[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

WB to provide $2.3b this fiscal year

The World Bank (WB) will provide Bangladesh with $2.3 billion in the current fiscal year (2024-25) to facilitate reforms in the country’s financial sector and its economic recovery from recent floods.

www.thedailystar.net

WB to provide $2.3b this fiscal year

The World Bank has appointed Martin Raiser, an economist and development expert, as its new vice president for the South Asia Region. Photo: Courtesy

The World Bank (WB) will provide Bangladesh with $2.3 billion in the current fiscal year (2024-25) to facilitate reforms in the country's financial sector and its economic recovery from recent floods.

Martin Raiser, vice-president of the World Bank for South Asia, discussed the details of the loan programme at a meeting with Professor Muhammad Yunus, chief adviser to the interim government, at his office in Tejgaon, Dhaka yesterday.

Raiser said the World Bank is ready to be a part of the key economic reforms planned by the interim government, according to a press release from the chief adviser's office.

"Count on us. We're ready to help," Raiser said in response to Yunus's call for broader support for the interim government in its move to fix the economy

"Count on us. We're ready to help," Raiser said in response to Yunus's call for broader support for the interim government in its move to fix the economy by cleaning up corruption and undertaking reforms in key sectors, including judiciary.

The visiting World Bank vice-president also said they will support reforms in the country's banking, taxation and customs sectors, while also facilitating efforts for digitisation at various local industries.

Welcoming the World Bank's support, Yunus said the interim government has got a broader mandate from the people to get rid of corruption and give Bangladesh a new start.

"This is the season of reforms. We want to start now," he said, adding that the student-led mass uprising in July-August prepared the ground for big reforms in the existing system.

He also said the government would implement conventions of the International Labour Organization (ILO) in labour reforms to boost foreign investors' confidence and help local manufacturers expand their international foothold.

"We want to get it done," he said while adding that Bangladesh should be a global player in sectors other than garments.

Raiser appreciated the move to woo foreign direct investment (FDI), saying the annual FDI in Bangladesh is worth about half of the country's gross domestic product (GDP) in terms of percentage, making it one of the lowest in South Asia.

After the meeting, Planning Adviser Wahiduddin Mahmud said large amounts of foreign loans in the pipeline remain underutilised. The government has assessed the $1 billion worth of projects being funded by the World Bank, and those projects are now almost at a standstill.

He said the government could instead utilise these funds for budget support in December.

According to a statement from the World Bank, Bangladesh has the opportunity to implement critical reforms that were long overdue.

"Through existing and new investments, we are focusing on improving economic governance and creating more and better jobs for the 2 million Bangladeshi youths entering the job market each year," Raiser said.

Raiser also met with the finance adviser, energy adviser, and Bangladesh Bank governor to discuss critical reforms aimed at helping the country build economic resilience, safeguard financial sector stability, and improve governance, transparency and accountability.

Raiser also expressed his condolences for the tragic loss of lives in July and August.

He informed that the World Bank is in discussion with the health ministry to provide urgent support for the treatment of critically injured students and affected individuals.

Furthermore, the multilateral lender will support the rehabilitation and restoration of livelihoods among people in flood-affected districts.

Raiser also conveyed appreciation for Bangladesh's generous decision to continue providing shelter to about one million displaced Rohingya people fleeing violence in Myanmar.

The World Bank recently approved a $700 million programme for the displaced Rohingyas and their host communities.

After meeting with Finance Advisor Salehuddin Ahmed at his office at the Bangladesh Secretariat in Dhaka yesterday, Raiser told reporters that they would also provide budgetary support for Bangladesh during the current fiscal year.

Finance and Commerce Adviser Ahmed said the World Bank will provide support in implementing reforms in banking and other sectors.

The adviser also said they discussed various other issues with Raiser and his team, including the need for budget support in areas such as the energy sector, fertiliser imports, food security and post-flood aid.

The World Bank was very positive about all the proposals they presented, and provided concrete responses.

"They [the World Bank] assured us that they, along with other stakeholders, would coordinate to this end and there would be no hesitation in providing necessary funding or assistance," Ahmed added.​

 

[Saif]

Good news about forex reserve

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitment

thefinancialexpress.com.bd

Good news about forex reserve
Published :
Sep 19, 2024 21:35
Updated :
Sep 19, 2024 21:35

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitments from development partners --- would make things easier for payment of letter of credit (LC) liabilities soon. The governor made the remarks at a virtual meeting with members of the Association of Bankers Bangladesh (ABB) and representatives from more than 120 corresponding banks across the globe.

The online meeting took place at a time when many corresponding banks had either halted credit support or reduced credit limits for Bangladeshi commercial banks, believed to be due to a lack of trust in view of the depleting forex reserves. He explained that government liabilities had accumulated on account of letters of credit (LCs) for importing essential commodities like fertilisers, power, and petroleum products against prolonged foreign exchange crunch. He informed the corresponding banks that the government's total LC-related liability stood at $2.0 billion, of which $800 million had already been cleared, and the remaining amount would be settled within the next 5-6 months. Assuring the corresponding banks was of paramount importance as these foreign financial entities assist the local commercial banks in LC confirmation, offshore banking unit (OBU) loans and usance payable at sight (UPAS) LC financing.

The country's foreign-exchange reserves had been declining rapidly since the beginning of 2022 as the fallout of international crises, including the war in Ukraine. High import costs, driven by increased commodity prices on the international market, also contributed to this decline. Against this backdrop, the key challenge for the interim govern has been to ensure a stable forex reserve as well as adopt prudent policies for meeting expenditures in foreign currency. What transpires from the remarks of the central bank governor is a clear shift from the stagnating state of the reserves in the recent months. There had been a surge in remittance inflows in August compared to July this year, to $2.215 billion. In the first 14 days of this September, remittance inflows amounted to $1.167 billion. Central bank data show that the reserves increased by more than 15 per cent in the fiscal year 2023-24 on a year-on-year basis. Currently, the reserve stands at $24.30 billion, which in IMF calculation (called BPM-6), is approximately $20 billion --- a considerable improvement from less than $14 billion two months ago.

Presentation of the actual health of forex reserves and the future course of action for paying dues to the overseas corresponding banks is expected to remove the trust deficit in conducting foreign trade. Over and above, this is sure to bolster confidence of the local bankers as well as the common citizens. In this context, let it be underscored that effective steps are required to stop money laundering for strengthening the forex regime. The interim government since assuming office has time and again made its intention clear to do so. Import austerity in case of non-essential and luxury products can also help sensible spending of hard-earned foreign exchange.​

 

[Saif]

Attracting higher FDI still a ways off

In order to narrow or meet the investment gap and more so, to abide by employment generation obligations, every country needs foreign direct investment (FDI).

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Attracting higher FDI still a ways off

In order to narrow or meet the investment gap and more so, to abide by employment generation obligations, every country needs foreign direct investment (FDI).

FDI along with technology transfer ensures the migration of global best practices.

Along with the existing macroeconomic crisis and resulting foreign exchange shortage, recent violence centring the quota reform movement, a subsequent five-day internet blackout and countrywide curfews have naturally shaken foreign investors' confidence in Bangladesh.

Not only should this be addressed with immediate effect, it comes with the need for a clear or semi-clear roadmap for the country's transition to democracy.

Global investors put a lot of focus on political and economic stability as well as potential growth prospects in their destination of choice.

My long association with facilitating large FDI in the country tells that all large investors, who get into any emerging countries, base their decision on some common indicators of investment attractiveness.

This includes the scope for returns on investments, availability of unencumbered land, policy continuity, logical foreign exchange and interest rates, guaranteed repatriation of income -- be it principal, profit or dividends -- and volume of skilled manpower in investment destinations.

According to various media reports, Bangladesh needs to attract FDI equal to 1.66 percent of its annual GDP to become an advanced economy by 2041. But in 2022, the country's FDI inflow amounted to just 0.75 percent of its GDP.

Bangladesh Bank data shows that net FDI inflow fell to $3 billion in 2023, down by some 14 percent year-on-year.

Against this backdrop, the investors' confidence crisis caused by recent events becomes even more concerning. Whether we like it or not, people are yet to get clarity on what is happening in Bangladesh and how far the impacts may reach.

Investors already had a number of issues with Bangladesh in this regard.

Problems like corruption, bureaucracy, anti-competitive government procurement practices, contract and intellectual property right violations, weak judicial system, and inconsistent policy shifts were all previously identified as barriers to Bangladesh attracting higher FDI.

And the recent issues and backlash did little to help the country's image, with several international rights organisations and foreign countries having identified a number of human rights violations during the government's brutal crackdown on protesters in July and August.

The modern nature of business is such that all business activities around worldwide have become tremendously dependent on internet usage. So, the five-day internet blackout had a massive impact on all local businesses and showed how easily the country can be disconnected from the world. Although the country has since slowly recovered in regards to online and physical connectivity, the local businesses' delayed return to full operations amid recent turmoil in industrial belts forced some off-takers to shift a few of their orders to other countries.

Some factories had to go for costly air shipments to make up for the production delay and meet lead times. Besides, the uncertainty that many businesses and investors faced during the internet outage has made them particularly antsy, with many foreign investors raising questions about Bangladesh's political stability.

And even though the interim government remains confident about the country's ability to attract FDI, we believe there is a lot that can and should be done to regain investors' trust. First, the interim government must urgently restore their confidence by cracking down on disturbing elements and reinstating normalcy by lowering tensions within society at large.

It also needs to take all the necessary steps to ensure a positive business environment that is conducive to attracting investment, and that can largely mitigate the losses businesses suffered.

There should be no more confusing statements on the country's liquidity and foreign exchange levels from the central bank. Also, pending bills should be paid at the earliest convenience or the contracts extended mutually.

But amid all these challenges, there is hope. Bangladesh as a country has a long history of bouncing back from crisis and remains an attractive destination for its growing consumer spending.

However, the country needs strong leadership and coordinated efforts now more than ever.

The author is chairman of Financial Excellence Ltd​

 

[Saif]

Forex market on the mend as remittances rebound

After a prolonged period of crisis, the foreign exchange market in Bangladesh, especially the interbank forex market, is showing signs of recovery, driven by a rebound in remittance receipts and key policy interventions by the central bank.

www.thedailystar.net

Forex market on the mend as remittances rebound

After a prolonged period of crisis, the foreign exchange market in Bangladesh, especially the interbank forex market, is showing signs of recovery, driven by a rebound in remittance receipts and key policy interventions by the central bank.

The interbank forex market, which is crucial in facilitating international trade, had been under huge pressure lately owing to a crisis of US dollars, which was triggered by a combination of high import bills, lower-than-expected remittance inflows, and dwindling foreign exchange reserves.

However, the recent rebound in remittance inflows and some key policy decisions, such as the adoption of a crawling peg exchange rate system, are helping normalise the interbank forex trade.

"The interbank forex market is moving towards a stable phase riding on the strong rebound of remittance inflows," said Md Shaheen Iqbal, head of treasury and financial institutions at BRAC Bank Limited.

He added that the foreign exchange crisis is easing and the interbank forex market is functioning more smoothly.

Remittance inflows, a major source of foreign currency for Bangladesh, fell to a 10-month low in July, when the Awami League government imposed a five-day internet blackout to quell protests centring the students' quota reform movement.

However, receipts began to pick up again after former prime minister Sheikh Hasina fled to India on August 5 as many expatriates started campaigns to send money through formal channels to build the country.

Remittance receipts climbed 16.10 percent in August compared to the month prior, hitting $2.2 billion.

In the first 14 days of September, remittance receipts reached around $1.17 billion, as per central bank data.

Riding on higher remittance inflows, the country's foreign exchange reserves are now showing signs of recovery. The foreign exchange reserves stood at nearly $20 billion as of Tuesday, according to the BPM-6 calculation standard of the International Monetary Fund (IMF).

Another benefit of increased inflows is that banks can now trade among themselves smoothly in the interbank forex market, Husne Ara Shikha, spokesperson of the Bangladesh Bank, told the media last week.

The price of the US dollar will also stabilise as the interbank forex transactions are active, she added.

Apart from rising remittances, some measures adopted by the central bank, including the introduction of the crawling peg, have also had a positive impact on the interbank forex market, said Mohammad Shams-Ul Islam, former managing director of Agrani Bank.

The Bangladesh Bank introduced the crawling peg, which allows the currency to adjust exchange rates based on demand and supply, on May 8 this year.

This move has reduced volatility in the market and helped narrow the gap between the US dollar price in the formal banking sector and the kerb market, Islam said.

Currently, the difference in US dollar prices between banking channels and the kerb market stands at about Tk 1 to Tk 2. Each dollar is sold for Tk 118-120 on the interbank forex market while it fetches Tk 120 to Tk 121 in the open market, according to market insiders.

Besides, after taking charge as the Bangladesh Bank governor, economist Ahsan H Mansur has taken some steps such as by reconstituting the boards of different crisis-hit banks.

He also stopped providing liquidity support to banks from the foreign exchange reserves.

These moves have restored the confidence of depositors, remitters and businesses in the banking sector, thereby improving the overall flow of interbank foreign exchange within the country, said Islam, former managing director of Agrani Bank.

As an example, he said, banks like the Bangladesh Krishi Bank, which receive a good amount of remittance but do not face pressure to open letters of credit (LCs), are supplying dollars to the interbank market, reducing the pressure on banks that deal with dollar-based trading.

As a result of sufficient dollar flow to the interbank market, the pressure on LC openings has reduced drastically, he added.

BRAC Bank's Shaheen Iqbal said now there is some surplus in the interbank market after meeting the demand for LCs.

"This is a significant positive trend," he said, estimating that daily transactions in the interbank forex market stood between $30 million and $90 million.

The interbank market will be fully operational after the government clears its outstanding import bills, Iqbal added.​

 

[Saif]

Paradigm shift in ADP planning

The interim government has initiated a radical shift in annual development plan (ADP) implementation. The current five-year plan that forms the basis of ADPs has been suspended and the new focus is now on skill development of country's human resources, which is a major shift from several previous A

thefinancialexpress.com.bd

Paradigm shift in ADP planning
Published :
Sep 21, 2024 22:52
Updated :
Sep 21, 2024 22:52

The interim government has initiated a radical shift in annual development plan (ADP) implementation. The current five-year plan that forms the basis of ADPs has been suspended and the new focus is now on skill development of country's human resources, which is a major shift from several previous ADPs that had prioritised infrastructure development. To term the plans radical would be an understatement. For instance, with a view to quicker decision-making and implementation, the current administration has empowered individual ministries to approve projects. It has become abundantly clear that the top-down decision-making approach whereby projects were undertaken whimsically, while wholly or partially disregarding a need-based approach had resulted in very poor ADP implementation. This had been a major bone of contention with bilateral and multilateral foreign development partners who committed billions of dollars in grants and loans only to see partial implementation. Since there was hardly any need felt at the top for either transparency or accountability, it is interesting to note that a taskforce has been set up to deliver direction of the economy and submit a report within the next three months so as to give current policymakers a bird's eye view about the state of the economy.

It is good to know that finally, the dire needs of the massively unemployed educated youth are being addressed. The economy had become overly dependent on foreign workers and since the youth were graduating from a broken education system that failed to equip young people with requisite technical knowhow or with knowledge that industry needed, they found no employment. No exact figure exists on how many foreign workers are employed in Bangladesh, but it is more than a million people. They don't pay taxes here and this is why the human resource development has been prioritised to bring young people up to speed on various emerging opportunities like information technology. There is also realisation that the bulk of our expatriate workers are employed in the unskilled category. Hence, remittance value remains low which could be reversed if more technical hands could go abroad to work and whose pay would be many times more than that of unskilled workers. A qualitative improvement is needed and this is very much possible through vocational and IT-education development.

Previous government had opted to go for some projects which had bypassed the planning commission. This was done deliberately to favour select companies that opened the door wide for graft on epic proportions. Irregularities happened at the sole discretion of the former prime minister. As far as a number of mega projects are concerned, the country has ended up with a huge foreign debt, the servicing of which has become a burden the economy can ill-afford. These grandiose projects were taken to showcase the "development" made possible by the erstwhile government which were not based on any economic need but to serve the hubris of one person.

The current administration is having to repair the damage done over the last 15 years. It had become modus operandi that mega-projects mean mega-corruption. One instance of such graft can be cited here. The former roads and highways minister had claimed that it would require one year and Tk 1.5 billion to repair the damage caused by miscreants to two metro rail stations. One of the vandalised station at Kazipara was reopened on Friday last. The repair of the station was completed at a paltry amount of Tk 2.0 million under the new metro rail administration. Had the previous administration remained in power, a substantial amount would have ended up lining the pockets of corrupt politicians and contracting company. Let these be lessons learnt for the new administration. Hopefully, the mistakes of past regimes will not be allowed in the present. Transparency and accountability must become the guiding principles of today's political and economic decisions.​