Statement of IMF mission

A mission from the International Monetary Fund (IMF) recently visited Dhaka to discuss budget developments and the near-term macroeconomic outlook, following approval by the IMF’s Executive Board of a three-year arrangement under the Extended Credit Facility (ECF) in mid-April in the amount of US$987 million.

Statement of the Mission.

IMF Country Report on Bangladesh

The International Monetary Fund (IMF) publishes IMF Country Report No 12/94 on Bangladesh (Request for a Three-Year Arrangement under the Extended Credit Facility) with the following documents: Staff Report, Staff Statement, Press Release and Statement by the Executive Director. You may find the document useful while talking on the relationship between IMF and Bangladesh.

Link of the Report.

BD EIU Country Report: March 2012

The Economist Intelligence Unit (EIU) publishes its March 2012 edition of Bangladesh Country Report: you may find some of it interesting to read.

Link of the country report.

More freedom to Chinese currency!

China took a milestone step allowing the yuan to double its trading band size against the dollar. From April 16, 2012, the renminbi exchange rate against the dollar in the spot interbank currency market will be widened from 0.5 percent to 1 percent as the People's Bank of China, the central bank of China said.

News link on the issue.

IMF approves loan to Bangladesh...

The Executive Board of the International Monetary Fund (IMF) approved a three-year arrangement for Bangladesh under the Extended Credit Facility (ECF) in a total amount equivalent to US$987 million, the largest ever loan of IMF under ECF program.

Please find the following relevant documents:

1. Press release of IMF on the issue. 

2. Letter of intent, Memorandum of Economic andFinancial policies, and Technical Memorandum of Understanding. 

Four main reform pillars under program objectives: 

1. Moderate fiscal consolidation and sound debt management, supported by tax and public financial management reforms;

2. A restrained monetary policy, anchored by sound fiscal performance and exchange rate and interest rate flexibility;

3. Strengthened financial sector governance centered on proper managerial and operational controls in banks, clear oversight responsibilities and strong risk-based supervision; and

4. Trade and investment reforms in terms of reductions in trade barriers and distortions and improvements in business climate.

Comment: The press release indicates that GDP growth of Bangladesh would be slower to 5.5% in FY12 against the government forecast of 7.0%. It doesn't seem a realistic one, rather may help the Fund to justify its program.

Asian Development Outlook 2012

Asian Development Bank (ADB) publishes its biannual flagship publication Asian Development Outlook (ADO) 2012 edition with a focus on confronting rising inequality in Asia.

The link of ADO 2012.

ADO 2012 includes a chapter on the Bangladesh economy focusing on the prevailing macroeconomic imbalances due to strained balance of payments coming from high commodity prices, increased oil imports for power generation and weakened exports; rising subsidy costs, mainly for fuel which are intensifying fiscal pressures and domestic borrowing and inflation in coming years.

The link of Bangladesh chapter in ADO 2012.

Summary of the Bangladesh chapter:
1.  GDP growth is projected at 6.2% in FY2012, against the government's projection of 7.0%;
2. Annual average inflation will edge up to 11.0%;
3. The external currency account is projected to move to a deficit of 0.5%;
4. Exports are projected to grow by 12.0%, mainly reflecting weak demand for garments from eurozone and US;
5. Imports are forecast to grow by 17.0%;
6. Remittances are expected to grow by 10.0%

IMF seminar on commodity price movements!

You may find some interesting papers on 'Policy Responses to Commodity Price Movements', a conference jointly organized by the Central Bank of Republic of Turkey (CBRT), the International Monetary Fund (IMF), and the IMF Economic Review.

Time for Sovereign Bond?

It seems that the government decided to sell sovereign bond of the amount US$500 million, for the first time of such in the history of the country, in the international stock market, even at a higher interest rate.

Reasons:
1. The government (in other words, balance of payment) is suffering for the acute shortage of foreign currency reserves;
2. It seems that the government is not getting the loan (US$ 1 billion) from the IMF soon as it expected earlier.

Here is the link on the news.

Comment: One common economic fact that our economists should know: interest rate is not a matter of concern when there is excess demand for money. This is a classic example.

Higher inflation, higher remittances: Anti-economics?

A study coordinated by Dr. Ahsan Mansur (Executive Director, Policy Research Institute) and conducted by Nurnaher Begum Rama (Joint Director, Bangladesh Bank) and Rani Sutradhar  (Assistant Director, Bangladesh Bank) found that higher inflation in Bangladesh actually helps remittance inflows into the country. As the study says, higher inflation at home relative to host country reduces the purchasing power of migrants’ family, induces migrants to send more remittances.

One can find the original working paper in the Bangladesh Bank website.

Here is the link of the news.

Comments: Though the study included both exchange rate and number of overseas jobs for Bangladeshi workers as explanatory variables, but it didn't find these variables significant in explaining remittance inflows into Bangladesh. But inflation variable was highly significant; even its t-ratio is higher than that of all other variables including GDP of 6 host countries. What do exactly these mean? What do policymakers get from this exercise of Bangladesh Bank, except wait-and-see for the increase in income in host countries and rise in domestic inflation? Anti-economics?

ADP downsized!

The Annual Development Programme (ADP) downsized by roughly 10.0% to Tk.41,000 crore, mainly due to the slow pace in using foreign fund by ministries.


Here is the news on that.

BB Governor on macroeconomy: Part 2

The second part of Governor speech published in the Financial Express.

BB Governor speech on macroeconomy!

Dr. Atiur Rahman, Bangladesh Bank Governor made a presentation at FICCI focusing on 'Current Economic Situation of Bangladesh.' Because it is rare to listen from our policymakers on major economic issues with good substances, the speech of BB Governor should be taken seriously while tracking the path of economic situation.

Here is the first part of his speech published in the Financial Express.

Comment:

In most of speech, he said, what he has done (or, he could do) as a Governor of a central bank. He said rightly on the exchange rate issues when the central bank quietly had to intervene to stop the dramatic pace of currency depreciation. And the foreign exchange market is currently enjoying a stability.

One issue he didn't say right.  As he says, ''the central bank will also encourage all commercial banks to maintain market-determined lending and deposit rates to facilitate monetary transmission and properly price risk.'' To be honest, the central bank never did so and won't be able to do so until it is not confident enough about the efficiency and competitiveness of the banking system in the country. It seems that he was misguided on this issue

Power tariffs go up, again!

Due to higher prices of oil in the international market, the government increased power tariff again effective from March 1. This rise in power tariff is the fourth time in a year! Although the attempt will reduce the subsidy amount of the government for this sector, however, it will surely add up to ongoing higher inflation regime experiencing by the whole economy.

So, consumers will be warmed up by higher prices of electricity surely, although it's not sure whether they will be cooled down by higher supply of electricity.

Here is the link of the news.  

Debate on interest rate continues...

Professor M.A. Taslim writes in favor of a competitive interest rate regime in the banking sector of Bangladesh and criticizes BB's policy in this regards. He supports a view that letting interest rate to rise under a competitive market regime will bring the objective of the central bank's money supply squeezing.

Here is the link of his opinion.

Comment: If we compare the interest rates now and a few months back, the answer is – ‘yes, the interest rate is currently higher than what it was previously.’

Is our banking sector is competitive enough to enjoy a competitive interest rate regime? The straight answer is ‘NO’. If a competitive market sets a high price for consumer, then why not the authority will interfere in the market? It’s just like another market. As we know all know, higher prices (in this case, it is higher interest rates) are detrimental for consumers, then it is kind of duty of the authority (in this case, it is the central bank) to control that price, exactly what has been doing by Bangladesh Bank.

What we will achieve through letting the interest to rise (or, a competitive one)? Money supply will reduce so that inflation will reduce also. What percentage of inflation rise is determined by money supply rise? Do we know this? But we know clearly that local investors take 33% of their working capital and 30% of their capital for new investments from financial institutions; in the case of foreign investors, these ratios are 43% and 31%, respectively (Please see the report of the World Bank and Bangladesh Enterprise Institute (2003): ‘Improving the Investment Climate in Bangladesh: An Investment Climate Assessment based on Enterprise Survey’). What does it mean when interest rate rises? These will raise the cost of funds, which will eventually increase the general inflation.

What about our goal for inclusive growth? Shrinking money supply through letting interest rate rise will achieve this goal? No way. Investment will decline, so output will be less, growth will decline and if output declines, it will also affect the price level negatively.

So, suggesting interest rate to rise to control inflation (or, whatever) will basically raise the price level if we consider the supply side effect of interest rate rise is more dominant that its demand side effect, which basically the case is. The Bangladesh economy is not a developed one, rather a developing economy. Market based theories rarely work here.    

Higher govt. borrowing from banks!

The government is going to increase its borrowing from banks to Tk294 billion in FY12, up from its revised budget target of Tk279 billion. The original budget target of bank borrowing was only Tk190 billion.

Why? Higher subsidy requirements in energy, power and agriculture sector and lower foreign aid flow have compelled the government to borrow aggressively from the banking system. However, higher import of fuel has particularly put pressures on the government expenditure patterns.

Implications: 
1. More liquidity shortage in the banking system;
2. Less money left for the private sector;
3. Less investment both from the government and private sectors;
4. Less growth in the current fiscal;
5. Higher debt for the future.

Here is the link on the news.