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A theory is appropriate as long as it fits into the fact; when a theory doesn't fit in the fact, it's wise to walk with the fact.

Friday, September 20, 2013

Impact of Rupee Depreciation on BD Economy...

Analysts keep making their observations on the impact of recent drastic Rupee depreciation on the Bangladesh economy. The following articles are notable ones:

Comments: Some missing areas which were not discussed in any of the articles are as follows:

1. For making comments on the competing goods of Bangladesh and India in the world market, importers from the rest of the world will look for real effective exchange rate (REER) of both India and Bangladesh  when they will decide whether they will import from Bangladesh or India, if other things remain the same. Recent Rupee depreciation will definitely put India in a better position. However, Bangladesh receives GSP facility in the Eurozone, where Indian exporters rarely can compete. But Bangladeshi exporters will face the reality from Indian exporters for the U.S. and other markets.

2. For making comments about the impact on Bangladesh exports to India, it is important to see the composition of India imports from Bangladesh. Theoretically, exports to India would have been costlier. Over the last few years, Bangladesh has been mainly exporting jute goods and RMG products to India. Latest data reveals that jute exports to India are on a sharp declining trend, while RMG exports to India still hold its position.

3. For making comments about the impact on Bangladesh imports from India, one should look after the composition of Bangladesh imports from India over the last few years. In general, imports will be cheaper. But three issues are important here: (i) whether the good is a necessary one (example, food items); (ii) whether substituting industries in India and other countries use the same input product (example, cotton); and (iii) whether storing is possible for the good (example, fabrics).

In case of (i), import may rise irrespective of the price if storing is possible. If storing is not possible, then import will be as usual. If the similar product is currently imported from other sources, say, China, and if import from China becomes relatively expensive now compared to India, then import from India for the same product will increase. In case of (ii), availability of the input product is only possible after the demand from Indian industries is met, and Bangladeshi importers can compete with importers from other countries. If the input product remains available for Bangladeshi industries, then cost of production will decline. If cost of production declines for Bangladesh export industries, then Bangladeshi products will remain competitive in the world market. In case of (iii), import will rise given the availability.

4. Even if the current pace of imports from Indian remains the same, then it will bring better outcome for inflation scenario through having lowered prices of import commodities.        

Tuesday, September 3, 2013

Negative import growth after 10 years!

Bangladesh experienced negative import growth of 4.4% in FY2013 after 10 long years!

(i) Large negative import growth of food grains and major consumer products like edible oil and sugar.
(ii) Import bills declined for capital goods, and fertilizer.

(i) Current account surplus widens, refers to positive impact of balance of payment surplus.
(ii) Probably, this is the basic reason why foreign exchange reserves have been rising fast, and thus appreciation pressure on Taka.
(iii) As everyone knows, lower capital machinery imports signal transitory and gloomy investment picture, probably related with the upcoming election.

Report on the issue.