Transit vs. transhipment

Yesterday, The International Chamber of Commerce Bangladesh (ICCB) organized a dialogue 'Transhipment or Transit for India'. Some interesting discussion were made there.


Here are the links for the discussion:


1. Make public Core Committee report on transit to India 
2. Infrastructure not ready for transit
3. Govt steps not transparent

BD Economic Update Fall 2011, World Bank

The World Bank publishes it regular 'Bangladesh Economic Update Fall 2011'. 

Here is the link of the update.


Major points:

·         Real GDP grew at 6.7 percent in FY 2011, continuing the upward trend in growth.

·        Inflation is high and volatile, with the year-on-year rate reaching 12 percent in September 2011. This is the highest recorded since FY99. Rising international commodity prices were the main source of food price increases. The growing gap between domestic demand and domestic production appears to have contributed to the rise in non-food inflation that was concentrated in non-energy items.

·      Risks in the global economy can affect Bangladesh in several ways. If the slowdown occurs, it can affect Bangladesh’s balance of payments through its impact on exports and remittances, put pressure on the exchange rate, increase economic uncertainty, and, in turn, weaken investment and growth.

·     Domestic policies will also affect Bangladesh’s economic prospects. A slow pace of reforms in the investment climate can affect domestic and foreign investment, as can inadequacies in energy supply and the poor quality of other infrastructure. The reversal of trade reforms as well as weakening of the financial sector can also affect export growth and investment. Expansionary macroeconomic policies could increase risks on the current account and make inflation management more difficult.

·       Unlike in 2008, Bangladesh has less policy space to cushion the impact of a second global slowdown through fiscal stimulus packages and monetary easing. Rapid growth in subsidies, sustained high rate of growth of credit to the private sector as well as recourse to monetary financing of the fiscal deficit have led to the erosion of the fiscal and monetary policy space.

·         However, maintaining the enabling environment to allow a repeat of the growth performance in FY12 will be a challenging task considering the growing downside risks.

  

Off the track: Interestingly, the cover page of the update incorporates a photo of broken roads in the country, clearly reflecting the recent focus of the World Bank. 

Austerity on the Card

So, finally the Council for the Co-ordination of Fiscal, Monetary and Exchange Rate Policies under the Ministry of Finance decided to identify sectors where spending could be reduced to help lessen the pressure on the budgetary resources.

Here is the news link.

Comment: Good thought at a reasonably good time.

Four Nations, Four Lessons

Professor N. Gregory Mankiw writes in the New York Times on economic policies of the Obama administration  and then relates the case of U.S.A with economic conditions of France, Greece, Japan and Zimbabwe.

Here is the links of the article. 

Comment: The main concern in his article is closely connected with the concern that Bangladesh Bank has been spreading over the years, i.e., unconventional monetary policy. The impact of such policy may be popular, but in the long run, there is a strong possibility that the economy may fall in tangle. The systematic reduction of government-directed social security-related expenditures would be beneficial for the prudent management of both the fiscal policy as well as monetary policy.

4th South Asia Economic Summit

The Centre for Policy Dialogue (CPD) organized Fourth South Asia Economic Summit (SAES IV) with a theme "Global Recovery, New Risks and Sustainable Growth: Repositioning South Asia" at Dhaka.

Here is the homepage of SAES IV.

News on SAES IV in the media:

1. Muhith for stepped-up efforts to boost food security in South Asia 
2. Global gloom hovers over South Asian Economy
3. Recipe for food security as prices rise
4. Fixing politics prescribed for South Asian Economy
5. Analysts urge South Asian leaders to open up to transit
6. Energy security pulls in focus
7. Make right policy for ICT
8. Non-tariff barriers set back trade in S Asia
9. Costly migration raises concern 

Tk.50 billion Market stabilization fund

After Tk.50 billion Bangladesh Fund set up by the Government, now privates banks are planning to set another Tk.50 billion Market Stabilization Fund (MSF) aimed at propping up the country's stock market.

Here is the news.

Comment: Are these really useful?

Trade to EU: Bangladesh vs. India vs. Pakistan

So, India announced that it would drop its objections, lodged earlier with the World Trade Organisation (WTO) against tariff concessions which the European Union (EU) promised to Pakistan as part of its assistance package to help Islamabad recover from the devastation of the 2010 floods.

We know, the country has some trade economists (or, experts), who have been organizing seminar, conference and book launching programmes, where they made their expert opinions on the important trade issues. As the EU is the largest destination of Bangladeshi exports, Bangladesh needs to formulate its own strategies to tackle the situation. So, what are the opinions from our trade experts on this important issue?

Here is the link of the news.

In favor of budget cut

Professor M.A. Taslim echoes with other economists on the view that the government seriously needs to think about the budget cut in FY2012, preferably its mega ventures, to maintain the macroeconomic stability of the country.

His article in today's Financial Express. 

Nobel Prize in Economics 2011

The Nobel Prize 2011 in Economics was awarded jointly to Thomas J. Sargent (Professor in Economics at New York University, New York, USA) and Christopher A. Sims (Professor in Economics at Princeton University, Princeton, USA) "for their empirical research on cause and effect in the macroeconomy." They are well-deserved and congratulations to them. 

Mess in the BD Macroeconomy

Dr. Mirza Azizul Islam writes in the Daily Star on the recent macroeconomic management in Bangladesh, finds a few serious flaws in it with special focus on the monetary policy and finally provides a few suggestions for return.

Here is the link. 

I rightly agree with all the views and suggestions that he provided. Yet, I want to add on the monetary policy: it seems, providing agricultural and SME credit has been the prime goal of the central bank over the last few years. The logic to provide more and more agriculture credit is straightforward to the central bank: to appease the food price through increasing agricultural production. However during the last couple of years, food prices has been increasing, which means the policy that the central adopted for controlling the food inflation has not been working. I just wonder whether the central bank made any self-evaluation on this part and think about any other effective alternatives.

It's not all about the number!

Prof. Abul Barkat made me laugh when he gave the number: currently 83.0% of population are poor,as opposed to the government's claim of 32.0%.

Here is the link where he said so.

Well, later, I thought, may be he is right, if not wholly on the number he gave, but the fact. The fact is: poverty has not been declining during the last couple of years as the government claimed.

Interview of Robert Lucas

Holman W. Jenkins, Jr. from the Wall Street Journal interviews Prof. Robert Lucas, one of the most influential macroeconomists in the 20th century. In the interview, Professor Lucas talks on the current global economic volatility (and his explanations), why he voted for Barak Obama, and how Milton Friedman changed his life.


Here is the link for the interview.

And want to read some responses to that interview?

From Noan Smith
From Karl Smith
From Paul Krugman
From Antanio Fatas

BD Economy in tangles

Mr. Inam Ahmed from the Daily Star writes an article on the recent development of the Bangladesh economy and rightly finds it in distress.

Here is the link of the article.


Some important points from this article:

 1.    Monthly mortgage payment of a borrower has been raised in response to the central bank's tighter monetary policy to fight inflation.

2.    The government had no way but to increase fuel price. ….. But one may ask if the government had any alternative and what could have been the ultimate outcome of not increasing fuel price.

3.    In the last two and a half years, very little investment has taken place in sectors other than power.

Though the concerns in the article are right and timely; however explanations missed something important.

Comments on major points:

 1.    Well, why I think that the whole economy has been struggling due to ‘emotional’ monetary policy that the central bank has been following over the last few years. I have observed, the monetary policy sometimes listens to the ‘heart’ of personal wishes (based on unverified belief), then acts as the safeguard of the fiscal policy and finally had to follow the instructions from multilaterals. The result? The central bank lost its path, forgot its prime role; and the whole economy is in distress now.

2.    Alternative? A) Did the government think about cutting tariff rate on fuel import? B) Did the government think about cutting fuel import other than emergency purpose for an interim period as fuel import is the source of all problems? The best alternative: Did the government think about cutting budget expenditure (and it was done many times in history)? Please see the example of Rahman; he had to cut his budget to align with his current income-expenditure pressure. The government can act like Rahman and cut its unnecessary budget expenditures (such as, recreation related expenditure of officials in the government, and dropping ambitious projects including quick rental power projects). The Second best alternative:  Though Bangladesh is not a typical welfare state (as defined in the developed world), still it provides a large amount of subsidy in priority sectors such as agriculture. Welfare states usually impose high tax rates, and follow extremely progressive tax system because they need money to finance for welfare. When the government of Bangladesh provides large subsidy, why not it follows the strategy of those welfare states – impose high taxes on the rich?

3.    That’s true, no doubt. Then I wonder why the author didn’t question the high GDP growth that the country has been experiencing over this period. What was the source of growth in this period then? Because of increased investment efficiency despite acute power shortage?

4.    I wonder why the author didn’t ever mention IMF conditionalities on fuel price hike (or, subsidy reduction on fuel import) in his article. I think, choosing the current time for fuel price hike is closely related to IMF conditionalities and Finance Minister’s visit in World Bank-IMF Annual Board Meeting. Yet I am not blaming anybody, just mentioning.    

2011 Nobel Predictions

Thomson Reuters predicts the Nobel Prize in Economic Sciences for 2011.

Here is the link.

Fuel subsidy debate continues...

In the article of Shamsul Huq Zahid published in the Financial Express, the discussion on subsidy related to fuel import came more articulately. I think, the authority needs to clarify these issues.

Here is the piece from the Financial Express.