Long-term credit outlook is in decline
Hints that economy is not doing fine.
Recently credit rating agency Standard and Poor Global Ratings has lowered Bangladesh’s long-term outlook to negative in the wake of government’s inability to clear dollar payments to international clients1. Earlier, Moody’s had downgraded Bangladesh’s credit rating. Back then, government labelled the move as geopolitical one. But Dubai and Singapore based private banks made strict loan conditions following the rating.
Earlier a news report divulged that Petrobangla, a public corporation for extracting and procurement of fuel and energy, is facing difficulty in clearing dues of foreign energy companies. A Singapore based company and Total Energies owe a total of $110 million to Petrobangla. In addition, Chevron owes $280 million2. They threatened to stop furnishing gas if the dues are not cleared soon.
Bangladesh has not increased its capacity to extract more gas and oil and to refine crude oil. Even former Chinese envoy to Bangladesh in a press conference wondered why Bangladesh wanted to buy oil from China when it is a net importer of oil. Saudi government on several occasions proposed the government to set up a new refinery. Only recently BPC installed oil pipeline and storing facilities for crude oil in Moheshkhali , a tiny island off the coast of Chattogram.It will save the govt Taka 8 billion annually.
Prior to this latest incident of payment debacle in energy sector, government had earlier intervened to clear dues of $293 million to Chinese government for smooth operation of Payra thermal power plant. Rampal power plant had also gone through similar intervention.
Back in April, a news report said that Facebook’s Bangladeshi public relation firm decided to limit its operation of collecting ads for Facebook. In a letter addressed to its clients, the firm put the blame on acute dollar crisis and obstacles in repatriating the ad revenue to the USA.
It was not the first incident of dollar crisis faced by private firm. Earlier, news report also surfaced claiming private companies who had borrowed from foreign institutions face uphill task to pay back instalment and interest as most banks refused to sell dollar crossing some limit. At the end of December 2022,commercial borrowing stood at around $8 billion and total credit stood at around $92.7 billion.3
In the first two weeks of current fiscal year,government borrowed Taka 10 billion from the central bank by purchasing treasury bonds and bills,which is literally printing money and injecting into economy4.
Back in April, in a piece titled “Food Security Under Scanner”,I wrote:
“Another thing I have recently noticed that this year alone govt has to pay Taka 1 trillion as interest payments. This means it has to compromise spending on other sectors or to print money to meet the debt obligation. As this is an election year,govt may also embark upon politically motivated development projects to unite the loyalists. Often the money may stem from printing more money. This will push up the price level further, depreciating Taka further and increasing the woes of consumers.”
5
There is no surprise in S&P's pessimistic rating. Telenor Asia's head in an interview to a local daily has made it clear winding down of their investment in Bangladesh hinges on political situation6. Beximco Group,which earlier took over the operations of Glaxosmithkline here,has offered Telenor to purchase all its shares if it departs from Bangladesh. According to a report by UNCTAD, investment on relocating factories from Occidental countries to Bangladesh was declined by 59% in 2022.
Fed's policy rate hike, rising inflation, tensed political atmosphere, huge debt obligation offer dismal picture in investment. In general, investors' confidence reflected in these recent ratings. More quickly we resolve our political differences ,earlier will be our economic recovery.
Notes And References
“S&P Lowers Bangladesh’s Outlook To Negative,Credit Rating Unchanged “,Jebun Nesa Alo,The Business Standard, July 25,2023. For more read at
https://www.tbsnews.net/economy/sp-lowers-bangladeshs-outlook-negative-credit-rating-unchanged-671570
”Dollar Er Obhabe Gaser Daam Bokeya,Ditey Hocchey Jorimana(Gas Bill Due Because Of Dollar Crisis,Fines Keep Rising)”,Daily Prothom Alo,July 25,2023.
“Rising Debt Says It All”,Rezaul Hoque,April 22,2023.https://hoquestake.blogspot.com
https://hoquestake.blogspot.com/2023/04/rising-debt-says-it-all.html?m=1
“Record Poriman Taka Chhapiye Sorkar Ke Dichhey Kendriyo Bank(Central Bank Printed Record Money And Handed To Government) “,Rakib Hasnat,BBCBangla,July 23,2023.
For more read at
https://www.bbc.com/bengali/articles/c4nr8j9vjn4o
“Food Security Under Scanner “,Rezaul Hoque,April 07,2023.https://hoquestake.blogspot.com. For more read at
https://hoquestake.blogspot.com/2023/04/food-security-under-scanner.html?m=1
“Rajnoitik Poristhitir Upor Nirvar Korchhey Bangladesh e Telenor Er Babshyaik Bhobishot(Telenor's Business Future Hinges On Political Situation) “,Bonikbarta, July 27,2023.
For more read at
https://tinyurl.com/2kymfpse
Economic zone policies need complete overhaul
To improve business and attain fiscal goal.
This year govt presented a budget with a size of taka 6.06 trillion. Government is going to face a revenue shortfall of taka 2 trillion. In addition, govt has to achieve 0.50% increase in revenue collection as part of the IMF's conditions for $4.7 billion credit.It will definitely put huge pressure on the govt,which is facing receding economic activity ahead of next general election.
While govt has been drastically searching alleys to augment its revenue earnings, policy loopholes created by it earlier still remain unaddressed. For instance, income tax act(2023) allows clandestine capital investment in economic zones and hi-tech parks with only 10% tax.Nothing else! Authority will not ask how investors earned those money.This scheme will last till July 30 of 2024. Such provision neither brings adequate investment nor opens up new opportunities. Worst, it is keeping at bay good investors who are careful about their reputation. These zones and parks have special tax holidays and other lucrative benefits. Yet they failed conspicuously to attract high-profile tech intensive investment. Furthermore, we have noticed recently misuse of export incentive and increasing incident of corruption. A Chinese company in Chattogram was caught red-handed for intentionally tagging “Made In Bangladesh “ tag to clothes manufactured in China.Subsequent probe revealed it swallowed export incentive reserved for exporters and evaded tax.In the incident of BM Container Depot blast, residential address of Dutch investor /partner was not found at the Board of Investment.BM depot days after days stored hazardous chemicals,putting lives of the surrounding villagers at stake.More recently, hack incident of Krishi Bank website and exposed information of 5 million Bangladeshis in dark web reminds us that we have not taken any lesson from Bangladesh Bank heist,now a major documentary in Hollywood, and allowing clandestine capital in ICT did not improve internet security and business environment. In fact ,it made it worst! I have seen report that divulged how Equity And Entrepreneurship Fund of Bangladesh Bank was misappropriated ,forging documents.
Why do we need FDI?Adding new technology,tech transfer,job creation, value addition and boosting economy.
For the sake of new technology and tech transfer,we could tolerate investment of black money in EEZs.However, it is absurd to continue it if that does not happen or costs the economy by introduction of new alleys of corruption.
Time has come to revamp our tax policies in EEZs and hi-tech park. Full stop on export incentive for bleaching black money in the name of investment. Different tax structures for investors who disclose their source of income and those who prefer not to disclose.
The weight of tax collection is so heavy on the govt that it cannot do business as usual in dealing with incentives and investment in EEZs. It should chalk out new strategies to improve business environment in ICT and EEZs and augment the revenue in general.
Rupee credit in favorable rate
Boost revenue, chance and trade.
Bangladesh and India formally inked deal to settle part of their bilateral trade in rupee. The agreement will ease dollar demand to some extent. In addition, Bangladesh Bank governor said that dual currency card for the tourists of both the countries will be launched in September1.
In the face of growing dollar demand, rupee and yuan emerged out as international currencies to settle part of the bilateral trade. Despite having huge trade deficit, limited trade in these two currencies will give some sort of comfort to the govt. A Chinese company had earlier agreed to receive part of the credit repayment in taka to clear the wages of local employees.
Our export to India was $866 millions in 2019-20,$1 billion in 2020-21 and $1.5 billions in 2021-22 respectively2. The trend shows export to India grows an impressive rate. Our import is also growing. Now it stands at $14 billions. Since import exceeds export, Bangladesh decided to confine the settlement of bilateral trade in rupee into $2 billions[*]3.
There are arguments to borrow rupee from India to finance the import and later payback the amount along with interest.However, some argued against it as dollar may be used in such deal and it may not be favorable to Bangladesh. I think instead of saying no to such proposal if it is favorable enough we should opt for it.
India is willing to pitch rupee as an IMF SDR currency.More countries trade in rupee,more stronger the idea will become. Bangladesh is a potential manufacturing hub that will cater to the need of growing Indian consumers. Bilateral trade will eventually grow. To narrow the trade deficit, we also need Indian investment.
Trade in rupee paves the path in this regard. If borrowing rupee from Reserve Bank of India or any state or private bank is lucrative then we should think about it.On the other hand,volume of trade done in rupee is a factor that influences rupee’s bid to IMF SDR currency. What does such favorable exchange rate mean?Taka-rupee exchange rate is fairly stable over the years. But dollar-taka and dollar-rupee registered unusual volatility in recent months. Now any credit deal in rupee with Bangladesh has to be done in light of exchange rate higher than the market rate at the time the deal is signed. And by the time when repayment takes place, exchange rate has to be lower than the market rate prevailed at that time. For instance, say $1 dollar fetches 82.90 rupees. Bangladesh would like to borrow $1 dollar worth of rupees for three months. Three months later suppose the market rate will be 85 rupees for $1 . Making sure that credit deal will take off,Bangladesh will be offered 83 rupees for one US dollar during the agreement and will have to repay 84.50 rupees for $1 dollar.Creditor bank will gain 1.50 rupees (interest plus other costs ).And Bangladesh will save 0.50 rupee from $1 trade. For every $1 billion worth of trade Bangladesh will save 50 crores of rupee or $6.03 millions. For a total of $14 billions of trade,it could save $84.42 millions or Taka 920.178 crores every year.Bangladesh could later use the saved money in developing export infrastructure or modernization and automation of trade facility. For India,the advantage is that $14 billion worth of bilateral trade could be done in rupees and this example could be offered to other countries. Large part of unofficial trade will come under official channel as such trade will require documentation. Both the governments will earn revenue from the increase in trade.
Devising a favorable exchange rate could allow such credit deal to take off. Many private companies are familiar with such deal. In fact, part of the reserve ($7 billions) Bangladesh lent to private banks might be used in currency swap abroad as cost of buying dollar was kept artificially low by not raising the interest rate and by not depreciating the taka for far too long. If credit in rupee at favorable exchange rate is on the table, we should grab it without ado.
Notes And References
“Dual Currency Taka-Rupee Card From September”, Daily Star,July 11,2023.For more read at
https://www.thedailystar.net/business/news/dual-currency-taka-rupee-card-september-3366251
Bangladesh Bank
“Currency Swap To Ease Dollar Demand”, Rezaul Hoque.May 18,2023.https://hoquestake.blogspot.com/.For more read at
https://hoquestake.blogspot.com/2023/05/currency-swap-to-ease-dollar-demand.html?m=1
[Update: This piece has been updated at 14:00 Bangladesh Standard Time on July 18,2023.Update includes insertion of " settlement of bilateral trade in rupee" instead of "bilateral trade".
------Rezaul Hoque]
Recent price overshoot in kitchen item,
Sign that black money enters the system.
World Bank in one of its report "Atlas Of Sustainable Development Goals 2023" observes that two-thirds of Bangladeshis cannot afford healthy foods. This lays bare the fall in purchasing power of the Bangladeshis. I have also read a report of a local daily that says Bangladeshis in general lags behind other countries in the ranking of countries based on meat consumption1. India is at the bottom segment of that ranking and in South Asia Bangladesh is ahead of India. Belief/choice is a factor that puts India in that position. But for Bangladesh it is obviously the falling purchasing power.
This bakri eid is another testament of this dwindling purchasing power. Many households abstained from observing the ritual of sacrificing an animal. Meanwhile, bovine market registered a decline in prices in recent years. Many bovine dealers preferred to withdraw their animals from the market as they did not get the anticipated price. This tells how households are coping with the rising inflation.
Few days before bakri eid chili price soared to an unprecedented level,leaving everyone flabbergasted. Earlier onion, soybean oil, broiler, egg had also shown unprecedented volatility. Now as the chili price is being normalized, potato price tends to show unusual hike. During the festival season like bakri eid when more and more people eat meat,a little bit of price increase is justified. However, chili was sold over Taka 700/kg for several days2. Reason put forward was the lack of supply. However, other essential items(i.e, cinnamon, clove,black pepper, cumin,zinger, garlic) that are quintessential in cooking meat did not register such unusual hike.Chili is harvested here and even grown in pots. Excess demand is being met by importing from neighboring countries. But one thing that keeps chili, onion separate from others is that these things shrink in volume over times and one cannot store them long. Onion can be stored by making chips. Potato can be stored in cold storage. Even temperature variation could ruin the whole stock. Low quality fetches low prices. Moreover, these items have elastic demand unlike rice and wheat. People can prepare their meal without chili or onion. People will stop buying potato if it shows unusual price hike. They will rot if people stop buying them. This is not true for rice or wheat. People have to fill their stomach.
What is interesting no sooner had the trucks reached Indo-Bangladesh border chili prices dropped to normal level. Speculative role played some part here. Earlier, broiler meat and egg market showed this tendency. Consumer rights' body even fined few wholesalers for not furnishing any receipt/ for selling at prices above the set price. Long before that soybean oil market registered unusual hike and wholesalers denied outright to give any receipt to the retailers. Even before that in the name of e-commerce motorcycles, soybean oil were being sold at discounted price and many people lost their money in this fraudulent multilevel marketing scheme. Recently, we see how metro fare is inflated above the bus fare to give favor to the transport businessmen. According to a report by a local daily, metro fare is cheap compared to bus fare and varies during weekdays and the weekends in neighboring countries3. This is not the case here. In our metro there is a concept of peak and off peak hour but there is no change in fare. More recently, during the last one year as government followed multiple exchange rates while certain quarter laundered money abroad and delayed bringing export proceeds in time to gain later from further depreciation of Taka.
This is all happening ahead of next election when clandestine cash will come into play. Since less paperwork is needed, cost of legalizing black money is pretty low in the kitchen market. One can introduce huge sum of money into the mainstream through price variation in kitchen items.
Bangladesh has slipped into such a situation where regulatory grip is weak and privileged quarter indulges in swelling their wealth through profiteering.
Notes And References
"Bangladesh Soho Bisher Dosh Desh Jekhaney Sobchey Kom Mangsho Khawa Hoi(Bangladesh And Ten Other Countries Where Meat Is Consumed Less)",The Business Standard,June 30,2023. For more read at
https://www.tbsnews.net/bangla/%E0%A6%AB%E0%A6%BF%E0%A6%9A%E0%A6%BE%E0%A6%B0/news-details-154686
"Ekta Kancha Moricher Daam Ektaka,Daam Barar Karon Ki?(One Chili Costs One Taka,What Is The Reason Behind Price Increase?",Sanjana Chowdhury,BBC Bangla,July 02,2023. For more read at
https://www.bbc.com/bengali/articles/cw4vzd21e2do
"Metro Rail:Passengers' Welfare Association Demands 50% Reduction In Fare",Dhaka Tribune,December 17,2022.
For more read at
https://www.dhakatribune.com/bangladesh/2022/12/17/passengers-welfare-association-demands-reducing-50-fare-rate-of-metro-rail
[Update: This piece has been updated on July 09,2023 at 12:20 Bangladesh Standard Time(BST).Update includes insertion of references. ---Rezaul Hoque]
Grab,swallow everything in your reach,
Just to join club of the filthy rich.
[Back in 2019,later updated in 2020, I wrote this piece on the means frequently employed here to become filthy rich.Much water has flown down the Buriganga since then. And new means were used. So I updated the piece and reproduced here.]
It appears that we have turned Bangladesh into a hermetic kingdom where we introduced rules and practices that cannot be found anywhere else in the world. Traffic lights are a pertinent example where you see vehicles crossing key roundabout while the “red” is on, pressing the need of traffic police at every traffic lights to force every vehicle to obey the rules. By the same token, Bangladesh has devised some unique ways for individuals who aspire to become filthy rich in a densely populated country where residual ash from an earthen stove and cowdung are sold and generate profit.
Below are some of the techniques frequently used by the successful summiteers and the nouveau riche:
Recipe#1: subscribe to a political party (cadre based ones are even better), look for empty govt lands, set up a slum and collect monthly rents. Perks include regular payments, surpass the total monthly rents, paid by drug sellers. Bata with its more than 1000 sales centers across Bangladesh made a profit of around Tk 50 crore last year. One single slum could make that money in one month!
Recipe#2 : subscribe to any political party (cadre based ones are even better), take huge amount of loan from banks using your political status, forget to pay them, spend some to raise media outlet or to donate cultural events or religious charities, grab abandoned industrial plot, become willful defaulter and take more loans.
Recipe#3: befriend a politician, civilian and military bureaucrat, get some permit/ license of lucrative business, boast your friendship with powerful elite, police and military in social events and social media to convince people you have high connections, exploit this link to squeeze benefits from business deals and transaction, put up a barrier to entry to your competitors, sponsor political and armed forces run events,launder your wealth abroad so that in adverse time or in any change of power your wealth and business remains untouched and be loyal and faithful to your connections.
Recipe #4: subscribe to any political party (cadre based ones are even better), set up illegal bazars on roadside, collect rents from them, in addition also collect protection money and utility bills, form an association of businessmen, become its member or president, hire some actors to behave like transgender, force them to do begging at key roundabouts, get a trade license and set up a business to whiten your extortion money.
Recipe#5: get membership of various wings of political parties (cadre based ones are even better), start doing export-import business, look for cash incentives / funds available for entrepreneurs/ exporters, swindle those funds, prepare some fake documents to misappropriate cash incentives, bring some money through your fake export partner to convince people you are really doing some export business, start producing cinemas (biopics or folklore stories are good choices to start with), spend some for generating PR about your film(tell the press a swollen figure), declare that your film made an astronomical sum of profit in the box office, and whiten part of the swindled money.
Recipe#6: get membership of any political party (cadre based ones are even better), erect a party office in local bazar, start collecting regular money from the vehicles at bus stand or tempo stand, grab some government property or land belongs to vulnerable people, construct a market complex on that land, bribe city planning officials and exceed floor limits, set up a garments factory, pay irregularly to your staff, switch side if there is a change in government, set your factory on fire and claim insurance from the companies, shut down indefinitely your company if there is unrest , fire the agitating workers, recruit fresh workforce,put blame on rivals or conspirators, ask for loan from banks to recuperate from industrial disaster and read biography of Sohel Rana, owner of Rana Plaza.
Recipe#7: set up a multi-level firm under disguise of cooperative or youth financing institution, collect deposits from members promising your company have lucrative businesses abroad, give some of the members regular monthly payments dubbing them "profit" so that they could bring new members, buy a piece of land in a remote part of the country and plant trees telling the members their money is in good use, set up super market and force members to buy goods from those supermarkets, launch a media house, try to run for MP election or finance electoral campaign of a party, buy citizenship of a foreign country, dissolve your MLM company one fine morning and melt into abroad.
Recipe#8: get enlisted with any ministry or government organization as constructor/vendor, set up a construction company, take part in bidding process of government projects, bribe politicians or ministry officials involved with the projects, influence them to prolong the duration, build the infrastructure with substandard materials so that it lasts only one monsoon or quarter of its lifetime, sponsor foreign trip of project officials or investigator probing development and quality of a project, submit forged documents and siphon off project money prior to its completion, project procurement cost couple of times higher than usual by manipulating input price in connivance with input seller, donate generously to religious charities and cultural events, visit regularly posh bars scattered across bureaucratic area and political hotspots where leaders and bureaucrats of all hues throng to have a peg and discuss potential projects and course of future politics, try to be in good book of social elites and law enforcement officials and intimidate your rivals with the aid of hooligans supplied by your political backers.
Recipe#9: be close with agencies that operate eavesdropping devices, use this relationship to spy on your rival in business and politics, sponsor personal events /trip of your "man/men" in armed forces or law enforcement agencies, make some of them your shadow partner via their relatives, buy commercial plot at crucial area where everyone else is leaving because of receding business, be part of a social movement so that you radiate an aura of changemaker, launch media outlet and pay the journalists lavishly, milk promising men-in-fatigue and law enforcement officials who will adorn key positions in future so that they cannot put obstacles in your future business ventures or political ambition, aim the mega projects or projects being financed by export credit, and make good use of your deep state connections by trying to be political party's accountant for bagging commission of projects financed by export credits.
Recipe#10: get membership of a political party (cadre based ones are even better), set up a philanthropic institution / orphanage/ seminary/charity, try to get foreign funds for your charity, reach out to foreign donors, convince them and fetch as much money as possible, start building some sort of infrastructure for your charity, aim wealthy retired foreign couples who have little knowledge on your country and countrymen, send pictures of some apartment building under construction and present it as your future charity house, do not send pictures of Sangsad Bhavan or Supreme Court as your charity house because these sites are well known in the cyber world, take some pictures at an orphanage, convince your would be donors that you really take care of these poor souls, be part of some cultural movement, pay visit to the place the cultural movement originated or the artist or the legend was born, set an organization named after that movement or legend, try to find out some foreign donors who are kindred spirits, squeeze as much fund as possible from these donors, do not provide your original address, invite them to visit Bangladesh to see the progress of projects they funded, show them some hoax sites or take them to the neighboring country and introduce them to some paid guys who will convince them that you are really a philanthropist and cultural connoisseur, get some paid awards from some hoax organization ( foreign ones will add more value),publicize your charity work and cultural programs in social media and little known news sites, and go for hiding for few months if you get caught in fraudulent activities and make sure you have good connections in ministry of foreign affairs because cheated foreign donors may approach foreign ministry to lodge complaints against you.
Recipe#11: get close to ruling party, grab license for a new bank, make every family member of your family director of the new bank, take loan from other bank to invest in the new bank, manage accounts or funds of public organizations, take loans from other banks using your bank director credential, launder the money abroad and become willful defaulter.
Recipe#12: start an online MLM company in disguise of e commerce/ online shopping company, offer 100% cash back on purchase, retain the cash back in client’s account in the company, force the client to buy another product with some part of the cash back, delay the delivery of the product, put the blame on the limited stock of the good, invest the money collected from client in forex/ commodity exchange market or in any clandestine business, lure owner of black money to invest /to make transaction in your company to send part of the money abroad, use the swollen balance sheet to attract foreign investors, pay astronomical sum of money to procure foreign software in a bid to launder money, draw government’s attention to get digital innovation fund.
Recipe#13: try to buy land forcefully near the location of any upcoming development project/university/public infrastructure using your political/law-enforcement credentials. Raise the prices of the land couple of more times so that you make windfall gains from reselling the property to implementing authority. Use your influence to raise the budget of project if the authority denied it outright showing lack of budget.
