Are We Heading Towards Stability?

Govt fails to meet revenue target, This will make stability hard to get.

Remittances inflow set a new record. Around $3 billion worth of remittances came from abroad in March, still sparing 3 more days to officially end the month. However, Taka against the USD shows a depreciating trend. Three weeks ago when I checked the official website of the Bangladesh Bank, USD fetched Tk 121. Now it is being sold at Tk 122 and in the unofficial market it is being traded at Tk 123. In December last year, official rate was Tk 120 ,but unofficial market rate reached Tk 128, reflecting public and private settlement of annual international obligations.

Forex reserve is still hovering at $20 billion for the last three months. Despite record growth in remittances inflow, Taka continues to show a depreciating trend. Earlier Moody's projected that inflation would remain elevated (above 9.5%) across the 2025. Moody's had already downgraded Bangladesh's credit rating from B1 to B2 and set the outlook negative. While Fitch and Standard & Poor's keep the credit outlook stable, they may downgrade us further if things do not improve in coming months and Bangladesh fails to avail the next IMF credit installment. Govt in the recent months provided cash support to the ailing banks. But recent news reports indicate that several problem banks are failing to meet the provision requirement set by the central bank. It means that regulatory authority is preparing for the eventuality of shutting down few problem banks ,which will be good for the economy in the long run.

Revenue data furnished by the NBR shows govt is failing to meet the monthly revenue target. The IMF set the revised target of Tk 4.55 trillion to avail the next package. Despite the growth in year to year monthly revenue, the NBR repeatedly fails to meet the target. The January target was Tk 2.47 trillion, but there was a shortfall of Tk 520 billion. The February target was Tk 2.8 trillion,but there was a shortfall of Tk 590 billion. The shortfall keeps widening, making it a mammoth task to meet revenue targets for the rest of the fiscal year.

This deficit in revenue collection will further cut govt's ability to spend. And if the revenue target is not met the IMF may shut the door,followed by other multilateral agencies. This in turn may put further strain on the economy, leading to further depreciation of Taka. Stable currency and political stability are the two crucial things for drawing foreign investment. Meanwhile, poor credit rating will make tougher collateral requirements when country's private sector may plan to borrow from abroad.

Summing up all the things came up here in this piece does not lead us to a stable situation in the short run. Elevated inflation, depreciation pressure , poor credit rating, failure to meet the revenue target and poor law & order condition may cause further erosion of trust among the investors. I think govt should try at its best to get the next IMF credit. For doing so, it has to make a giant leap forward in terms of revenue collection.