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Big gap in exchange rate |
State minister of planning recently told press people that inflation would fall from November. However, Monetary Policy Statement(MPS) miserably failed to contain the inflation and there is hardly any sign that it will be able to do so in near future.
According to official statistics, food inflation is around 12%. But unofficially it is around 15%.Despite prices of major commodities are coming down across the globe, Bangladeshi consumers are yet to experience the downward trend in price levels.
On the other hand, poor regulatory framework deteriorates the situation by allowing profiteers to operate without any checks in the market. Consumers’ ability to spend and save has been weakened to a great extent in this situation.
MPS commits to a unitary exchange rate. However,difference between Bangladesh Bank(BB) rate and the market rate is still more than 5 taka.In addition, govt continues to give taka 2.5 per USD for inward remittances. Please note this incentive plus the BB rate is still far below the unofficial market rate. So remitters think they will be better off using the unofficial channel to send their money back home. However, profiteers' foul play could not be ruled out. During the Bakri Eid festival, a record amount of remittances come to Bangladesh. Many banks reported that. However, this Bakri Eid witnessed fewer animal sacrifices this year as cattle prices were beyond many people’s reach. Amount of Haseel(fee collected from sold animal by the makeshift market authority) was also lower. That means households did not spend all the money sent by the dear ones from abroad. They may be lying in the banks. And govt also paid cash incentives to those remittances. Are those bank accounts belong to true individuals? Trouble ridden banks have limited scope for raising their revenue. Opportunistic motive may play a role here to grab the benefits of cash incentives for remitters. Similarly, we have noticed exporters do not feel encouraged to bring the export proceeds at home. The result is huge differences between the stat produced EPB and that by Bangladesh Bank. But they enjoyed special benefits and incentives while processing the export orders. True export earnings should be the earnings brought to home. And incentives should only be given to this amount.
We have already witnessed that USA surpassed UAE and other countries and became one of the top three remittance sources. US visa restrictions facilitated the transfers. Experts and press speculated that certain quarters took advantage of the discrepancy between the official and market rates and made a fortune out of this.
I think we need to review the way we calculate the export earnings. Utility bill paid,freight charges paid,taxes paid ,amount of cargo carried,wages paid etc should be included in calculating the true export earnings. It is easy to report a staggering amount of export earnings. But when one delves into deeper ,it is often found that taxes paid,cargo carried in a given year,wages cleared,electricity bill paid and vendor bill cleared are not reflective of the true annual export. Money laundering is going on without engaging in any economic activity. The point is misappropriation of cash incentives in Bangladesh is very easy as the monitoring and regulatory mechanism is very weak.
It is not right to give cash incentives to remitters.And further depreciation of taka and increasing the policy rate further will be more appropriate. Sri Lanka is a good example.In October 2022,inflation rate was 70%. In January this year,it was 50%. In July ,Sri Lanka managed to bring down the inflation to 6%.
Meanwhile, in January 2023,interest rate was 15.50%. And in July,it was 11%. Inward remittances registered a 76% growth. Sri Lankan rupee is also appreciated against the USD.
Unfortunately, in Bangladesh inflation is still higher than interest rate. In the previous piece,I argued frequent change in policy rate in two quarters instead of just one,which is being pursued by the central bank. MPS is failing to attain its goal as crucial course correction is not reflected.
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