BD Economic Update, WB (October 2012)

The World Bank, Dhaka Office publishes its Bangladesh Economic Update, October 2012 edition, where it predicts that the Bangladesh economy will grow at around 6.0% in FY13, far less than 7.2% that the government expects.

Here is the link for the summary of the report.

Profile of Justin Yifu Lin

Finance and Development, IMF in its 'People in Economics' section profiles Justin Yifu Lin, the first World Bank Chief Economist from a developing and Emerging economy during June 2008 - June 2012.

Link of the profile.  

IMF on Bangladesh

Naoyuki Shinohara, Deputy Managing Director of IMF gives an interview with Rejaul Karim Byron of the Daily Star and talks on the challenges and prospects of the Bangladesh economy.

Main points:
1. Bangladesh economy will expand by 5.8% in FY2013, BUT it will need to grow by 7.0% to 8.0% a year to achieve development objectives for the next decade. Generating more tax revenues from internal sources and better prioritizing expenditure will be crucial in reducing poverty and achieving the medium-term growth objectives.  
2. IMF is with the government in its fight against poverty by designing policies that help strengthen governance, reduce waster and excesses, and channel resources to growth-critical areas and there are two-prolonged approaches to do so: higher income through higher growth and targeted benefits for those most vulnerable to adjustment.
3. A major challenge for the government will be to keep subsidy-related costs under control and to ensure safety nets are in place to cushion the impact of administered prices increases on the most vulnerable.

Here is the link of the interview. 

What is the Fiscal Cliff?

The ''Fiscal Cliff'' is a new term used in the policy discussions of the U.S., and given its probable impact, multilateral organizations like the World Bank and IMF started using this term in their various policy papers and forecast measures.

Concept: In a nutshell, ''Fiscal Cliff'' is used to describe a bundle of momentous tax increases and spending cuts that are due to take effect in the US economy at the end of 2012 and early 2013. In total, the measures are set to automatically slash the federal budget deficit by $607 billion (or, about 4.0% of GDP) between FY2012 and FY2013.

Here is a conceptual article on the issue, published in the Council on Foreign Relations.   

ADO 2012 Update, ADB

Asian Development Bank (ADB) publishes its half-yearly flagship publication 'Asian Development Outlook 2012 Update' with latest economic updates on major economies of Asia. ADO 2012 Update also has a theme focus on service-sector-based growth process for developing Asia's economies. It also has a chapter on the Bangladesh economy. 

Here is the link of ADO 2012 Update. 

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.