement others as and when practicable."​

 

[Saif]

A bright spot: Govt project costs Tk 100cr less than estimate

There is a common allegation that the actual implementation costs of government projects inevitably exceed the estimated costs due to a number of reasons, including time extensions and unnecessary expenditures.

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A bright spot: Govt project costs Tk 100cr less than estimate

A view of the Bangabandhu Sheikh Mujib Shilpa Nagar, the biggest economic zone in Bangladesh. Built on about 33,800 acres of land in Chattogram, the BSMSN is located 200 kilometres away from Dhaka and 70 kilometres from both Chattogram port and Shah Amanat International Airport. Photo: Star/file

There is a common allegation that the actual implementation costs of government projects inevitably exceed the estimated costs due to a number of reasons, including time extensions and unnecessary expenditures.

However, the Implementation Monitoring and Evaluation Division (IMED) of the Ministry of Planning has found a project standing out as an exception, for which the implementation cost was Tk 100 crore less than estimated.

The gas pipeline construction and distribution project of the Bangabandhu Sheikh Mujib Shilpa Nagar (BSMSN) lays claim to this achievement, according to an IMED assessment.

The assessment said Karnaphuli Gas Distribution Company implemented the project between May 2017 and June 2019 at a cost of Tk 305.98 crore against an estimate of Tk 406.93 crore.

Initially, Tk 367.10 crore was approved before a revision for "river crossing by Horizontal Directional Drilling etc" increased the cost by about Tk 40 crore, or 11 percent, to Tk 406.93 crore.

Due to various reasons, progress has been achieved in some aspects of the project without any additional expenditure and in some cases at a lower cost, the IMED said.

The report said in terms of land acquisition and requisition, the Bangladesh Economic Zones Authority (Beza) provided land for free for a valve station.

Besides, land previously acquired by Beza was used for construction of a 20 feet wide pipeline of Karnaphuli Gas Distribution Company and Gas Transmission Company, which meant no funds were required for land acquisition, it said.

"Besides, in case of river crossing and installation of cathodic protection system under horizontal directional drilling method on Engineering, Procurement, and Construction (EPC), the actual work required is less than the project plan estimated," it said.

Another reason behind the costs being lower is the absence of detailed feasibility studies by independent consulting firms, said the report.

Under the project, a gas distribution pipeline has been constructed up to Mirsarai industrial area or BSMSN, the report added.

As a result, infrastructure for gas supply has been created in the area and gas connections have already been provided to three industrial customers in that industrial area, it said.

Against this backdrop, the aims of the project have been achieved, the IMED said.

It also said as new industries would come under gas connection as a result of the implementation of the project, the positive impact of the project would increase.

However, the IMED said the estimated costs of various procurement packages of the project were not in line with market rates as the contractor submitted bids significantly higher than the estimated costs.

As a result, tenders had to be floated again and again, it said.

Besides, there was no feasibility study by a third party before the project was undertaken, hence the cost estimation and scope of work of various parts of the project was not proper, it said.

Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, said it was a good example that the entity implementing the project could save government revenue as the Beza did not charge anything for land.

The money saved can be used for other projects, which is important during an economic crisis, he said.

However, the funds were not saved by virtue of efficiency of the implementing entity, rather it was due to Beza's generosity, he said.

He believes such a scope was available for a number development projects, which could have led the implementing entities to save funds.​

 

[Saif]

Financial account turns positive as govt adjusts data as per IMF advice

The financial account has turned positive after more than a year, yet it might not be good news for Bangladesh since it is the result of the revision of national data in line with IMF prescription and does not indicate improvement in the health of the economy.

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Financial account turns positive as govt adjusts data as per IMF advice

The financial account has turned positive after more than a year, yet it might not be good news for Bangladesh since it is the result of the revision of national data in line with IMF prescription and does not indicate improvement in the health of the economy.

During July to April of the just-concluded fiscal year, the financial account stood at $2.23 billion, which was negative for more than a year, data from the Bangladesh Bank showed.

A key part of the balance of payments, the financial account covers claims or liabilities to non-residents concerning financial assets. Its components include foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investments, and reserve assets.

On the other hand, the balance of the current account, which records a nation's transactions with the rest of the world, slipped to negative territory in the first 10 months of 2023-24. It stood at $5.72 billion in negative, BB data showed.

A senior official of the central bank told The Daily Star that the change in the BoP had occurred due to the change in accounting method.

He explained the gap between the figure provided by the Export Promotion Bureau (EPB) and the BB has been adjusted. "That's why, the current account balance turned negative while the financial account became positive."

For a long period, there was more than a $10 billion gap between the export data provided by the EPB and the BB, with the former showing a higher shipment compared to the latter, raising questions.

This prompted the International Monetary Fund (IMF) to come up with the observation in December last year that Bangladesh might have experienced capital flight in 2022-23 evidenced from the unusual outflow of funds as well as unrealised export proceeds.

It said the financial account experienced an outflow of 0.5 percent of GDP in 2022-23, compared to inflows historically averaging about 2.5 percent of GDP, signaling capital flight.

Yesterday, officials of the central bank said the EPB publishes figures based on the data from the customs department. Due to procedural reasons, the customs department took into account the same export data more than once in many cases, which is known as double or triple counting.

They said that even when shipments were rejected by the customs, they were still considered while preparing the export data. As a result, the EPB data showed higher exports than the actual sales in the global markets by local exporters.

The gap has been adjusted as per the recommendation of the IMF's $4.7 billion loan programme.

Following the revision, export earnings fell 6.8 percent to $33.67 billion in July-April of 2023-24. It rose 3.93 percent year-on-year to $47.47 billion when the EPB disclosed the data for the same period in May.

Speaking to The Daily Star, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said that the revision in the BoP is the result of the change in accounting methodology.

"The financial account turned positive due to the change," he said, adding that it does not indicate that the economy's health has improved.

Bangladesh has been facing an economic crisis for the past two years owing to a sharp fall in foreign currency reserves, driven by higher outflows compared to inflows.

Inflation has surged while the local currency has lost its value by a third.

The economist said that there are some positive signs in the economy, but it will take some time to bring down higher inflation.

BB data showed that trade credit stood at negative $1.68 billion in July-April against a positive $2.43 billion during the same period of FY23. Net FDI rose 0.7 percent to $1.36 billion.

Imports fell 12.3 percent to $52.37 billion and the trade gap was $18.69 billion, down from $23.60 billion a year ago.

The overall balance was $5.56 billion, again a decrease from $8.80 billion.​