Concerns With Exchange Rate Forecast

Taka loses value as per projection, Adequate policies may alter the situation.

In the World Economic Outlook, published in October 13,2026,the IMF projected a downgraded growth forecast for Bangladesh. GDP growth forecast is 3.2% for 2027 and 2.2% for 2028. If the prevailing situation at home and abroad changes dramatically ,then forecast on key indicators will also change. However, rising oil prices,swelling of Non Performing Loan (NPL), rising inflation and unemployment do not leave much room for optimism. Just as the growth is forecast to be downgraded in the outlook, so the exchange rate is forecast to be depreciated.

In November, the US dollar is being traded at Tk 134.70 in the Bangladeshi market. According to the IMF outlook, taka may be depreciated annually against the greenback by 0.56% in 2027, by 5.6% in 2028, by 12.12% in 2029, by 4.72% in 2030 and 1.93% in 2031. The largest annual depreciation is projected to take place in 2029. For 2027, there is nothing to worry about, but after that the fall in taka is projected to accelerate until 2030.

In the recent past , Bangladesh witnessed 40% depreciation in its currency, which was largely reflected by the pass-through effect in the inflation. In contrast to earlier situation, Bangladesh can easily absorb 5% or 10% depreciation of taka. But things become worrying if other indicators are taken into account with this projection of depreciation. Inflation is projected to be 10.9% in 2027. When you add the pass-through effect of even moderate depreciation to that inflation , the resulting pressure may become quite exorbitant for the households.

In addition, as govt debt service obligation rises and foreign commitment to finance budget deficits falls, reflected in financial account deficits, future depreciation complicates the matter by raising the debt servicing cost.

Moreover, cost of development project and investment is likely to rise due to depreciation. Though the projection of depreciation gives investors an indication where the currency is heading, unsteady exchange rate or too much fall taka in few years discourages investors to invest in Bangladesh. In that light, exchange rate volatility is likely to impact future investment that Bangladesh badly needs to offset the drop in foreign loan.

Luckily, there is continuous growth in forex reserve and remittances keep registering high records every month, insinuating no crisis in the supply of dollar. Yet escalation of tension in the Middle East can make a dent in the inflow of remittances as well as increase fuel price that will require additional dollar than usual to pay off the high fuel bill, putting further pressure on taka.

Hopefully, things will improve in future and projections will look better. Projections change with the change in situation in the ground. However, projections made are based on govt spending plan, money supply growth, financing reality, NPL stock, inflation, investment scenario, import, export and other data available at that moment.

Take govt spending for instance, govt programs require huge spending years down the line. The pay hike and bank support initiative lend credit to such spending possibility. Without clear financing initiatives, such spending tends to worsen inflation and exchange rate is the obvious victim. Now recently govt has scrapped some development projects and postponed ECNEC meeting that gives final nod to such projects. If govt continues and sticks to austerity measures, then it will manage to curb spending and future projections on key indicators including the exchange rate will improve dramatically.

Steady exchange rate for a prolonged period of time gives a good indication of good economic management and earns investors' trust. Too much fall in local currency in short period of time raises cost for implementing projects both for the public and private sectors. Depreciation, when moderate, is good for economy as it increases incentives for exporters and remitters to bring the foreign currency at home. However, as our debt servicing is increasing and import as percentage of GDP is larger than export, volatility in exchange rate raises debt servicing cost and import spending. So clearly there is a trade-off associated with depreciation. So policymakers have to decide what is pressing concern now and in the future. Based on that concern, course-corrective measures will be chalked out. And adequate policy measures will be reflected in future projections.

Revenue Reform Remains Unimplemented

Throwing the revenue reform into the gutter Is not silly but a serious matter.

It appears that the ruling party has kept its words by not implementing the revenue reform. At the heart of this reform is the separation between revenue policy department and revenue implementation department. Past interim govt even made Revenue Policy and Revenue Administration Ordinance 2025 (see http://bdlaws.minlaw.gov.bd/act-details-1537.html),which is in line with the IMF reform list. Incumbent Finance Minister before the election said his party would support independence of the central bank but oppose splitting the NBR into two bodies.

What does this new ordinance contain? Govt will appoint people to revenue policy department. Tax Appellate Tribunal and Customs, Excise and VAT Appellate Tribunal will be under the auspices of revenue policy department. Its jobs include formulation of tax policy, raising/lowering taxes, tax law amendment, evaluation of tax management, negotiations on international customs agreement, research, revenue forecast and estimation among other things.

Staffs of revenue administration department will be drawn from BCS cadres. Revenue administration is tasked with implementation of various tax laws and regulations, implementation of international customs agreement, implementation of international agreement on abolition of double taxation, staff management, making and implementing budget for the department, initiating tax awareness building campaign,undertaking audit and surveillance programs etc.

The splitting of the NBR will make the policy department's influence weaker over the administration department. At present NBR could impose excise duties or [raise] taxes in the middle of the year in a bid to meet the revenue target. The move ultimately increases cost of doing business. Many investment initiatives sustain cost overrun because of unpredictable nature of tax policies. It is anticipated that NBR reform would bring predictability in tax policies [by] not raising cost of businesses in a given year.

And most importantly the reform may put an end to policies driven by political vendetta. The NBR Order of 1972 makes NBR a powerful institution. If one reads the clause #4 of The NBR Order, then one can have some idea about the power wielded by the NBR. The clause states that govt can make rules at its whims and NBR officers can take actions whatever they wish before the rule is actually made. Those actions before the rule cannot be put under scanner later (see The NBR Order 1972, https://nbr.gov.bd/uploads/acts/9.pdf). In the past we saw how the NBR was used to harass the political opponent. Fear is that outrightly throwing the idea of splitting the NBR may continue political vendetta driven actions.

Revenue reform will not only put restraint over overwhelming power of NBR,it will also bring the much needed predictability about revenue policymaking. And it will benefit both business and individual alike in terms of giving idea about the vernacular cost. At the same time, it will improve the political environment by ending use of NBR as a docile instrument to harass others. But by not making the ordinance into a law , govt throws cold water into such bright possibilities. I hope govt will reconsider its decision.

Rising Public Debt Clips The Wings

The woe called rising public debt Makes difficult choices amid revenue regret.

Govt is planning to seek $2 billion foreign credit to mitigate challenges of energy security caused by ongoing war. Meanwhile, govt's debt service management has already crossed $3 billion matching the incoming flow of aid this fiscal year. Asian Development Bank hinted that it [would] provide credit to meet the emerging need from oil price shock. Ailing economy needs further cash to recover. And it is coming from foreign credit. Bangladesh's overall foreign credit stands at $113.51 billion at the end of December 2025. Govt borrowing accounts for 82% of the total foreign credit. Private sector accounts for the rest.(Source: Bangladesh Bank)

According to a study by IMF,global public debt reached 93.9% of GDP and projected to cross 100% by 2028(see "High Debt,Hard Choices" by Era Dabla-Norris and Rodrigo Valdes,March 2026,IMF,https://www.imf.org/en/publications/fandd/issues/2026/03/high-debt-hard-choices-era-dabla-norris). As the public debt rises,so does the interest payment. This fiscal year alone govt paid $950 million as interest payment. By the end of this fiscal year it would cross the billion [dollar] mark. The situation makes the task of resource mobilization even harder. The IMF study also shows that interest payments take away 21% of tax revenues in low income countries. This money could have been spent on social security programs and development programs.

Tax revenues that help financing the development and social security programs are not in a good shape. Against a target of Tk 3.25 trillion ,NBR managed to collect Tk 2.54 trillion of revenue till February this year, registering a shortfall of Tk 714 billion(Source: NBR). This year revenue target is set at Tk 5.54 trillion. Failure to meet revenue target means the money has to come from somewhere else. Borrowing is a popular option. As Bangladesh is scheduled to graduate from LDC countries within two years, overseas borrowing will be costly for us. Battered economy, poor credit ratings have already made costly the foreign credit. Too much borrowing from domestic sources translates into less credit to private sector. What is worrying too much borrowing amid high debt and inadequate revenue has consequences. The IMF study cautions:

"But today, the era of easy choices is over. Every dollar a government borrows without matching revenue implies higher taxes or lower spending in the future, at least to cover the additional interest the new debt generates. Beyond a certain point, more borrowing forces painful decisions—through austerity, inflation, financial repression, or even default."

Amid the grim fiscal situation, govt undertakes ambitious social security programs where chances of leakages are very high. Previous social security programs were not leakages free. Given no dramatic improvement in governance in the last one year, why will these new ones be different? Meanwhile, borrowed money will finance the deficit budget and tax revenues will go for paying the rising debt instead of development or social security programs. Earlier we used to take debt to finance various programs [aimed] for people and capacity building. Gradually we are entering into a phase where we need debt to pay older debts and interests. Social welfare, capacity building, human development and investment in infrastructure are [going to be] some of the badly hit areas. We need to check our spending and require serious commitment to reforms.

Sixth Instalment Delayed

Few clear economic reform agenda on the sight, Recovery delays ,so does the freedom from economic plight.

The IMF in a press conference stated that it would negotiate the sixth instalment of the $5.5 billion credit package with the next elected govt,which is likely to assume power by February next year. The present govt has three months to go and the contesting parties have not yet presented any detailed scheme on economic recovery, as I highlighted here several times. Moreover, macroeconomic situation has improved a lot since the program started: erosion of reserve stopped, market determined exchange rate is set, inflation eased slightly, and flexible exchange rate is introduced.

If this positive trends continue and post election optimism prevails, the remaining instalments may not be needed. On top of that ,if elected govt is not committed to economic reform programs envisioned by the IMF, it will be pointless to continue the reform programs here. So a wait-and-see approach is adopted.

When this mission arrived, they were eager to know when the central govt would lower the policy rate. The central bank on the other hand plans to lower the policy rate when inflation falls below 5 or 6%. Inflation is still hovering over 8% and the IMF's projection for the rest of this fiscal year is that inflation would remain elevated above 8%.

The latest statement hints they accepted the argument offered by the central bank. They are in favor of lowering of policy rate when inflation rate falls below 6%.

The IMF even sat with several political parties to have a glimpse about their economic programs. Long before the arrival of the IMF, former commerce minister and BNP senior leader Amir Khosru Mahmud Chaudhuri stated BNP believes sovereignty of the central bank but it opposes separation of policy and implementation departments of the NBR. Reform programs outlined by other parties are not so pronounced. Women participation to the economy and recent "end-of-prophecy" movement garnered lots of media attention. The "end-of-prophecy" movement created communal tensions in the country. Particularly the Ahmadiya community who thinks their leader was the last prophet feels intimidated. The persecuted group has huge presence and investment in Bangladesh. Pushing up this sort of political campaign widens the fault lines existed in Political field and threatens the stability of politics and economy.

The NBR chairman in an interview said from next year the NBR would cease to impose decision on taxes abruptly and it would pass the authority to the Parliament. End of ad hoc practice of decision making would benefit the business here as tax policy would be more projectionable and it will help them in business operations and investment plan.

Govt is criticised right and left as it is not taking any bold steps towards reforms. As I mentioned earlier, this govt is formed through blackmailing: the chief advisor himself was about to languish in prison, the commerce advisor faced several charges before taking up the post, legal advisor and student advisors were summoned to the cantonment on the eventful days of July last year. And most importantly it was formed to rescue the economy, not to do any bold political reforms, riding on the image of Prof Yunus. The objective was partly fulfilled , but to a great extent it was a disaster. A govt formed through blackmailing does not deliver much. Macroeconomic situation improved, yet passport fell in international ranking,overseas employment shrank, western countries restrict entry of Bangladeshis, political rift widened as a major political party will be absent in next election, NPL situation worsened, law & order situation deteriorated further. I think it is naive to expect much from a mandate less ,blackmailed govt. Bangladeshis in general are eying towards the next election. They hope the situations will improve a lot under the new govt.

In brief, sixth instalment is delayed to see what the next elected govt will offer as economic reforms and how the economy behaves in the meantime. Despite major macroeconomic improvement, we should not expect much from this blackmailed govt!

Tariff Debate Continues

More partners press Dhaka for tariff concession, Reserve accumulation employed to rescue ally from awkward situation.

Both the European Union and Japan have asked for similar concessions that Bangladesh pledged to give the USA. If [everything] is OK, Bangladesh and the USA are likely to have a deal by December this year. But the USA stressed that Bangladesh would not give similar concession to other countries (for instance, reduced tariff on US originated goods and services and purchase of 25 Boeng aircrafts in next 20 years). Recently, the EU countries held a press conference and emphasized that the EU would expect similar purchase commitment from Bangladesh. Bangladesh is scheduled to be graduated from LDC countries by 2026, which Bangladesh wants to be delayed. Once graduated from the LDC countries ,Bangladesh may lose duty free access to EU countries ,where 49% of its export goes.

Tariff reduction and import from the USA witnessed a revenue shortfall of Tk 88.99 billion against a target of Tk 990.05 billion. It is too early to tell whether tariff debate or moribund business activity hit by tight monetary policy contributed to the decline of tariff shortfall. Because reduced tariff came into effect from early August and we still have three quarters to go. And there will be widespread optimism in the economy if there is a participatory election by February next year.

Tariff commitments to EU and Japan [mean] we have to increase import from the countries. Bangladesh is thinking to sign an FTA with the EU and PTA with the Japan, which even sent a letter to Bangladesh to expedite the negotiation to conclude the deal.

Increasing import from these countries means we have to downsize our import from somewhere else. Currently India and China are the largest sources of import. Both countries account for around $40 billion of import. We mostly import intermediate goods from these countries. From China, we heavily import defense equipments. Since Japan and the EU are unlikely to be major sources of intermediate goods in one decade, the most plausible conclusion is Bangladesh may end up procuring more Western originated defense articles. Bangladesh has special agreement with the Turkey,France,Italy,Japan and the UK.

Since the EU and Japan may not provide the raw materials at competitive price, it is highly likely we may share part of import spending in defense with the two partners to secure the export market there.

Yuan is still cheaper than USD. But whether it [will remain] so in the future is not certain. In October, we saw the USA announced a currency swap line worth $20 billion to rescue the Argentine peso ,halting depletion of forex reserve of the Argentine central bank. The US treasury secretary urged US banks and investment funds to invest more in Argentina. This is the first time,[reserve accumulation] is employed in tariff debate. This time it is used to rescue an ally Argentina to curb influence of China,which has also given a $18 billion currency swap line with the Argentina. Earlier, Argentina had chosen refurbished F-16 over JF-17 and J-10C offered by China for its Air Force. Here security is being projected as public good and currency is used to aid ally through security umbrella. Now think there comes a moment when this same [reserve accumulation] is being used to punish/ stall behavior of a rival. In fact, Federal Reserve governor Stephen Miran depicted such scenario in his influential paper on tariff titled "A User's Guide To Restructuring Global Trading System" where the US govt requests the Fed to print $1 trillion in a bid to purchase Yuan so that it appreciates in the international market.(See "Reshaping Global Trading System:What Lies Ahead" published here on April 4,2025)

The step may weaken the US dollar,which the US administration wants in the long run, and hurt communist party related corporations and Chinese billionaires who denominated their assets in USD across the globe. Weakening USD downsizes /shrinks their wealth. Point is [reserve accumulation] may be employed by any big trading partner for harmful purposes,not only for rescuing ally.

Ultimately we are heading towards a clustered trading blocs. Despite risk of import revenue shortfall, import diversification appears to be new reality in this new trading system. Despite challenges, export registered a 2% growth in the first 4 months of this year. If the growth of revenue collection for the remaining period surpasses the shortfall and optimism prevails then there will be good news from this tariff debate. And we have to be cautious about intentional use of major currencies to influence other currencies [through reserve accumulation].

[Update: this piece is updated by me on November 06,2025 at 9:13 AM Bangladesh Standard Time; update includes replacing words like "currency tool", "currency weapon" with "reserve accumulation".]

Will 2026 Bring Optimism?

Ghost of past habits still prevails at large, Weak passport, falling revenue may make reform a farce.

The IMF has downgraded growth forecast of Bangladesh to 4.9% from 5.4% for 2025-26 fiscal year in its "World Economic Outlook Report". The global lender anticipates an inflation around 8.7%,which is higher from earlier projection, for next year. Even this projection tells the exorbitant prices of consumer goods people are dealing with in Bangladesh,which endures higher inflation than other neighbors in the subcontinent.

What is worrying contesting parties of the February general election have not come up with specific plan on how they tackle the $34.71 billion Non Performing Loan(NPL), missing from the banks and risking the stability of Taka. As I have mentioned in one of my [pieces], the new government will have exactly 24 months to roll out a detail plan and fix the economy even if they are deeply committed to reforms(See "NPL Endangers Exchange Rate"). The rest of the tenure will be used to win the next election, witnessing expansionary fiscal policy and compromising the contractionary policy.

Adding salt to injuries is Henley's downgrading of Bangladeshi passport by three notches. Bangladeshi passport is ranked 100th among 106 countries in Henley's latest passport index. East Timur's ease of visa and Pakistan-Bangladesh treaty on visa waiver on [govt official] passport holders have little reflections on latest passport index. Rather, UAE continues visa restrictions on Bangladesh following street agitation by Bangladeshis in July last year in that country. Sri Lanka has recently hardened on arrival visa by making compulsory e-appointment. Indonesia and Thailand walked in the same direction. Malaysia has yet to resume recruitment of Bangladeshi workers following corruption in the process involving Malaysian officials and visa officers. Several EU countries limited visa activities in Bangladesh, curbing cost and securing their borders. Sweden stopped processing Dutch visa in Dhaka ,outsourcing the job to Delhi-based third party. France is also doing the same. UK reviewing its caregiver visa policy following unprecedented abuse of the policy. Moreover, free trade agreement with India has allowed Indian RMG,workers and investment to enter UK easily. This means weak passport and visa restrictions limit Bangladeshis' overseas employment, farther casting shadow on a stable remittance inflow. Interim govt has given an aura of regime change that is why remittances coming in abundance. We do not know how the new government will behave. If it is business as usual like before,then a dip in remittance inflow is anticipated.

Risk about Taka's rapid fall against major currencies may prompt capital flight. Already many rich businessmen are queuing up for leaving the country. When Taka plummets, it downsizes wealth of [the] rich if the assets are denominated in Taka. That is why the rich have a tendency to transfer wealth abroad when local currency falls sharply against major currencies. If they cannot do it legally, they will do it through other means. This prospect is very real when the new elected govt will assume power next year. There may be a greater urgency to transfer wealth abroad if retribution and fall of Taka gathers pace.

In 25 months/ little more than 2 years ,we see 3 elections: 1 held in January 2024 boycotted by the opposition, another will be held in February in 2026,which may also see absence of a major party, and a referendum in the same time or a bit earlier. The regime change alone cost $1.7 billion to the economy. Following the 2024 election govt doled out Tk 300 billion to partisan businesses. These are costing govt huge public money without giving any assurance to political stability. Moreover, in the name of "Mujib Shotoborsho" (Mujib's birth centenary) govt spent huge money across Bangladesh. Following regime change, most of the structures built in commemoration of Mujib witnessed demolition. Now public money is being used to implement "July Movement" projects. Despite regime change, past habits remain intact.Point is we are spending billions of public money in political projects without any assurance of political stability,which is vital to economic stability. All this unfolding during the time of austerity.

The tariff debate unveils that in initial years we may [lose] tariff, as import duty is relaxed on crucial import items like cooking oil and LNG, unless some contingency plan (like taxing remittance and export) is chalked out. At one hand we are [losing] revenue, on the other we keep spending on political projects with no guarantee on stability. Failure to a clear roadmap on how to deal with the NPL puts stress on Taka and prompts capital flight. Weakening of passport casts shadow over remittances. Still we hope there will be a better tomorrow.

Could Taka Remain Stable Next Year?

Grim credit and NPL situation Questions Taka's valuation.

Despite Standard & Poor's projection of a decline in oil prices next year, India's decision to impose restrictions on rice export [has] cast shadow over the general inflation. The country supplies 40% rice to the global market and the decision has potential to hike rice prices. Govt has to concentrate more on procuring rice from other sources. Now which one outweighs the other is what we need to see. Since the govt is continuing the contractionary policy,we will see some impact on the inflation.

Meanwhile, [the] IMF limits Bangladesh's foreign credit intake to $8.44 billion for 2026 as the country's risk rating is slided from low to moderate. Moody's already noted that unrecovered loan reached 24% of total loans from 11.1% in 2024. And the credit rating agency observed that central bank's latest loan rescheduling measure, 2% payment for [rescheduling the] loan, will only increase the tally of NPL ,further worsening the financial stability.

In this backdrop, opportunity of private sector credit from foreign source is shrinking and getting tougher. One positive impact is more and more banks are coming to stock market for raising funds. Eastern, Pubali,NCC and Jamuna announced to issue separate bonds in a bid to raise a total of Tk 26 billion from the market. I argued here several times to raise funds from the stock market, where undocumented money has easy flow and accountability is ensured. This step reduces pressure [on] public banks and central [bank] and helps a lot inflation-taming measures. Now it is time to see what response they will get from the market.Moreover, as debt service obligation is rising ,the central bank is creating a database to collect and store information about foreign credit taken by private sector.

The revenue generation will be a challenge for next year. As I highlighted in the piece "Need For More FTAs", if govt does not chalk out a plan on how to compensate the loss of tariff revenue stemming from reciprocal tariff then budget deficit will grow. Similarly, in "Altering Policy To Rejuvenate The Economy" I highlighted there is no clear roadmap on how to tackle the $34.71 billion NPL. The IMF foreign credit ceiling of $8.44 billion for 2026,part of which is already disbursed, and negative credit rating of the various agencies has already put severe constraint in getting private credit from abroad. There is also uncertainty about the kind of inflation we will have next year. The central bank is in OK mood to the merger of 6 troubled [banks],costing govt Tk 200 billion. So contractionary policy will likely to prolong. In this backdrop, how much money lying outside banking system comes to bank through stock exchange and remittances may become a deciding factor. Though [the] size will be much smaller compared to the void created by the NPL. Clearly ,it puts huge pressure on the value of Taka against major currencies. Despite the current appreciation pressure, govt is intervening into forex market. Could taka remain stable next year? That is a crucial question whose [answer] will be searched by everyone in coming months.

Budget Aims Inflation

Budget aims at lowering inflation, Trust restored after announcement of election.

Govt announced that the next election will be held on the first week of April next year. The announcement will clear further ambiguities surrounding election. Uncertainties will be further reduced by this announcement. Though the decision will send a positive signal, it has disappointed some parties which demand early election by December this year.

Law and order condition has not improved dramatically yet. But inflationary pressure is less compared to three months ago. Lowering fuel prices will have positive impact in coming months. Governor himself reiterated that the central bank would lower the policy rate when the inflation rate would fall below 7%.

Since the revenue target has not been achieved yet, it is still uncertain whether Bangladesh will be able to grab the next IMF loan. But govt lowered import duties on LNG and refined sugar. LNG has been increasingly used in power generation and fertilizer production. It will help bringing down the cost of power generation and fertilizer production. There is a tradeoff between revenue collection and bringing down the cost of agricultural inputs. Only time will tell whether it is a good move.

Govt also raised the taxes on land purchase and apartment sale. In addition, VAT was also raised for scrap metal, real estate agencies, imported lifts etc. This will contribute to raise the price of apartments many folds. High-end apartments nowadays become liquid assets. Since tax laws allow clandestine capital in this market, many intensively used the sector to document the undocumented wealth. With some paperworks apartments can be turned into cash. This practice drove the prices of apartments higher and deprived the govt of vital revenue as taxes were lower all these years. Govt intended to stop this practice by raising VAT and other duties on land purchase and apartment sale. However, govt lowered the registration fees and claimed other VATs surpassed the lowering of registration fees.

Now time will tell how effective it will become. I think there should be two or more public companies in partnership with private companies who will build cheap apartments for lower income group across the cities in Bangladesh. Pension fund will also get a secured investment in these companies. Property prices go up year by year, so return on investment will not fall.

Lowering taxes on packed liquid milk, animal feed, neutralized soybean oil, will have positive impact in containing the inflation. The proposed budget aims at lowering inflation, a priority task for the govt. If the IMF credit is missed,there will be further tightening of belt through spending cut. I do not think govt has the capacity to grab Tk 5.6 trillion as revenue from the market next year. It has to make further spending cut to make the deficit slim. The specific election date will help to gain investors' confidence and that of overseas credit institutions, which the economy badly needs.

Govt's Twin Challenges

The budget deficit and revenue shortfall Create future tax burden for all.

Attaining the revenue target has become so important for the govt. Till April, govt managed to collect Tk 2.89 trillion against a target of Tk 3.58 trillion. National Board of Revenue (NBR) has yet to furnish the data on May. The IMF set the revised target to be Tk 4.35 trillion for the current fiscal year. The shortfall reached Tk 1.46 trillion. It would be a spectacle to watch how the NBR will meet this gap in the next 28 days of this fiscal year. Meeting this target is vital for getting the next IMF credit package. Revenue generation is also crucial for bridging the budget deficit, which is 4% of GDP this year, and the target is set to be 3.65% for the next fiscal year.

Tk 2.26 trillion could be more than halved if NBR bags the shortfall of Tk 1.46 trillion. Missing the credit means we will lose vital source of financing the budget deficit, resulting in a wider budget deficit that nobody wants.

Govt's deficit financing plan consists of Tk 1.26 trillion internal borrowing and Tk 1.35 trillion foreign borrowing. This Tk 1.35 trillion of foreign borrowing will become extremely costly if the negotiations between the govt and the IMF fall apart. Moreover, govt's dependence on internal borrowing, mostly from banks (Tk 1.04 trillion), rises in this scenario. Govt is also relaxing conditions for investment on National Savings Certificate (NSC). This will definitely increase govt's spending on interest payment, eating away vital spending on other social security program.

Lowering the budget deficit is crucial for maintaining long term macroeconomic stability. Bigger deficits mean govt needs to borrow more from home and abroad, piling up the debt. Failure to lower the deficit puts pressure on subsequent future govt's. Since this govt has less political affiliation, it does not have any obligation to run a huge annual development program. Implementation of ADP is fraught with corruption and resource missallocation. ADP creates jobs,investment in rural areas is a banal political rhetoric. Look what happened to the govt that had implemented inflated ADP for all these years!

The govt has two ways to lower the budget deficit : increasing the revenue and cutting the ADP expenditure. There will be overwhelming effort for revenue generation next year to meet the target of Tk 5.18 trillion, there is no doubt. But for the remaining days of this year, govt can boost revenue by depreciating Taka through foreign exchange market intervention. The central bank can start procuring dollar and weaken Taka by 2/3%. Govt has just lowered the fuel prices and it will offset any resulting inflationary pressure. The move will augment revenue earning from import. This move can be coupled with dramatic cut in the rest of the ADP for this year. Political govt has a tendency to spend ADP money at the last leg of the fiscal year. This govt lacks this tendency, I believe, and so can slash the ADP spending significantly.

Tk 2.26 trillion can be lowered significantly if we lower the ADP spending. This will ease the pressure on revenue collection. And relieve the ordinary people from the heat of direct and indirect taxes.

Tk 2.3 trillion ADP spending can be lowered to Tk 1.5 or Tk 1.7 trillion. Missing the revenue target and failure to lower the deficit will push us towards costly bilateral option. Often bilateral arrangement may lead to sell national flag career or one or two utility companies. It may be OK for some ,but problematic to others. So doubling our effort to revenue generation and to lower further the deficit should be the priority.

The Cost Of Domestic Turbulence

Protests cast shadow over revenue target, Lost market share, credit may become the reason for regret.

Protests by the public servants at the Secretariat and at the National Board of Revenue (NBR) crippled the functioning of govt. Govt was compelled to introduce "The Public Service (Amendment) Ordinance 2025" that permits the govt to fire a public servant within 8 days. The ordinance created further grievance and rift. Earlier govt had announced to provide allowance, which was earlier cancelled, to public servants. It now would cost the govt Tk 70 billion.

The NBR staffs are protesting the separation between policy department and implementation department. No one is losing their jobs or benefits here, but govt did not consult with the staffs prior to taking the decision. Many felt deceived and started the protest. The cost is huge: govt may miss the revenue target of Tk 4.35 trillion set by the IMF. The revenue shortfall already crossed Tk 1 trillion and it is impossible to meet the target in the next one and half months. Now if the IMF does not dramatically change its position on the revenue target ,Bangladesh may fail to get the next installments , making it harder for deficit financing. Worst is that the IMF may suspend the program, signalling others to withhold their budget support. If that happens, we may see deterioration of macroeconomic conditions, leading to [rise] in market risk through currency volatility, inflation and prolonging the contractionary monetary policy.

We still have no clue where the tariff debate will lead us. Now this domestic turbulence at the heart of administration and the revenue department will undermine the economy. Since August 5 of last year, value addition to domestic tyre manufacturing industry was hampered, local market share in the tyre market declined. Indian restrictions on import of Bangladeshi goods through land ports will lower export of our agro-processed products to the country. China's decision to import mango, jackfruit from the country may further lower value addition and hamper employment in the agro-processing industry. Furthermore, the tariff debate also casts shadow [over] leather export. Since Bangladesh is delaying [implementation] of waste treatment plant as per the guidelines set by the Leather Working Group(LWG), wet blue leather export to the West was halted. The China filled the void by buying the rawhide and reexporting them to the West over the years. But the tariff debate [interrupted] the reexporting program of leather, resulting in delays of shipments and piling up of rawhide in tanneries.

Both domestic and external factors affected our manufacturing sector. Further domestic turbulence will raise the systematic risk, casting shadow over our manufacturing sector. Instead of exporting agricultural raw materials, we could encourage export of processed and value-added agro-based products. Joint ventures in leather and agro-based products could be considered to boost our export. Similarly, seeking soft grant or spending Tk 70 billion in setting up LWG prescribed treatment plant could easily open new potential [for] leather export. We can ill afford losing the next IMF credit package and losing export share of our leather and agro-based items. In this regard, wider political consensus is needed to address grievances at home.

Taka Floats Freely

Introduction of free floating Stops leakages and brings foreign financing.

Bangladesh Bank formally introduced fully floated exchange rate,removing the last obstacle getting the third and fourth installments of the IMF credit package. The decision is greeted with cautious optimism. However, many are waiting to see how the market will behave next week.

Fully floated exchange rate will reduce the incidence of illicit financial flow. From now onwards, unofficial rate will be much higher than the official rate as Taka is aligning to its true value, increasing the cost of sending money abroad clandestinely. Another reason is that it will prevent leakeges in the development projects that depend heavily on imported materials. When value of Taka drops, the cost of import rises and part of the money identified for siphoning off will get reduced. Less booty from the projects in case of frequent depreciation of Taka in a given year. Perhaps this is the reason Taka had been pegged at a certain value for a long time.

The 90-day long 30% tariff on Chines goods gives Yuan some advantages for further depreciation in this period. Instead of 145% depreciation in the worst case, this 30% depreciation seems a much more acceptable bet though inflationary pressure may spread. Given the nature of Chinese govt, they can deal with it. Meanwhile, we have to be contended with the 10% depreciation during this time provided that we have the right market conditions to do so. The spot exchange rate shows that Taka has already depreciated. Next week if dollar becomes stronger it will be depreciated even more. That is indeed a good news.

Though Bangladesh's credit rating deteriorated, foreign banks may encourage to bring more USD from abroad to widen their operations/ coverage here. Few years ago, a great part of their operating profit came from selling USD. Though the USD they bring may be small compared to remittances and export earnings ,this USD will greatly help lending credit to local investors and SMEs.

Despite the accompanying challenges, the free floating of Taka opens the possibility of thwarting the abuse of public fund. It also opens the possibility of foreign financing of local projects through operations of foreign banks.

Fear About Taka's Free Floating

Unease about motive speculative Causes the confusion and disbelief.

The short relief of tariff debate between the USA and the China reached with a reduction in tariff for 90 days. During this time, the USA will charge 30% tariff on Chinese goods [whereas] the China will levy 10% tariff on American goods. This relief will give both the countries ample time to chalkout a contingency plan. It is indeed a good news for Bangladesh since the decision has strengthened the USD against major currencies, steering a depreciation pressure on Taka. Bangladesh has mid July to ink a deal with the USA about reciprocal tariff. It has another 90 days to depreciate its currency when it has the just cause for depreciation. In the international exchange market Taka has already depreciated to 121.50/USD from 121.42/USD in past one week. Official exchange rate has not changed though.

There has been great reluctance from the side of govt to go for market based exchange rate. The fear is that speculators and international exchange houses may further depreciate Taka. Earlier Dubai and Jedda based exchange houses had been found in such malpractices. Govt even asked for another $1 billion from the IMF to implement the fully market based exchange rate instead of the prevailing crawling peg system. The market does not signal that Taka will be same as the Sri Lankan or Pakistani Rupee. Rather it says Taka is 121.50/USD. Back in December, we saw major volatility in the exchange rate of Taka due to settlement of international bills and speculators' activity at home ahead of policy rate hike in Monetary Policy Statement. Speculation concerns mostly arise from home and major trading partner countries. Speculation motives at home greatly reduced after the correct alignment between policy rate and inflation rate. For the next 90 days, it will be further reduced as US dollar will remain strong against other currencies. Property purchase in the UAE and money laundering fuelled the speculation motive in the UAE and Saudi Arabia. Bangladesh is no great trading nation whose currency will be great value to others. Speculation from abroad is also minuscule at this time as there is no reason for [speculation]. Moreover, international market rate does not say so. What would one do with stockpiling so much of Taka? Ultimately, Bangladesh Bank is the sole institution that in the end [has to] deal with it. At the end of the day[,] it is indeed a loss making project. I do not think it is a wise move not to let Taka align with the market completely. We do not have enough opportunity to depreciate Taka in the future. Because the USA wants a world where the US dollar will remain weak,leading to appreciation of other currencies. Command and control economies like China and Vietnam can depreciate their currencies through state intervention. We cannot do so easily. But I support Bangladesh's position of seeking extra $1 billion from the IMF to cushion any adverse effects from free floating of Taka.

This depreciation pressure comes at a moment when tariff debate will lower global demand,showing a downward pressure on prices of fuel. Inflationary pressure will be largely offset by this lower demand for major commodities. Moreover, such depreciation will augment revenue collection that the government is desperately seeking. 10% depreciation will make exchange rate Taka 134.2/USD ,5% will make it Taka 128.1/USD and 2% will end up in Taka 124.44/USD. Next week we may see a strong US dollar and it will be the right time to depreciate the Taka further.

$25 billion remittances in 10 months reflect earlier depreciation of Taka. Moreover, it helped bringing back export earnings in time. Since Taka is not a major trading currency, speculative tendencies should not cause a lot of concerns for not letting Taka free float. Speculative motive at home and in the countries with Bangladeshi diaspora is negligible since the market conditions dictate so. Why should government be so worry about introducing market based exchange rate?

Challenge Posed By Currency Tool

Striking the iron when it is hot, Strong local currency is what you got.

The World Bank lowered growth forecast for Bangladesh to 3.3 % for FY 2026. Moreover, it fears more than 3 million Bangladeshis may go under poverty line next year. Despite sign of reconciliation between the USA and China (President Trump hints lowering the tariffs on China and China exempts few US items from retaliation list) ,prospect of global trade remains uncertain. There is no sign that a consensus will be reached within 90 days though bilateral negotiation is in full swing with many countries. The Federal Reserve plans to lower the policy rate in May. It will weaken the USD. At the same time, it will be high time for the US to employ the currency tool if the ongoing negotiation may not yield expected result. I think the Trump administration will not wait too long to employ the tool. They want to do the unpleasant things at the start of the tenure and reap the benefits at the last leg of the tenure, when the fallout of the reciprocal tariffs will be offset and faded from people's memory.

Given the lack of response from outside world, it is highly likely that Trump administration may resort to currency tool this year. Will the Fed allow the Trump administration to print and $1 trillion and give it to procure rivals' currencies in a bid to appreciate their value against USD?Answer is still unknown ,but further weakening of US dollar will put appreciation pressure on other currencies.

To make clear my point, let us take a look at the formula of Real Effective Exchange Rate(REER):

REER at period t= (Exchange rate index of a country x Inflation rate of the country)x 100÷(Average of trading partners' exchange rate index x weight x Average of inflation rates in partner countries)

Exchange Rate Index at t= (Exchange rate of a county's currency at t)÷(Exchange rate of a county's currency at base period)

The US do trade with most of the countries. Any weakening of US dollar (look at the denominator) means REER of a currency appreciates given its exchange rate remains the same. The USA accounts 20% of our exports whereas the EU accounts more than 45% of our exports. Meanwhile, China and India are our top two importing [sources]. Moreover, except Eurozone, Bangladesh does trade with most of its trading partners in USD. So USD carries [(if not then it should)]more weight in REER calculation and thereby deeply influences REER of Taka. The point is any future depreciation [of USD] will put appreciation pressure on Taka (look at the formula). Since the tariff debate,we have seen Euro, Yuan [,] Dong, Rupee depreciated. This clearly makes possibility of REER appreciation of Taka stronger unless the central bank intervenes in the forex market.

We cannot make great leap towards productivity through technological innovation [in short span of time]. But we can retain the competitiveness through local currency depreciation. For that central bank's active role is what we needed.

Trump administration can also employ International Emergency Economic Powers Act that permits the US president to withhold interest payment on US treasury bonds or to freeze payments to other countries. When this will happen many countries will try to lower their US treasury bond holding, leading to appreciate their currencies. Either approach leads to REER appreciation of local currency.The USA will try its best to make USD less attractive as the reserve currency. So central bank should have a contingency plan on how to convert part of the reserve in gold,Euro or other IMF reserve currencies.

Recipe For Meeting The Revenue Target

Meeting revenue target and boosting foreign currency, Depreciation is the best bet in this urgency.

Bangladesh Bureau of Statistics (BBS) has revealed the March inflation data. General inflation increased slightly to 9.35%. Though food inflation declined from 9.24% to 8.93%, non-food inflation rose to 9.70% from 9.38% in February. On several occasions, Bangladesh Bank Governor stressed policy rate will be lowered when inflation will be lower than 8%. On going trade war casts shadow over global commodity demand, setting a downward pressure on inflation. Positive real interest rate ( since January) and decline in inflation show sign of optimism in containing the inflation. Uncertainties unleashed by tariff cast shadow over GDP growth,forcing ADB to lower its growth forecast to 3.8% for Bangladesh. Govt is planning to downsize the budget by Tk [70 billion*], a record in recent years acknowledging the reality. The IMF has set new revenue target of Tk 570 billion for the rest of the fiscal year as a condition to get the fourth and fifth installments of the credit package.

So meeting the revenue target and staying competitive amid uncertainties and contractionary policy appear to be the challenges faced by this govt. Govt is continuing the monthly fuel price adjustment through Bangladesh Energy Regulatory Commission (BERC). To make BPC profitable, it has not lowered the prices for last couple of months. When oil prices at international market show a downward pressure, lowering fuel prices at home will help tremendously its subsequent policy actions. In May 2024,I penned a piece titled "BB's Twin Actions" where I argued how depreciation of Taka at one hand increases govt revenue through market mechanism and, on the other , boosts export without deteriorating the inflationary situation. Briefly repeating the argument again: depreciating the local currency will help NBR bagging a huge revenue from the import duties,which account for a large part of revenue collection; it will also halt the need for unnecessary incentives for exporters and remitters as higher exchange rate itself works as incentives. Govt has 2.5 months in this fiscal year and a depreciation is a must (say 10%) to meet the big jump in revenue [collection]. Time is perfect for doing so as oil prices declined by 7% than what it was prior to reciprocal tariff announcement.

As I highlighted in my previous piece, this depreciation also makes Bangladeshi goods more competitive without incurring extra spending. Not far too often we have this chance to go for depreciation. It also makes our position at the negotiation table much more comfortable. We know our goods have become competitive again and govt does not have control over private sector when many of the goods may become cheaper in international market in future. Now at the negotiation table , you promise to import some specific goods more, but in future it turns out that at the international market its prices will come down. Then you have to import it at higher prices to respect the deal at the cost of trade account balance and current account balance, crucial for a tiny country like us. So focus should be [on how] to narrow down trade imbalance between the two countries without mentioning any specific item. When international market says an American good is cheaper, we will buy it more from them. Some goods are strategically important for us. Soybean, LNG,cotton,scrap metal are used as intermediate goods in agriculture, RMG,Transport, steel and real-estate sectors. So these goods could be bought in abundance. In addition, used car,beef,pecan,wheat,biofuel,used bus/van could be considered for import if their prices are competitive in international market.

In brief, depreciation will augment govt's revenue to get the IMF credit and boost future export and remittances. It will also put us in a comfortable position to negotiate with the USA.

[*Update: This piece has been updated on April 15,2025 at 20:55 PM Bangladesh Standard Time.Update includes the revised budget downsize figure.]

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.