Collapse Of Regulatory System

Three incidents lay it bare, Regulatory system provokes a sense of despair.

Three incidents recently brought to fore collapse of regulatory system in Bangladesh. First one was put forward by the US President Donald Trump who alleged that USAID had granted $29 million to a 2-men-run NGO in Bangladesh in a bid to strengthen democracy. In Bangladesh, NGO bureau that oversees NGO activities and foreign funding of local NGOs denied presence of such NGO and acceptance of fund. Transparency International Bangladesh also echoed similar stance. NGO bureau is under the auspices of Prime Minister's office but rumor has it that its foreign financing approval is given by the military intelligence. The money for the project here came during the tenure of previous regime. USAID gave the money to Democracy International and which NGO in turn received the money still remains a mystery.

I do not think the US President made such allegations without evidence. He must have documentary evidence that led him to disclose the thing publicly.

If the allegation is true, it proves how this oversight of NGO activities completely broken and how corrupt practices swallow purpose of NGOs. Misappropriation of climate fund is an apt example. Both govt and TIB's findings divulged nitty-gritty of it (Read "Climate Commitment Or Enhancing Corruption?" published here on February 16,2024).

This again proves how lack of transparency of the security establishment led to spread of corruption in other sectors. In this case ,the NGOs. If there were proper accountability in place ,then this money would not end up in this way in the hands of some opaque NGO.

Another incident is the chronic crisis of soybean oil amid tariff waiver on soybean oil import. Previously, at the wholesale level, soybean oil transaction was taken place without any money receipt. I do not know whether this practice is still being taken place. I touched the issue couple of times here. Only handful of big groups including an Army-run subsidiary operate this industry. One of the groups laundered money abroad with blessings from security establishment and jeopardize the supply chain by disrupting the supply. Another group is under the scanner of the Anti Corruption Commission. All the business conglomerates engaged in soybean oil business have media outlets. This way they can shape the narrative. I earlier discussed here why it is bad for consumer welfare when a company has significant market share in the input market as well as in the final output and in the media( read "Enforce Laws To Protect Consumer Rights" published here on September 4,2019).

Routine functioning of Bangladesh Competition Commission (BCC) is absent here. It recently published an announcement, seeking complaints from people. Intervention of BCC is needed in the soybean oil market. It should convene an audition ,inviting representatives of big groups and ask them explanation for the rising prices of bottled soybean oil. This will at least give the market a signal that government is functioning.

Another incident is the attack on an administrator of a Mobile Financial Service(MFS) provider and his subsequent resignation. The administrator was appointed by the govt in the scam-ridden MFS(Read "What Does Nagad Ownership Row Reveal?" published here on September 12,2021, and "BB Detects More Suspicious Transactions" published here on March 19,2022).This attack unveils govt cannot consolidate its grip over trouble-ridden entity. Parallel administration is still strong, challenging govt's authority.

The three incidents are an eye-opener that the regulatory environment is in tatters and requires serious overhaul. Without proper regulatory set up, govt cannot ensure routine functioning, let alone carry out ambitious reforms.

La Semaine Dernière A Mes Yeux

( 22 février --- 28 février)

Cliquez pour voir/cacher

Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
22	Patate douce	Riz,Tomate,Chou	Riz,Poulet,Chou,Tomate	---
23	Pain,Chou,Soupe aux lentilles,Œuf	Riz,Pianju(depuis marché),Gourde serpent,Soupe aux lentilles,Épinard malabar	Riz,Tête de chèvre dans pois blancs	---
24	Khichuri,Tête de chèvre dans pois blancs	Riz,Pomme de terre,Tête de chèvre dans pois blancs	Pain,Chou	---
25	Riz gonflé	Riz,Chou fleur,Soupe aux lentilles,Œuf	Pain,Chou,Soupe aux lentilles	---
26	Riz gonflé	Riz,Haricot rouge avec sec ruban	Pain,Haricot rouge avec sec ruban	---
27	Pain,Haricot rouge avec sec ruban poisson	Riz,Haricot rouge avec sec ruban poisson	Patate douce	---
28	Pain,Œuf,Pomme de terre	Riz,Gobie charmante,Gourde serpent,Soupe aux lentilles	Pain,Gobie charmante,Soupe aux lentilles	Biscuits

What The Broad Money Growth Tells

Inflation is high compared to last year, Amid trust deficit, holding cash is what people prefer.

In the latest Monetary Policy Statement (MPS) , broad money registered 7.6% growth against the projection of 8.2%. Broad money or M2 consists of currency outside banks,deposits of financial institutions at the central bank, demand deposits and time deposits. Both currency outside banks and time deposits witnessed growth in December 2024 compared to the corresponding month in 2023. Time deposit's growth surpassed all. Riding on this two, overall money supply (M2) saw 7.57% growth.

If we look at the twelve month average inflation, January 2025 inflation( 9.94%) is still higher than January 2024 inflation (9.86%).That means one year on inflation is still in double digit. We have to remember that in the last one year both the current and previous regimes injected huge money into the system ( see "Last Year's Extra Cash" published here on January 10,2025). This to a great extent dampens the contractionary monetary policy mood and prolongs the recovery.

According to the MPS ,deposit growth was 7.4% in December. Earlier years it had been much higher. During the first half of this year, more money remained outside the banking system,translating overall trust deficits in corruption-stricken banks. Latest data show,from November to December, currency outside banks registered a negative growth. But still a significant amount of money remains outside the banking system. People still prefers holding cash.

According to the MPS, redemption of National Savings Certificates (NSCs) increased and people diverted non banking savings to other sources. Time deposit growth hints that things have slowly started to change. Apart from that treasury bond sales are also becoming popular among individual investors. But the size of NPL is growing. This may discourage people again depositing their money at the banks.

Trust deficits resulting from poor governance and political uncertainty still holding back people going to the banks. Government's over reliance on the banking system diverts credit from private to public sector.

In short span of time, the interim govt cannot drastically improve the governance situation. The best it can do is to cut the spending. Fiscal tightening at this time can provide the extra credit for the private sector.

Seasonal commodities like winter vegetables and low oil prices at the international market influenced the inflation. Since curbing the inflation is the priority, govt should focus on how to bring the money outside the system into the banks and arrange credit for the private sector.

Who Is Running The Narrative Mill?

As tools to change economy's fate, Under scanner are real policy and exchange rate.

Recently, a strong argument was put forward against pursuing high policy rate and depreciation of Taka against USD in the past. The two key policy decisions have been termed as a result of specific narrative. The argument came from a gentleman who is executive director of a local think tank. I am a bit surprised by reading the opinion piece and expected more economic reasoning behind such argument. (See "Shud Har,Mudra Binimoy Har Ebong Mullo Sphitir Boyaner Punorbhabna(Rethinking The Narrative Of Interest Rate, Exchange Rate and Inflation)", Sajjad Zohir,February 16,2025,Daily Bonikbarta )

The gentleman belongs to the same school of thought who believe raising the policy rate is not the solution to tame the inflation and transitory effect of depreciation worsens the inflation.

In the past,we heard argument that higher tariffs on commodities barred bringing down the price levels. For edible oil and sugar, the NBR should not have lifted off the tariffs since the two are major sources of revenue. And the decision cost the govt at least Tk 3156.5 crore (See "Where Is The Change?" published here on January 18,2025).Now govt is facing a revenue shortage(27% of the first half of current fiscal year) amid high inflation and chronic soybean oil shortage. For five long years, we have not raised the interest rate enough to beat the inflation. Rather, sticking to 9% and 6% rates for all these years led to massive money laundering. To meet the liquidity crisis of the banks, the central bank literally printed and injected money into the trouble ridden banks.

High interest rate worked as a screen to discourage potential money launderers from taking further loan. It also helped the govt to check its spending on interests of National Savings Certificate(NSC). High deposit rates and restrictions diverted money from non-bank savings to other sources(see the MPS, page-10).

Govt's heavy borrowing from banks is another reason for not having enough money at the banks. Public sector credit growth (18.1%) is higher than the projection(14.2%). So there is not enough of the pie left for the private sector. This is happening when foreign budget support is drying up.

Governance crisis in the banks is the main reason many clients feel shy to go to the banks. However, the governor claims many clients resumed depositing money into trouble-ridden specialized banks. Bangladesh Bank claims tight liquidity situation is due to continuous support of the subsidized Taka against USD, poor recovery of credit,cash holding, size of NPL and dismal state of deposit growth( see the MPS, page-10).

Real interest rate has only become positive in January 2025 if our inflation reading is correct. It is true that large depreciation causes inflation through transitory effect in the short run. But look at the timing of our depreciation: once it was done when crude oil price was falling. Now prices of rice and other commodities are falling. This somehow offset the pass-through effect of depreciation in the long run. I somehow find the statement depreciation causes domino effect of inflation a bit banal. When nominal interest rate is below inflation rate,the central bank intervenes and raises the policy rate,causing the local currency to appreciate against major currencies. It holds back the currency to depreciate further. Meanwhile, the new exchange rate of Taka attracts export order and remitter. This is indeed the case. Last year, despite the political turbulence, our RMG export registered 7.23% growth and remittances registered 22% growth. Riding on this achievement, our overall Balance of Payment deficit declined to $384 million in FY 2025 from $3.5 billion in FY 2024(see The MPS,page-14). This further stabilizes the local currency and thwarts the depreciation pressure ( more USD coming in then going out).

If the central bank were stuck at the old exchange rate, then it might have to sell more USD from reserve (which is now more than $20 billion),print and inject more Taka into the system (worsening the inflation), to increase the size of NPL,leading to a macroeconomic disaster.

Another good thing about large depreciation is that it works as incentives both for the exporters and the remitters. The extra Taka the remitter/exporter get will help him/ her to mitigate the loss from inflation and higher policy rate. Govt also saves the money given as incentives to these two groups. Previously govt gave 5% incentives to remitters. It has now become 2.5% and this costs the govt Tk 70 billion every year,as claimed by the governor himself. We can still save this Tk 70 billion, by discontinuing this 2.5% incentive and without disrupting the remittances inflow.

Despite high interest rate, undocumented money or money at hand is not coming to the banking system due to governance or political reason. Some of the areas where undocumented money may find the safe sanctuary are real estate, IT and the stock market. Scam ruined the IT sector. Political uncertainty and misaligned interest rate bar developers to undertake new project in the real estate. In addition, govt doubled the registration and reregistration fees in a bid to boost revenue earning amid revenue shortfall,discouraging owners/buyers to sell/buy property. Again undocumented money not coming to the system is mainly due to political uncertainty and governance situation, which caused the macroeconomic instability.

I still do not find any logical explanation why he thinks real policy rate or real exchange rate concepts are mere "narrative". If real interest rate is negative, then investing the pension money into interest- bearing assets of local institution and govt will ruin millions of employees including those from public and private think tanks.This is what the IMF laid bare in their discussion with the Pension Fund Authority , which intended to invest pension fund into NSC when inflation rate surpassed nominal interest rate.

Yes it is true that inflation is sometimes wielded as argument to raise the salary. But it is true for those affluent countries where collective bargaining is strong and government is no short of resources. Neither of the two presents here. So the argument inflation is put forward as a reason to salary hike is not true for Bangladesh.

Misaligned policy rate ,pegged exchange rate and high inflation are some of the reasons international credit rating agencies in unison downgraded our credit ratings. Singapore and UAE based banks charge more conditions and interest rate to lend us credit. Most importantly, I have deep faith in standard text books which never include mere "narrative".

La Semaine Dernière A Mes Yeux

( 15 février --- 21 février)

Cliquez pour voir/cacher

Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
15	Pain,Omelette	Riz,Poulet,Chou fleur	Riz,Poulet,Chou fleur	Singara(depuis marché)
16	Riz gonflé	Riz,Brinjal,Purée de pomme de terre, Haricot rouge	Riz,Brinjal,Purée de pomme de terre, Haricot rouge	Patate douce
17	Pain,Chou fleur,Œuf	Riz,Luffa,Haricot,Tomate	Riz,Luffa,Haricot,Tomate	---
18	Riz,Œuf,Luffa,Haricot	Riz,Tête de chèvre dans pois blancs	Riz,Chou,Pois blancs	---
19	Pain,Chou,Œuf	Pilaf,Poulet	Patate douce	---
20	Riz,Chou,Pois blanc,Œuf	Riz,Épinard Malabar	Riz,Épinard Malabar	Vegetable roll patties
21	Pain,Pois blancs(depuis marché)	Riz,Brinjal,Soupe aux lentilles,Omelette	Riz,Brinjal,Soupe aux lentilles	---

The New MPS: Acknowledging Past Policy Blunder

BB keeps policy rate same in the MPS For ending early the economic mess.

Bangladesh Bank published the Monetary Policy Statement (MPS)for the second half of the current fiscal year. Contrary to the anticipation, the central bank did not raise the policy rate. As inflation hovers around 9.94% , previous policy rate of 10% is still in play. The central bank is optimistic that inflation will be brought down to 8% by June.

Even in the MPS ,the central bank displays the world commodity price indices,which registered decline in recent years. Energy and food grain prices,which matter to us a lot, register decline in recent months. So the context for easing the inflation has been set.

Unlike the pessimism of the central bank about the tariff war, I think it will further accelerates the fall in prices of major commodities. In earlier pieces, I had already touched it.

This MPS for the first time acknowledged the policy blunder of not raising the policy rate when inflation was soaring. The 5-year-long policy rate ceiling cost the economy a lot. In January this year, for the first time we witness a positive real interest rate,heralding the new dawn for curbing the exorbitant price levels.

The MPS also elaborated central bank's plan to deal with bank reform and to tackle Non Performing Loan(NPL) ,which is likely to reach 30% of total loan by June this year as apprehended by the governor himself. Since the government is going for early election in December this year, I do not think there will be drastic improvement in the endeavor to recover NPL. Rather ,after election, NPL situation may turn worst: there is lack of commitment of foreign assistance so new govt may indulge in doling out soft credit/ cash that may ultimately meet the fate of NPL.

The good thing about the new elected govt is that it will have mandate for four years,giving the investors the confidence to invest here. Unfortunately, private sector credit growth declined significantly. On the other hand,public sector credit growth surpassed the anticipation in the wake of lack of foreign budget assistance. The MPS revealed by December 2024, public sector credit growth reached 18.1% against the projected 14.2% growth. Meanwhile, private sector credit growth shrinked to 7.3% against the projected 9.8% growth. Clearly, private sector deserves more credit in order to bring pace to the economy. Hopefully, at the start of 2026, foreign banks will give Bangladeshi banks more credit in spite of poor credit ratings of Bangladesh. Apart from that govt requires to mobilize resources to private sector by adjusting the fiscal policy,which is less likely to happen when a new elected govt will take charge of the country.

In the monetary policy resolution, as well as in the press conference, the central bank jibed at the Dubai-based exchange houses that were found in speculative activity in the local currency market in December 2024. Earlier in 2023, another Saudi-basee exchange house took part in currency manipulation. I elaborated the issue here in a piece titled "Exchange Rate Volatility: Policy Debacle Should Be Blamed" in November 2023. It is not clear whether we are getting the rich Middle Eastern countries' IMF currency holdings as credit ,but it is certain that some big exchange houses of these countries taking advantage of the situation by engaging in currency manipulation (Read "Bangladesh Bailout: Repeat Of Pakistani Incident", published here in December 2023). Governor brought the matter to the attention of the IMF and the respective country. Let us see what action they take in this regard.

In brief, the latest MPS acknowledged past policy mistakes and set an optimistic tone for economic recovery. But the sheer size of NPL and political commitment of the upcoming government will be the deciding factor behind early economic recovery. Till the next MPS sees the light,the current MPS chalks out a path to contain the inflation, a priority for the interim govt. If the central bank can implement it,that will be a tremendous help to ordinary people and the private sector.

La Semaine Dernière A Mes Yeux

( 08 février --- 14 février)

Cliquez pour voir/cacher

Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
08	Riz ,Lait	Riz,Poulet	Riz,Poulet,Pain	---
09	Riz,Poulet,Pain	Riz,Brocoli, Haricot rouge	Riz,Œuf,Poulet ,Haricot rouge	---
10	Riz,Ruhi,Brocoli, Haricot rouge	Riz,Ruhi,Shak,Pomme de terre	Riz,Pomme de terre,Pain	---
11	Riz,Pain,Pomme de terre,Omelette	Riz,Brocoli,Soupe aux lentilles, Pomme de terre	Pain,Pomme de terre	---
12	---	Riz,Ruhi	Riz,Ruhi	---
13	Pain,Chou	Riz,Tilapia,Pomme de terre	Riz,Pomme de terre,Tilapia	---
14	Khichuri	Riz,Khichuri,Poulet	Riz,Poulet	---

No Sign Of Normalcy

Policy uncertainty and lack of consensus Delay recovery and greatly cost us.

BBS published January inflation data. January inflation lowered to 9.94%,riding on 2.2% reduction in food inflation. However, inflation still remains at double digit and the interim govt is determined to bring it down to 8% by June.

Six months after the violent regime change in August last year, normalcy has not returned yet. Greater political consensus for restoration of democracy and sustaining the economic recovery is not over there on the horizon. In Sri Lanka, people descended on the street just once and changed the regime. Normalcy quickly returned there,including the rule of law. Most importantly, political parties have reached consensus and organized a fair election. Economic indicators responded accordingly, accelerating economic recovery.

Unfortunately, political adventurism is showing no sign to end, further casting shadow over greater political consensus. Six months after the regime change, we are supposed to have a calm and disciplined public life. Yet anarchy reigns supreme. And it is not a good sign for the economy.

Preparation for the next election appears to be very little. As if no party is ready for it. Even sketchy economic policy, foreign policy, food policy, education policy, etc have not yet been unrolled before the public. Shadow cabinet at this moment sounds like a far cry. Sketchy policies will give people something to compare between visions offered by parties. It will give us some idea where we are heading in the future. Right now we have some kind of policy uncertainty. If policy uncertainty on economy remains and likelihood of policy change remains high , economic reforms may not sustain in the long run. Govt claimed that this year's Aman yield was good. But many doubted it and insisted that production was widely hampered because of twin floods. According to a news report, food shortage in conflict-prone Myanmar may affect the food security of Bangladesh as there may be an uptick of black marketing incident in the frontier area. Though govt has a plan to procure 800000 tonnes of rice this year, it needs to review its food security policy by focusing more on increasing internal production and importing more food grain from abroad.

Govt requires stability to steer the economic recovery. Falling prey to Psy war provocation from home and abroad, govt is dragging itself into political debate that is neither good for the economy ,nor for greater political consensus. While facing a widening budget deficit and a bleak prospect of rice production, reactionary stance will only derail it from reaching the desired destination.

La Semaine Dernière A Mes Yeux

( 01 février --- 07 février)

Cliquez pour voir/cacher

Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
01	Riz gonflé (depuis marché)	Khichuri,Omelette, Brinjal(depuis marché)	Kihichuri,Brinjal(depuis marché)	---
02	Khichuri,Omelette	Khichuri,Egg	Khichuri	---
03	Khichuri,Omelette	Riz,Pomme de terre,Soupe aux lentilles	Riz gonflé,Tchanatchur(depuis marché)	---
04	Khichuri,Œuf	Riz,Chou fleur	Pain,Chou fleur	---
05	Khichuri,Œuf	Khichuri,Poulet	Pain,Poulet	---
06	Riz gonflé	Riz,Ruhi,Pomme de terre	Pain,Poulet	Pistache
07	Riz,Ruhi,Chou fleur	Riz,Chou fleur	Riz,Chou fleur	Cajou