Keystone Quarterly Review (Jan-Mar 2014)

Keystone produces its flagship publication 'Keystone Quarterly Review', Jan-Mar 2014 edition while focusing key issues like weak enforcement of immigration laws, energy policy options, and shortfall in revenue collection with relevant policy options. It also publishes useful statistics related to energy sector in Bangladesh. It's a worth reading! 

Report on garment industry in Bangladesh

New York University Stern School of Business just publishes a report (Business as usual is not an option) about the garment industry in Bangladesh, its supply chain, and the workers in the context of intense international attention on working conditions in the global supply chain, and a shared desire for higher standards in the factories.  

Bangladesh Development Update, WB, April 2014

World Bank publishes its regular flagship publication Bangladesh Development Update, April 2014 edition with regular macroeconomic analysis and special stories on the Bangladesh power sector development and priorities.

Link for the report.

Asian Development Outlook 2014

Asian Development Bank publishes its flagship publication Asian Development Outlook 2014 (ADO 2014), with a focus on fiscal policy for inclusive growth.

The full version of ADO 2014
The Bangladesh chapter of ADO 2014

What is Monetarism?

Sarwat Jahan and Chris Papgeorgiou writes the article 'What is Monetarism?' in the Back to Basics section of the Financial & Development, IMF. One may consider this as the part of economic history lesson, and to get the real sense on the much talked distinction between Keynesianism and Monetarism in the economics debate.

[FYI: Ms. Sarwat Jahan is a former graduate from the Department of Economics, University of Dhaka]

Two Articles on the Bangladesh Economy

It's worth mentioning the following articles published in the Daily Star Supplementary. Though both are related with the Bangladesh economy, the first one is better related with the current macroeconomic scenario, while the second one has a strong philosophical standpoint. Enjoy reading!

1. Macroeconomic challenges: Towards middle income status - Dr. Mirza Azizul Islam

2. How political culture matches "Poor Economic" - by Binayak Sen.

Concerns on Recent High Inflation

Since FY09, average inflation (Base: 2005-06=100) remains high, at least above the 6.0%. In fact, since July 2008, monthly average inflation never came down to less than 6.0%. During this period, the highest monthly average inflation was 11.8%, observed in November 2011. Within a period of 6 consecutive FY, ranging inflation between 6.0% - 11.8% reflects significant volatility. At the same time, this also reveals, based on Bangladesh’s historical inflation record, a moderately high level of inflation period. In other words, since FY09, inflation remains unstable and high.

Two obvious questions arise when there is a consistently high inflation. One, why has the country been experiencing a high level of inflation for a longer period? Second, what are the costs of experiencing such high level of inflation?

Reasons: Data reveals that until early 2012, it was basically high food prices, which dominated the overall inflation, and started to decline in the latter period. However, prices of non-food commodities started striking when the pressures from food prices eased, which kept the average general inflation well above of 6.0%.

After first global food price shock in 2007-2008, there was second shock in 2011. As Bangladesh is not immune from global food price shock, it had to absorb its share from both shocks by experiencing higher inflation during those periods. Since FY09, the government, on couple of times, increased energy and electricity prices which had a direct and permanent effect on the general price level and consequential indirect effect on the prices of other commodities. Also, the government had to raise the wages of government employees, and set higher minimum wages for industrial workers. Wage adjustment in large sectors like government and industry have direct and upward effect on prices of commodities and wages of other sectors, basically due to speculation factors. Right after the stock market crash in late 2010, there was period when Taka depreciated sharply against the US$, although in the latter period, Taka appreciated again.   

For strange reasons, policymakers used monetary policy instruments to control inflation in Bangladesh. Despite having a pile of excess liquidity in the banking system, policymakers thought that inflation was driven by demand side factors, and still they are thinking in the same line. So they kept interest rate high for long period. Keeping interest rate high had twice effects: one, it helped raise the excess liquidity even more and second, the central bank had to allow domestic investors to take cheap credit from foreign sources. But inflation scenario wasn’t changed much; basically, average inflation has been roaming within a range between 6.0% - 11.8%. Then what’s the success of policies?

Judging policies is largely dependent on the expectation from policy adoption. Do you remember the last time you heard that the current inflation rate is less than 5.0%? One might ask that why an inflation of less than 5.0% is required for Bangladesh. Well, in a country where food commodities still dominate in the total food basket and even major non-food commodities are the basic consumer products, it’s the poor and middle-class who suffer the most from a higher level of inflation. Even when the inflation has been consistently high for a longer period, it is expected that the sufferings have been also lingering. Now if a policy/a set of policies can’t resist the sufferings of the mass, then should we call that as policy failure?

It seems that policymakers are not concerned enough to bring down the level of inflation rate, rather are quite happy for whatever their achievements are. Their recent concerns are to hold future inflation, without thinking to bring down the level of inflation even less. And again they feel to use monetary instruments. But as previously, they will be able to hold inflation volatility only, but not the inflation level. It seems they forgot one simple alternative. When demand management policies are not strong enough to bring down the inflation for easing the sufferings of the mass, then why not the authorities (same or other) try for supply management policies. Probably, policymakers forgot the fact that demand management policy is a short-term instrument to control inflation, but when inflation phenomenon is already a long-term one, they should think for long-term solution.

It’s not easy to formulate supply management policies. Improved governance is the most important factor for a successful supply management policy. A success in supply management policy requires strong commitment, good policy formulation and implementation skills. Above all, it needs committed governance, which is probably the missing area for which authorities had to use demand management policies.  

What policymakers should do? First, policymakers should consider the current period of high inflation as a long-run economic disruption. Second, policymakers should focus more on supply side of the economy to keep inflation at tolerable level in the long-run. They should recall the fact that demand management is effective in the short run, and they can’t use the same instrument for a longer period.  Third, it seems that policymakers are not interested to bring down the inflation at lower levels, say, below 5.0%. They seem more interested to keep the inflation around 7.0% along with a focus on controlling inflation volatility. But somehow they miss a point: it’s not easy to control inflation volatility without controlling the level of inflation. So, policymakers should focus on controlling high inflation, rather inflation volatility.

Know the basics of regression

People out of economics arena often argue on the necessity of regression analysis. It seems, nowadays, knowing (or, not knowing) regression analysis becomes a distinguishing factor for whether an economic policy prescription will be accepted or not. Also, from the policymakers’ perspective, policy suggestions based on proper econometric analysis have been increasingly getting attention. Thus knowing and applying properly some of the basics of econometrics may help to strengthen the argument, especially those who like to see the real impact of their works. Reading this short article (Regression: An Economist Obsession) may guide.    

The One Percent Debate continues...

It's pleasant when leading economists from the top economy debate on issues like income inequality. The financial crisis back in 2007-2008 opens the door for debate, which eventually helps the policymakers to formulate appropriate policy to deal the talked issue. After Gregory Mankiw's first paper (Defending the One Percent) in the Journal of Economic Perspectives, Robert Solow responded (The One Percent) quickly in the same journal. Now, Mankiw again wrote (Yes, the Wealthy Can Be Deserving) in the New York Times.

While the topic should be more precisely related to developing economies, this debate anyway reflects disentangled global economic environment, which also guided the economic debates.     

Alternative Growth Analysis?

Though the analysis in this article (GDP Growth Debate, by Ahsan H. Mansur) rightly captured the dynamics of output loss during the recent political conflict, however its assumptions look over-simplistic: the analysis unnecessarily gives more weights to the loss without considering the fast recovery effort by both public and private sectors. Also, all the happenings took place in H1 of the fiscal year, meaning the scope for considerable economic progress in H2. Whatever the analysis is, the 5.0% GDP growth projection is too less to agree. Anyway, alternative readings are always good appetite.  

Why agonise over economic growth?

The following article, wrote by Professor Anis Chowdhury (former Professor of Economics, University of Western Sydney, Australia), is a good read for people:

1. who blindly support higher GDP growth;

2. who don't support higher GDP growth;

3. who try to justify lower GDP growth by giving unnecessary country argument;

4. who don't see the long-run outcome of social investment.

Link of the article.

Keystone Quarterly Review

Keystone publishes its quarterly publication - Keystone Quarterly Review - with special focus on health care sector in Bangladesh, problems in state-owned banks, and resurging inflationary pressures.

Link for the report. 

Monetary Policy Statement, BB

Bangladesh Bank announced its half-yearly monetary policy statement without notable change in policy actions.

Link for the report.
Speech of the Governor. 

Macroeconomic Update by CPD

Centre for Policy Dialogue reports its flagship publication (Analytical Review of Bangladesh's Macroeconomic Performance in Fiscal Year 2014) with special focus on export and manufacturing sector, and their near-term prospects given the recent political development.

Link for the report.

Update on Macroeconomic Indicators

IMF issues update on selected macroeconomic indicators of the Bangladesh economy through simple graphical representation. One may like to have clear understanding about the current macroeconomic condition and the interrelationship between variables while going through this.

Link for the update.