Consensus For Early Recovery

Consensus in economic reform policy Makes the recovery early and easy.

While the winter vegetable market witnesses a decline in prices of vegetables, govt embarks on importing rice from abroad. Govt has a plan to import 800000 tonnes of rice from abroad to check the prices of rice. There is a commitment to bring down the food inflation at any cost. Meanwhile, in the first two quarters of this fiscal year, foreign direct investment registered 22.33% decline. Taka against USD remains stable after a brief spell of volatility in the month of December. If it remains stable for another six months, it will give confidence to foreign investors. They will not come amid anarchy,elevated inflation and when the currency remains volatile.

The central bank may unveil the much awaited Monetary Policy Statement (MPS) in the first week of February. Unlike the previous MPS, this one may raise the policy rate further after reading the January inflation data. I personally think the govt should remain unpredictable about its monetary policy moves in a bid to thwart speculative move at home and abroad. In the wake of protest, govt is making 180 degree turn in its stance on indirect taxes, which accounts large part of revenue earning. But this time budget support from abroad will be less as the Trump administration halted foreign assistance for 90 days. In this backdrop, it has to curtail the spending significantly, backtracking the move to give inflation allowance to govt employees. As I mentioned in one of my earlier pieces, govt is reluctant to start bold economic reforms , which is vital for the economy.

This interim government is apolitical and lacks the vigour to initiate bold economic reforms, which it can do at anytime. The main reason is it is concerned about how the major political parties will see the move. Unlikel the west where opposition parties have their own shadow cabinet and alternative policies to call into question the prevailing policy, our political parties have not shown interest in forming such shadow cabinet and share their thoughts and opinions with the interim govt. If they would do that, the interim govt could confidently take into account those policies and align them with the ongoing reform policies as prescribed by the IMF. This govt still has more or less 1 year,enough time to start vital structural economic reforms. Early economic reforms (i.e. fiscal restructuring, tightening monetary policy, policy sovereignty of the central bank, true reporting of economic data, closure of troubled banks, separation of tax policy and revenue collection etc) will put less strain on people a year later. Otherwise, if it is shelved for the new elected govt,which is highly likely to happen for most of the anticipated reforms except for few, then true economic recovery will be delayed and ordeal of ordinary people will be prolonged. For the sake of the economy, major parties should coordinate their economic policies with the one of interim govt,making its economic reforms task much easier.

La Semaine Dernière A Mes Yeux

(25 janvier --- 31 janvier)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
18	Riz,Œuf,Pomme de terre,Soupe aux lentilles	Riz,Ruhi,Pomme de terre,Soupe aux lentilles	Riz,Pomme de terre,Lait poudre	---
26	Riz,Pomme de terre,Œuf	Riz,Pomme de terre,Ruhi,Soupe aux lentilles	---	Orange(depuis marché)
27	Riz,Œuf,Pomme de terre,Soupe aux lentilles	Riz,Ruhi,Pomme de terre,Soupe aux lentilles	Riz gonf lé,Chou fleur(depuis marché)	Orange(depuis marché)
28	Riz gonflé,Chou fleur	Riz,Pomme de terre,Soupe aux lentilles	Riz gonflé, Patate douce(depuis marché)	Orange(depuis marché)
29	Khichuri,Œuf,Pomme de terre	Khichuri	Pain,Omelette	---
30	Riz gonflé,patate douce(depuis marché)	Khichuri,Œuf	Khichuri	---
31	Riz gonflé(depuis marché)	Khichuri,Œuf,Brinjal(depuis marché)	Khichuri,Brinjal(depuis marché)	---

Regulate Investment On Treasury,NSC

Regulate investment on treasury bond and NSC To bring the much needed vibrancy.

The IMF has shelved its decision to give fourth instalment of the ongoing credit package till March this year. The step is taken as the NBR did not manage to bring enough revenue for the state coffer. Earlier the IMF had lowered the revenue target to Tk 4.55 trillion from Tk 4.78 trillion.The NBR has to fetch enough revenue by March to convince the IMF that it will get closer to the target of Tk 4.55 trillion by the end of this year.

Another good news came from China: the country extended duration of paying back all loans to 30 years from 20 years. This will certainly give Bangladesh some comfort in dealing with external debt. Our external debt servicing already reached more than $3 billion every year.

Not only the external debt, internal debt servicing is also causing strain on the govt. Individual and business alike heavily rely on National Savings Certificate (NSC) and govt treasury bond,as the two offer high rate of interest, when business prospect is bleak and law & order situation shows no sign of improvement.

Even the small business and big business group that take loan from banks may feel encouraged to invest in NSC or treasury bond as the investment is secured. In this backdrop, private sector credit may not bring the expected vibrancy to the economy. It is because productive use of credit is not ensured here.

In addition, many private banks and non-bank financial institution may prefer to invest more in govt treasury rather than channeling the fund to the private sector, shrinking further the private sector credit. Bangladesh Bank requires to wield its regulatory power here. Earlier govt made it mandatory to submit TIN certificate to invest more than Tk 500000 in NSC. The central bank may fix the ceiling on how much money a bank can invest on treasury bond. It can also freeze money if it originates from private bank loan given to some other purposes. The step to some extent will bring discipline into private sector credit.

Energy dues reached Tk 670 billion. Enough revenue generation and cutting spending could give early sigh of relief. While exchange rate is left for the market to decide, is it necessary to pay Tk 70 billion as remittances incentive every year? We should rationalize it. At the same time, govt's reliance on NSC should be curtailed. Interest payment every year raises govt's spending. The money instead should go to the private sector,particularly the SMEs, which will take good care of them.

La Semaine Dernière A Mes Yeux

(18janvier --- 24 janvier)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
18	Pain,Chou fleur,Œuf	Riz,Chou fleur,Ruhi	Riz,Chou fleur,Ruhi	Singara(depuis marché),Kheer
19	Riz gonflé,Mélasse	Riz,Chou,Ruhi,Soupe aux lentilles	Riz,Ruhi,Chou	Patae douce
20	Khichuri,Œuf	Riz,Brocoli,Petit poisson	Riz,Brocoli, Poulet	Patate douce
21	Pain,Chou fleur,Œuf	Riz,Chou fleur,Tête de Ruhi dans soupe aux haricots mungo	Pain,Chou fleur,Tête de Ruhi dans soupe aux haricots mungo	---
22	Riz,Poulet	Riz,Poulet,Tête de ruhi dans soupe aux haricots mungo	Riz,Ruhi	---
23	Khichuri,Poulet	Khichuri,Poulet	Riz,Ruhi,Ponme de terre	---
24	Khichuri,Poulet,Œuf	Khichuri	Riz,Ruhi,Soupe aux lentilles,Pomme de terre	---

Where Is The Change?

No bold economic reform is on the horizon, Post election future may be the reason.

In less than 3 weeks, the interim govt is going to complete 6 months in the office. Though the whole home ministry is in complete disarray,as reflected in growing number of crimes, the govt did its best to restore law & order. All the reform commissions have submitted their reports. But it is the economy that needs more urgent care and reforms than anything else. I strongly believe this govt was brought to power to fix the economy, which is battered by systematic corruption of the civil-military bureaucracy and blessed cronies. The political reform is just a smokescreen.

Yet that much needed economic reform is no where on the horizon. The govt has enough people to carry out bold and radical economic reforms ,but the govt has not treaded on that path yet. Two incidents laid it bare. Governor of the central bank is a powerful position and a very competent man is in charge. Like the previous regime, we witnessed governor was invited to a meeting headed by a businessman who also happened to be chairman of a trouble ridden bank. Later, the central bank provided liquidity support of Tk 220 billion to 6 trouble-ridden banks. Few months later, governor was invited to a branch opening event of a specialized bank in Tangail. Later, we saw Bangladesh Bank provided Tk 125 billion to another 6 trouble ridden banks including the specialized bank in question. During the previous government, we saw how governor and judges went to event/ party organized by powerful client or accused before making crucial policy decision or verdict. This is happening again! Where is the qualitative change?

The IMF in its loan package made it clear that tax should be imposed on every income earning source. When this regime took power, it revived an old law,amended by the previous regime, that gives tax rebate on the earnings of microcredit institutions for five years. It could have been rationalized for two years , giving the govt vital revenue. In January this year, govt made another change into an ordinance regarding a leading microcredit institution. It is about lowering the number of govt appointed director in the NGO. It is indeed a laudable move. If govt reciprocates it in other public offices,then it will be a good move. In Pakistan reform package includes closure of 100000 posts in public offices. Similar thing here will at least save taxpayers' money.

Govt's economic management is also messy. In my earlier pieces, I repeatedly said that govt's decision to lift off duties on sugar and edible oil was an unwise move. The decision would cost the govt Tk 3156.5 crore in this time of austerity(Read "Review Decision On Tariff And Vandalism" published here on October 29,2024). Recently, govt decided to impose 15% VAT in all goods and services. This would raise prices of food at restaurant and internet packages, but would generate Tk 120 billion to state coffer. Had the duties been on sugar and edible oil and govt raised the corporate tax, more than Tk 120 billion might have been generated as revenue.

Crucial and bold reforms have not been done. A reformist govt could easily follow the contractionary monetary policy. Yet what it has done so far is just monetary and fiscal expansion. A political govt very rarely would embark on reform programs and this govt behaves like political govt . So our recovery may be prolonged as this govt is reluctant to initiate bold reforms like strengthening regulatory grip, fiscal restructuring and tightening and monetary tightening.

Reform policies taken so far indicate govt is keen to protect its own interest and wants to tread on a safer path. It does not want to antagonize major parties except the ousted one. At the same time, govt is concerned about the future of the institutions headed by key people in the govt after the election. This somehow explains govt's reluctance to start bold reforms.

So far we have not seen yet any attempt to reform the security establishment. In the last 15 years, we saw how corrupt groups and individuals in connivance with the Army ruined election and the economy. Just a week ago , few students staged sit-in before the Secretariat to demand Army involvement in construction of key facilities of a public university. This practice is a continuation of the past regime. We could at least see the news of corruption report if a private contractor is involved. Can we expect the same in case of an army contractor? Proper ordinance should be introduced to make accountable the defense establishment.

In brief, 6 months after the regime change, we have not seen yet any qualitative transformation. Interim govt is busy with their own interests and is not keen to start bold reforms, prolonging the economic crisis.

[Update: this piece has been updated on January 18,2024 atat 10:05 AM Bangladesh Standard Time. Updates include reference to sugar duty loss and some clarifications.]

La Semaine Dernière A Mes Yeux

(11 janvier --- 17 janvier)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
11	Khichuri,Œuf	Riz,Chou, Soupe aux lentilles	Riz,Chou,Pama croaker,Soupe aux lentilles	---
12	Riz gonflé	Riz,Purée de pomme de terre,Papaye	Riz,Soupe aux lentilles,Papaye,Purée de pomme de terre,Poulet	Dal puri(depuis marché)
13	Riz gonflé	Riz,Chou,Poulet	Khichuri,Œuf,Chou	---
14	Riz,Sucre	Riz,Chou fleur, Tête de chèvre dans soupe aux pois blancs	Riz,Chou fleur,Chou fleur, Tête de chèvre dans soupe aux pois blancs	---
15	Singara(depuis marché)	Riz,Chou fleur,purée de pomme de terre, Tête de chèvre dans soupe aux pois blancs	Riz,Chou fleur,purée de pomme de terre, Tête de chèvre dans soupe aux pois blancs	---
16	Riz,Lait	Riz,Chou,Poulet,Soupe aux lentilles	Riz,Chou ,poulet, Tête de chèvre dans soupe aux lentilles	---
17	Riz,Poulet,Œuf	Riz,Chou fleur,Poulet,Soupe aux lentilles	Riz,Chou fleur,Petit poisson,purée de tomate	Jhalmuri

Last Year's Extra Money

Not enough resources created in the system, Yet govt introduced more money against them.

There has been slight ease in inflationary pressure in December, general inflation declined to 10.89% from 11.38%. Food inflation is still hovering around 13%. Meanwhile, govt is going to implement 15% VAT on all goods and services. The decision however caused fresh debate over cost of living. For some bizarre reasons, govt is not interested to touch the corporate tax rate. Unlike political regime, this govt can carry out bold reforms,which we have not seen yet. Govt is desperate to get the next tranche of IMF credit package. That is why it is speeding up separation of revenue policy commission from revenue collection, one of the benchmark set by the IMF.

I see no wrong in raising the VAT. Many Occidental economists think any concession of tax this year will add up the burden of taxation in later years. So tax relaxation or tax rebate has little effect in the long run. But taxation is politically unpopular and risky. I think the govt could easily raise the corporate tax rate by 1% or 2%. Our external debt obligation has reached a record level. At one hand, our GDP contracts, on the other hand, our debt (all kinds) keeps rising. Energy payment dues are adding salt to injuries.

Govt called the cheapest shots by printing and injecting money into economy. In 2024 alone, the govt (both the present and the past one) did it in huge amount. At the start of the year, govt issued bonds worth Tk 260 billion to pay energy overdues( read "Economic Reforms: Morning Shows The Day" published in January ,2024 here). Chief advisor claimed that former governor, who is on the run, printed and gave a crony group around Tk 300 billion on the eve of the Awami downfall. Later the central bank gave Tk 220 billion worth of liquidity to 6 trouble ridden banks. On 30 December, 2024, govt again stepped in to rescue another 6 banks by injecting Tk 125 billion. So last year govt is responsible for introducing liquidity worth of Tk 895 billion in the economy. Now if we look at the gains and loss of last year, we will notice both political and natural events played a role in the economy last year. Flash flood in August and September cost the economy Tk 140 billion according to CPD( I have doubt about this figure). The regime change cost another $1.2 billion or Tk 147.60 billion(source: Wikipedia). Among the gains of last year, RMG export witnessed 7.23% growth, fetching an extra $2.59 billion or Tk 318.57 billion. Unfortunately, data on Aman harvest has not yet been published. The export earnings,however, take time to arrive. Bangladesh does not get the whole export money in exact time period. We also witnessed 22% growth in remittances, earning $4.7 billion extra money or Tk 578.10 billion last year. We have to remember, for some months ,we provided cash incentives(2.5%) to remitters. If we also take this into account, it also adds to the inflationary pressure. In 2023-24, rice production was 40 million tonnes. We consumed 35 million tonnes.Flash flood damaged 700000 tonnes of rice. The extra production of 4.3 million tonnes worth $ 1.93 billion or Tk 233.7 billion. If we add this to last year's total gains ,then net gains become Tk 842.77 billion. Now the govt injected money worth Tk 895 billion and the economy created extra resources of Tk 842.77 billion. So extra Tk 52.23 billion is circulating in the economy. If we drop the extra export earnings from last year's gains, then the extra money volume becomes Tk 370.8 billion. If we downsize the flash flood damage,then volume of printed money may grow even farther. Point is govt has to take blame for injection of this extra money ( ranging from Tk 52.23 billion to Tk 370.8 billion +) into the economy. This is simple arithmetic.Now govt has to come up with plans to address it. Remember this money adds to the lost loan or NPL, complicating the monetary policy. Today we are on January 10, yet there is no sign of the Monetary Policy Statement (MPS). Delay in publication of MPS reveals the awkward situation of the govt in dealing with the economy.

Update: This piece is updated by me at 7:27 AM Bangladesh Standard Time on January 11,2025. Update includes sources and mention of damage of crops due to flash flood.]

La Semaine Dernière A Mes Yeux

(04 janvier --- 10 janvier)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
04	Khichuri,Œuf,Poulet	Riz,Omelette, Soupe aux lentilles	Riz,Ruhi,Soupe aux lentilles	---
05	Riz,Lait	Riz,Chou,Omelette,Soupe aux lentilles,	Riz,Soupe aux lentilles,Chou	Singara(depuis marché)
06	Khichuri,Œuf	Riz,Chou, Soupe aux lentilles	Pain,Chou	---
07	Riz,Chou	Riz,Poulet,Soupe aux lentilles	Pain,Poulet	---
08	Riz,Poulet	Riz,Poulet, Soupe aux haricots mungo	Riz,Poulet,Soupe aux haricots mungo	---
09	Riz,Soupe aux haricots mungo	Riz,Soupe aux pois blancs avec tête de chèvre	Riz,Soupe aux pois blancs avec tête de chèvre	---
10	Khichuri,Œuf,Soupe aux haricots mungo avec tête de chèvre	Riz,Chou, Soupe aux lentilles	Riz,Soupe aux lentilles,Chou	---

Rewarding The Wrong Decision

Rewarding instead of strict action Is an example of bad policy decision.

In my last piece, I hinted that govt has either to inject cash into trouble ridden banks or to shut down some of them in the wake of growing nonperforming loans. On the eve of new year, 31st December, govt provided special short credit of Tk 125 billion to 6 trouble ridden banks in a bid to improve their year end balance sheet. Earlier govt had provided Tk 220 billion to some cash strapped banks, drawing criticism from the IMF. Govt's perception is that this kind of short credit,which it intends to withdraw by selling bonds or bills, will not have any leverage on inflation. But the point is govt is providing the money to the banks to buy govt security. Against the security/treasury bond ,the banks will get interest payments. Now let's break down the things like this: a bank made a bad managerial decision and for that decision the loan became nonperforming. This bad loan is still out of bank's reach and circulating in the economy. Now, govt came to rescue the bank so that its balance sheet looks healthy and govt's cash support helped it to buy govt treasury, a secured asset in the context of Bangladesh. Instead of being strict ,govt is rewarding the banks by providing support. At the end of the day, interest on the part of loan spent on treasury plus rest of the loan will play a role in increasing the inflationary pressure. Since this govt assumed power, it altogether pumped around Tk 345 billion liquidity into trouble ridden banks amid austerity measures. At one hand, the govt is relaxing its monetary policy while inflation is high. On the other hand, it is trying desperately to get the fourth instalment of the IMF credit package. In this endeavor, govt is offering uniform 15% VAT on all goods & services. Luckily, the move is aligned with low inflationary pressure in the market: drop in vegetables prices and consideration of lowering the diesel & kerosene prices.

Amid all this, the argument of not raising the policy rate is gathering support. But the real interest rate is still negative. To contain inflation, the real interest rate should be positive and remain positive for quite some time( that means nominal interest rate should be higher than the inflation rate). Is this the case here in Bangladesh? Govt has yet to publish the inflation data for December and the Monetary Policy Statement (MPS). I personally think the central bank should make the real interest rate positive and provide extended credit to SMEs for long period to offset the loss from rising interest rate.And high policy rate will prevent misuse of public money at home and overspending abroad.

It is interesting to see what policy changes the govt proposes in the upcoming MPS. So far govt's policy focuses on raising revenue. It could also cut its spending and thereby improve the budget deficit. As part of reform packages, Pakistan is mulling to revoke 100000 posts in public service. We need similar action in this country too. Public spending without accountability and having bad nuts in public offices are more harmful than raising the policy rate.

La Semaine Dernière A Mes Yeux

(28 décembre --- 03 janvier)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
28	Riz,Lait	Riz,Poulet	Riz,Lait,Jorda	---
29	Pain,Œuf,Soupe aux lentilles	Riz,Chou fleur,Soupe aux lentilles,	Riz,Poulet,Soupe aux lentilles,Chou fleur	Jorda
30	Riz,Chou fleur,Jorda	Riz,Pama croaker	Riz,Pama croaker,Soupe aux lentilles	Peanuts
31	Pain,Œuf,Soupe aux lentilles	Riz,Lait	Riz,Poulet,Soupe aux lentilles	---
01	---	Riz,Poulet	Riz,Poulet,Œuf,Lenti soup	---
02	Pain,Poulet	Riz,Soupe aux lentilles,Œuf	Riz,Cabbage,Soupe aux lentilles	---
03	Khichuri,Œuf,Poulet	Riz,Poulet,Chou,Soupe aux lentilles	Riz,Poulet,Pomme de terre,Soupe aux lentilles	---