Taka depreciation and rise in oil price

An interesting explanation on why the government had to raise oil price this time came to the picture. It's nothing but the continuous Taka depreciation over the last couple of weeks. As the government claimed (I don't the truth behind that ), sharp depreciation in Taka value against the US$ have escalated losses of Bangladesh Petroleum Corporation (BPC), which left the government but to increase oil price for fiscal adjustment.

Here is the link of the explanation from the Finance Express.

Comment: The reason is logical, but the fact is? I don't know. Because I don't know the earnings function of BPC. Anyway, I see a cycle of Taka depreciation whether because of volume of oil import or oil price adjustment. Like what? Because of the high volume of oil import, pressures on foreign exchange reserves rose, which forced the central bank to let the exchange rate to the market for adjustment. So, the market experienced Taka depreciation against US$. Now, due to Taka depreciation, subsidy for oil becomes huge and the government had to raise the oil price. Now the government will more confident about its fiscal balance and it will continue to increase oil import, so again depreciation of Taka will come to the picture.

(High volume of oil import - depreciation of Taka - losses of BPC increases - higher oil price - higher revenue of the government - higher oil import - depreciation of Taka)

Do you want to know the impact of depreciation on the economy? Here is a report published in the Daily Star.

Views of Professor Wahiduddin Mahmud

The Daily Prothom Alo publishes some views of renowned economist Prof. Wahiuddin Mahmud on recent economic development.

Major points:
1. It is appreciable that GDP growth remained between 6-7% despite several constraints. However, GDP growth was largely dependent on agricultural production, RMG export, production of small and medium scale industries and service sector. A promising investment didn't realized, without which a high GDP growth will not be sustainable.
2. Risks to the economic stability increases due to higher domestic demand compared to domestic supply.
3. New risks to the economic management and stability arises, not because of the fact that the economy is stagnant, but because the government is desperate to maintain high GDP growth.
4. Steps to maintain economic stability and to contain inflation are absent due to the lack of policy coordination.
5. There are certainly a few lacks in implementing regulation in the whole financial sector. Stock market crash is a good example. Bangladesh Bank's activity as a regulatory body was not effective due to unexpected political influence and lack of political commitment.
6. Lack of coordination was present between monetary policy announced by Bangladesh Bank and fiscal management.
7.  The government must focus on large projects in government expenditure management. Resource utilization,  priority-based expenditure approach and maintaining project quality were not in the priorities.

Here is the link.

Fuel price rise!!!

The government raised the fuel price by Tk 5.0, for the fourth time since May 2011to cut subsidy.

Here is an update on it from the Reuters.

Implication? No doubt, it will add to persistently high level of inflation immediately, apart from reducing the government's burden. Exporters (or, producers) are worried about rising production cost of their exporting products. Analysts talk on rising transportation cost, and thus people will have to face higher transportation bill, which will consequently reduce their real income.

Now, the message is clear that the government targeted higher growth with the cost of higher inflation. It is not in a position to reduce budget expenditure, but to reduce subsidy. It is not in a position to reduce oil import, but to continue providing oil to quick rental power plants with subsidized prices. Which one is good for the government as a political agenda? To show that higher growth has achieved under this period, or people were happy in terms of experiencing lower commodity prices?

Here is a good report from bdnews24 on the issue.

Taka value in 2011

Taka has depreciated by 15.6% in 2011 against the US Dollar, mainly due to rising import payments, especially for fuel oil to build fuel-based quick rental power plant. During the same time, the foreign currency earnings from two majors sources, exports and remittances were not in line with the import payments. As a result, pressures on foreign reserves rose and Taka depreciated accordingly. It is probably the record depreciation rate in one year in the history of the country; if not, definitely after the introduction of flexible exchange rate system in 2003.

Here is a news link on the issue.

BD Economic Update

Dr. Zaidi Sattar, Chairman, Policy Research Institute (PRI) writes on the latest development in the Bangladesh economy in the Financial Express.

Here is the link of the update.

Debate on reaching growth target

So, the debates on reaching GDP growth target of 7.0% in FY12 keep going. Shahiduzzaman Khan from the Financial Express writes an article on the issue too, while discussing the recent contradictory comments made by the Finance Minister and the Governor.

Here is the link of the article.

Comment: One thing that I don't understand is: the economy is now on the middle of the fiscal year, and still there are lots of  developments to come. Then why we are spending our time on this unnecessarily?

Poor FM

Finance Minister (FM) M A Muhith denied his previous position on growth projections and now talks in the line what the Governor talks. As FM says now,
"Earlier I said about the difficulty of achieving 7.0 per cent gross domestic product growth, considering the current economic scenario. But I did not say that it is not achievable."
Pressure, or outcome of pressure!


Here is the news link.

Budget deficit and government borrowing

Professor M A Taslim writes on the latest economic development with a focus on increasing budget deficit, and its links with excessive government borrowing as part of budget financing. With a discussion on economics philosophical background and what they mean in reality, he termed the current approach of the government risky  in the long-run and suggested the government to restrain its ambition for the sake of long-run macroeconomic stability of the economy. Another excellent piece from him to know economics philosophy, theories and their interlinks in reality.

Here is the link for the article.

Finance Minister vs. Governor

Within a period of less than a week, two leading heads of the country's economic structure, the Finance Minister, the head of the fiscal authority and the Governor, the head of the monetary authority, gave contradictory statements on projected GDP growth in the current fiscal year. While the Finance Minister is uncertain about meeting the 7.0% growth target, which seems logical based on the update of current economic indicators, Mr. Governor, on the other hand, is confident that the targeted 7.0% growth would be achieved.

Well, receiving contradictory statements on a particular issue from the policymakers is not unusual. However, on the most important indicator of the economy, giving a completely opposite views by the top two policymakers of the country provides wrong signals to market agents, in terms of apparent inconsistency in the government, lack of coordination among top institutions, and may be, some kind of conflicts. This is obviously an warning sign and policymakers need to be prudent while providing their views in public. Can we remember the implications of contradictory comments made by these two top policymakers before the stock market crash in December 2010?

Anyway, here are the links:
Muhith himself doubts 7% growth projection.
7% growth achievable.

Bangladesh economy bleeds!

Though the title of the article made me laugh (because of the word choice), but the facts in the article didn't! Those are the truth and the economy is leading into a trouble situation, which basically started since the stock market crash in December 2010.

Anyway, you can read the latest development of the Bangladesh economy in this article of the Daily Star by Rejaul Karim Byron and Rizanuzzaman Laskar. Here is the link.

Seigniorage and inflation tax

Professor M. A. Taslim writes on the relationship between the excessive government borrowing and inflation through the interaction between money creation and inflation tax. This is an excellent piece for learning, especially it counters those arguments that favor the government's excessive borrowing from the banking system for budget financing.

Here is the news link. 

Statement of IMF

An International Monetary Fund (IMF) mission visited Dhaka during November 30–December 13, 2011 to discuss a reform program with the government of Bangladesh for possible support under the IMF’s Extended Credit Facility (ECF). 


Here is the official statement of IMF on this mission.

Desperate efforts to increase govt. funding?

So, news on various government efforts to increase its funds for ambitious expenditure plan. Unfortunately, all are related with building government burdens (or, burden for future generations). I don't know, how long this approach will be sustainable.

Anyway, here are the news on that issue.

Govt plans to hike interest rates on savings instruments.
$2.0 billion IDB loan for BPC to import petroleum products.
MoF to issue Tk57.32 billion special bonds to three SCBs.

News on loosing Taka value

So, news on the drastic depreciation of Taka against US$ in the past few weeks keeps taking a significant place in the business media, because of its various implications for the country as well as consumer.

Here are some of the news and analyses on the issue.

Dollar hits all-time high in kerb market.
Dollar crunch intensifying.

There are several implications for exchange rate depreciation:

1. From the consumer perspective, it will definitely have an direct impact on prices of imported goods. Prices of those will go up. If those goods are necessary products, then people sill suffer. If those are not necessary, then may be imports of those items will decline.

2. If there are domestic substitutes of imported products, then demand for those product will increase and accordingly production of those. In this way, there is an investment opportunity of those products. Prices of substitute products? well, it depends on the elasticity.

3. It will definitely improve the export competitiveness because other competing currencies including Indian Rupees also have been depreciating against US$.

Protest against Mankiw

Though the topic is not related with macroeconomic development, but with the philosophical belief on economics issues, I thought I would share it with you to know a more polite approach to protest and defend.

A few of Economics 10 of Harvard University walked out from the class of Mankiw to protest the corporatization of higher education as part of Global Occupy movement. They also expressed their exact views on an open letter to Professor Mankiw.

Here is the link of the letter.

So, Professor also answered to the questions and concerns of protesters in his column in New York Times.

Know What You're Protesting.

People in Economics, F&D

IMF’s Finance and Development (F&D), December 2011 edition provides the profiles of Ms. Ngozi Okonjo-Iweala, the two times Finance Minister of Nigeria and former Managing Director of the World Bank. 

Here is the link.

Nobel Winners in 2011

So, do you want to know more about personal and professional life of two 2011 Nobel Winners in Economics?

Here is an article on them including their interviews in New York Times. Trust me, it's a worth reading, and moreover, you can find lots of articles of their interest and works. Cheers!

Remittance inflow falls in November

The inflow of inward remittances fell by 8.3%, year-on-year, in November 2011 and by 12.1% over October 2011. The overseas Bangladeshi workers sent $915.5 million in November 2011.

Reason: October remittance inflows was higher because of Eid festival and in November, remittance flows softened.

Here is the news link.

Dollar price reached to Tk80

Yesterday, for the first time, the US dollar price against the taka reached to Tk80 in the inter-bank foreign exchange market. Though the central bank authority claimed that it regularly provides foreign currency to the market to make it cool, the private bank authorities denied that and we see the result as well. With declining trend in foreign reserves, there is no option for commercial banks, but to follow the market equilibrium.

Here is the news link.

Inflation goes up in November

General inflation, year-on-year, went up to 11.58% in November 2011 from 11.42% in November. Bangladesh Bureau of Statistics blamed recent fuel price hike for such upward movement of inflation.

While food inflation fell marginally to 12.47% in November from 12.82% in October, non-food inflation keeps rising and rose to 11.16% from 9.05%. Despite monetary tightening measures, the rising trend in non-food inflation remains a concern as it is considered as the second-round effect of food inflation, and usually, the effect of non-food inflation is permanent, say for example, wage rise.


One basic question: Is monetary policy ineffective? Or, it has a lag effect, rather an immediate effect?  


Here are the news link:
1. Fuel spikes inflation
2. Point-to-point inflation rises to 11.58pc in Nov
3. Inflation edges up

Lowest reserves in 27 months!

Foreign exchange reserves fall to $9.3 billion in November 2011, the lowest since August 2009, due to increasing import payments.

Here is the news link.