Status of IMF conditions

An International Monetary Fund (IMF) will visit Bangladesh from today for two weeks to review the implementation status of its conditions before releasing the second installment ($141 million) by November of its three-year Extended Credit Facility (ECF) program.

Rejaul Karim Byron writes on this issue. It seems that the government is trying to come out from some of the conditions that IMF previously set (or, the government will request IMF to relax those conditions); on the other hand, IMF is trying to set new conditions (e.g., no hard-term borrowing beyond $1.0 billion). Among the government requests, increasing the exposure limit of commercial banks in the stock market to 40.0% of bank's total capital instead of current limit of 25.0%.

What does it indicate? Without resolving the prevailing capital constraints in the banking system, the government is again going to allow commercial banks into stock market business. Or, the government is trying to help banks to take back their significant amount of capital that were invested in the stock market and had to leave as it is before stock market crash in December 2010. Is the government trying to help banks to resolve their accounting crisis, or trying to revive the stock markets through involving commercial banks into its daily activities? What's the implication for future stock market activities of such decision?    

BEA Conference

Bangladesh Economic Association (BEA) is going to organize a three-day conference with the theme 'Global Economy and Vision-2021' to be held during 13-15 September. Mr. Asjadul Kibria writes on the current economic perspective, prospects on the basis on new global economic development and its relation with this conference.

Link of the report.

Impact of higher interest rates

This is the right time to listen more intensively from sufferers than theoreticians on the impact of higher interest rates. Sufferers (or, businesses), on average, talks on the same line: higher lending rates push up the cost of doing business.

News link on the issue.  

Default loans rise

Banks in Bangladesh recorded default loans Tk.290 billion out of their outstanding loans at the end of June 2012, up from Tk.253 billion at the end of March 2012, an increase of 14.6%. Rise in interest rates, and ongoing sluggish economic activities are the reasons, as mentioned by top bankers of the country.

Link of the news.

Export update

Exports grew by only 4.3% in July 2012, the first month of FY2013, against the 28.7% growth in July 2011.  Though woven garments export grew by 11.9%, knitwear exports rose by only 0.7% in July 2012.

Here is the news link.

Where is economics going?

Eight of the World's top young economists discuss where is the field, economics, going. In particular, they were discussing on the biggest unanswered questions in economics and predicting what breakthroughs will define it a decade or two. A very interesting discussion to read and know the views from them. May be one doesn't need to fully believe what they said, but, at least, you can see what is the leaders in the field are thinking, which will eventually (and/or partly) lead the future of the field (if not fully). A suggested one for new economics graduate.

Link of the article.

2005-06: New Base Year

Bangladesh Bureau of Statistics (BBS) will launch new base year (Fiscal Year 2005-06) from today to measure price-based macroeconomic indicators including inflation.

Link for the news.

Sluggish export growth

Bangladesh's export grew only by 5.9% in FY12, compared to 40.5% in FY11. So, it missed the government's target (16.0% over FY11). In fact, year-on-year export growths in the last 4 months of FY (starting in March 2012) were negative (-7.2%, -7.1%, -4.2%, and -3.1%).

As economic crisis has been taking place in US and Europe, the demand for Bangladeshi products from those economies remained low. Moreover, production costs increased significantly due to higher energy prices including electricity and higher banks' interest rate.

It seems, Bangladesh's export fell into a growth trap (picture below). Since FY04, the export growth rate were never able to cross the mark of the previous year. In fact, the trend of export growth since FY06 has been falling. So, the policymakers need to work more, especially those who think themselves as trade expert.

News link on export growth.

GDP growth and Inflation relationship

Well, Policy Research Institute (PRI) of Bangladesh conducted a research lead by Dr Sadiq Ahmed  mainly on the relationship between GDP growth and inflation in the context of Bangladesh.

Here is the news link on the issue.

What did the study find then?

1. There is a long-run negative relationship between GDP and inflation;
2. While seeking a threshold of inflation in Bangladesh, it finds that a 4.0%-5.0% inflation rate is the threshold to provide the flexibility of resource mobility for growth in Bangladesh (against the central bank's official claim of having a inflation threshold of 6.0%-8.0%).

What's new in this study?

Nothing significant. A Working Paper (WP0604: Inflation and Economic Growth in Bangladesh: 1981-2005) of the Policy Analysis Unit (PAU), Bangladesh Bank has done the similar approach back in 2005. What are the results of that study?

1. There exists a statistically significant long-run negative relationship between inflation and economic growth for Bangladesh;
2. The estimated threshold model suggests 6.0% as the threshold level (i.e., structural break point) of inflation above which inflation adversely affects economic growth.

FYI: Link of the WP0604 (Bangladesh Bank website-publications-research work-working papers).

It's not clear whether both the attempts (Bangladesh Bank and PRI) recognized the very first and previous attempt (PAU) in this area of economic research in Bangladesh.

Inflation exceeded projection!

Average annual rate of inflation in FY12: 10.6%, the highest average inflation rate after 1985!

According to the government’s projection, average annual rate of inflation in FY12: 7.5%, meaning 3.1% higher than projection.

News on the issue.

Consolidating and Accelerating Exports in BD

World Bank publishes a report 'Consolidating and Accelerating Exports in Bangladesh' written by Md. Abul Basher et al. The following issues came up in the report: 

Bangladesh not only needs to consolidate existing strengths in basic garments, but also plan for the future.

While garments will continue to dominate exports, encouraging diversification will help guard against shocks and maintain export growth in the longer term.

Export growth can accelerate, provided critical bottlenecks are addressed, including trade logistics, skill shortages, and compliance with Government labor standards. 

Link of the report.

Economic performance below expectation!

The Financial Express publishes a report on the performance of major macroeconomic indicators in FY12 and finds that most of the indicators performed below expectations. 

Here is the link of the report.   

Budget and its relation with IMF fund

Professor M.A. Taslim writes on the FY2013 budget announced by the government and tries to relate the content of the budget with conditionalities of IMF set for its $1.0 billion fund for Bangladesh.

Here is the link.

Garment orders fall...

Garment orders fall, especially from debt-affected Eurozone, as the cautious EU buyers are deferring or placing reduced number of orders due to a prolonged debt crisis there. Apart from a demand drop, the buyers are also offering lower prices. 


The news link on the issue. 

Arguments against new banks...

Professor M.A. Taslim writes against Bangladesh Bank's note supporting new banks. Finally, one macroeconomist speaks out on this issues; lets forget about the motive, but concentrate on the logic that he provided.

Here is the link.