Bangladesh Bailout: Repeat Of Pakistani Incident

Recent dealing of macro woes kept people in the dark without clues

Bangladesh Bank claims in December Bangladesh is going to receive $1.8 billion as credit and budget assistance. This addition will not lower further the forex reserve, Bangladesh Bank believes. Asian Development Bank(ADB) will give $400 million as assistance and IMF may endorse $680 million as second tranche of the $4.07 billion credit. And Bangladesh is pretty confident that it is likely to get the second pack.

Despite the improvement in current account balance, inflation is still high,around 10%. Exchange rate of taka against major currencies like USD and Pound sterling has not yet been stabilized. The loans and assistance we are receiving may be a condition of IMF's ongoing support. IMF Special Drawing Right (SDR),a special reserve asset comprised of several currencies (USD,Pound,Euro,Yen,Yuan), may be transferred toward other causes like aiding countries in dire financial situation. IMF in its website acknowledges that¹:

->SDR Department participants with strong external positions have historically used some of their SDR holdings to help countries in need. For instance, during the current crisis, several countries have used part of their SDR holdings to expand the IMF’s concessional financing by scaling up the IMF’s Poverty Reduction and Growth Trust’s (PRGT) loan resources. …
->We are also exploring other options for voluntarily channeling SDRs from members with strong external positions to support poorer and more vulnerable countries to help their recovery from the pandemic. Depending on the priorities of the membership, a new Resilience and Sustainability Trust could be considered to facilitate structural transformations, including greener recoveries from this crisis, for resilient and sustainable growth in the medium term. Another possibility could be to channel SDRs to support lending by multilateral development banks.

ADB being one of the development institutions as prescribed holder of SDR may be using IMF SDR to assist Bangladesh in addressing its budget deficit. Richer countries sympathetic towards Bangladesh may be using their SDRs to provide soft credit to bail out Bangladesh.

One of the conditions set by IMF to get the next credit pack is that reserve should be $18 billion by December 2023. As per BPM-6, Bangladesh's net reserve stands at $19.40 billion at the end of first week of December. As Bangladesh sells dollar from its reserve, downward pressure on reserve still remains. Meanwhile, we witnessed that Bangladesh leased Potenga Container Terminal to Saudi Red Sea Gateway Terminal (RSGT) for 20 years. Similar incident took place in Pakistan when the country leased its Karachi port to UAE for $220 million in June². Later Saudi Arabia came into the scene. It perked $2 billion in Pakistan central bank to get it vital IMF loan³.

The strange behavior of one specialized bank and its Saudi shareholder lent credence to the argument that Middle Eastern countries may play a role in achieving the second credit pack from IMF.In November 2023,the bank lent a huge some of money to a fraudulent group ,which laundered the money in a Middle Eastern country, and put the whole banking sector in a precarious situation. It was the Saudi exchange house that charged higher rate for USD in recent weeks. Last week, exchange houses in the UK charged higher rate for Pound. It indicates that the exchange houses abroad are stockpiling taka to gain more from appreciation of taka in the event of IMF loan approval / significant interest rate hike. They have this prior information.

Back in October last year,I penned a piece titled “Macro-Woes”⁴ where I highlighted how strategic relations shape economy, citing Saudi money perking in Pakistani bank with strings attached. I strongly believe the Parliament comprised of MPs with popular mandate should have the last word on making strategic decisions. Few regimented people in a close door meeting making key decision about strategic relations is not good for the country while leaving the people in the dark. At the end of the day ,country and people bear its consequences. And our constitution does not allow such kind of decision making as Parliament’s approval is required for any military engagement with other country besides multilateral initiative. Strategic decision making including forming alliance to wage war is a political matter, not a military one. Political matter should be solved by political stakeholders. Anyway, the way Bangladesh is addressing its macroeconomic issues hints that it is similar to the way Pakistan has dealt with its recent macro woes.

Notes And References

1. ”Questions And Answers On Special Drawing Rights(SDRs)”,IMF.For more read at https://www.imf.org/en/About/FAQ/special-drawing-right
2. “Cash Strapped Pakistan To Lease Part of Karachi Port To UAE For $220 Million”, NDTV,June 22,2023.For more read at https://www.ndtv.com/world-news/cash-strapped-pakistan-to-lease-part-of-karachi-port-to-uae-for-220-million-4144226
3. “Saudi Arabia Gives $2 Billion as IMF Bailout To Pakistan, says Country’s Finance Minister”,Reuters,July 11,2023. For more read at https://www.tbsnews.net/world/global-economy/saudi-arabia-gives-2-billion-imf-bailout-pakistan-says-countrys-finance
4. “Macro Woes”, Rezaul Hoque,October 28,2023.https://hoquestake.blogspot.com. For more read at https://hoquestake.blogspot.com/2022/10/macro-woes.html?m=1

Inflation Woes Remain

Inflation shows no sign to tame, Mocking the measures of austerity. Pumping money for sake of people’s name Deepens the problem's severity.

Govt in an unprecedented move increased all kinds of fertilizer prices by Taka 5. Despite falling prices in the international market,govt has little alternative to raising the prices in the wake of Tk 460 billion fertilizer subsidy. Depreciation of Taka more than 20% in the unofficial market following the Ukraine war and double-digit inflation set the ground for such rise. One minister even acknowledged the move may further drive up the price levels.

Nine months after its introduction, govt's contractionary policy failed to curb inflation. In fact, govt acknowledged that inflation reached 9.33% at the end of March this year. Back in July 2022,it was 7.48%¹. However, import registered a decline. More smaller increases in policy rate hike are anticipated at measured intervals in future. Still large part of the money lies outside the banking system. Since July last year several factors have been contribute to rise in price levels. In November last year, while an IMF team was in an official visit to Bangladesh, a little known Nabil Group swindled around Tk 90 billion from several Islamic banks².Till date,whereabouts of the money is not known.This plundering shook depositors' confidence so much that many were prompted to withdraw their money,leading to a liquidity crisis in the Islamic Banks. To address the crisis, central bank provided Tk 147.90 billion credit to the troubled Islamic banks through promissory demand note³.Govt literally printed the money and injected it into the ailing banks. Most of this Taka 237.90 billion is being circulated outside the banking system. Even if a large part may find safe sanctuary abroad through clandestine channels, hoondi partners may transfer the Taka to local counterparts ,adding the inflationary pressure at home.

In addition,govt created a new Export Assistance Fund(EAF)of Tk 100 billion to assist the local exporters. Earlier IMF suggested to downsize the Export Development Fund as it hinges heavily on forex reserve money. The newly created EAF so far doled out Tk 20 billion in local currency as export assistance to exporters. Interestingly, selective clients of the troubled Islamic banks got most of the assistance. A news report says $1 billion worth of export proceeds have not arrived. So promising export growth does not tell the whole story.Central bank’s injection to the economy now stands at Taka 257.90 billion. There is more!

This year government increased dearness allowance of public servants by 20%. A daily has revealed that since 2015, govt has been pursuing a policy of 5% increment in salary of public servants instead of indexing the salary like the Western countries⁴. This adds further Tk 40 billion into the economy. So central bank pumps a total of Taka 297.90 billion into the economy in the nine months of this fiscal year alone. Say half of the money stays outside the banking system, that is Taka 148.95 billion. This money mixing with the undocumented money in the economy causes huge upward pressure at price levels.

As this is ahead of election year,many are shy to bring their money into the banking system. Despite increase in deposit rates, many prefer not to deposit their money. Moreover, rule like obligatory tax return certificate for purchase of National Savings Certificate worth more than Taka 500,000 discourages households to bring their money into the system.

One group alone robbed $840 million from the banking system while the central bank were negotiating with IMF to grab $476.27 million as first instalment of credit package. But the austerity measures and contractionary policy have turned into a mockery when the central bank printed Taka 147.90 billion and injected into the system. This one single act rendered the whole policy of the central bank useless. Depositors' confidence at the banking system under current regime is at all time low. Pumping money to restore confidence in this case was a redundant move. So govt has to take fair share of the responsibility for the rise in inflation amid measures of austerity.

Notes And References

1. "Major Economic Indicators: Monthly Update,March 2023",Bangladesh Bank.
2. "’Nasty November' For Islamic Bank",Sanaullah Sakib,Daily Prothom Alo, November 24,2022.
3. "Receding Trust In Banks",Rezaul Hoque, https://hoquestake.blogspot.com,January 13,2023.For more read at https://hoquestake.blogspot.com/2023/01/receding-trust-in-banks.html?m=1
4. "Agami Budget e Sarkari Chakurijibidr Bhata Barchhey(Dearness Allowance of Govt Officials Likely To Increase In Next Budget)",The Business Standard,April 12,2023.For more watch https://m.youtube.com/watch?v=n3paeAzIvV4
   Also read " No New Payscale,20% Dearness Allowance Proposed For FY 24", Abul Kashem,The Business Standard, April 13,2023.
   For more https://www.tbsnews.net/economy/budget/no-new-pay-scale-20-dearness-allowance-proposed-fy24-615058

Receding Trust In Banks

No long queue at bank and post office Reflects people's trust is on the edge of precipice. Last week was a happening week for the financial sector.Court has ordered to seize the property of a chairman of a group as well as an Islami Insurance Company. The chairman is in jail for allegedly swallowing Tk 516 crores through abuse of power,treachery and money laundering. Tk 1.5 billion worth of house is situated at the rich neighborhood of Baridhara.This is the snapshot of the anarchy going on in the financial sector.He has even been accused of taking loans in the name of employees without their consent. Meanwhile, liquidity crisis in the Islami Banks is acute.Last week ,central bank provided credit worth Tk 147.90 billion to Islami Bank,First Security Islami Bank,Union Bang,Social Islami Bank Limited and Global Islami Bank.Interest rate in this case is set at 8.75%.What is interesting banks lack bond or treasury bill to draw credit from the central bank.The special credit provided against promissory demand note,which pledges to pay back the credit at any cost. Liquidity crisis in the banks has driven inter-bank lending rate to 10%. Many banks failed to meet the cash reserve ratio due to the crisis. This is an indication how clients lost their trust on banking system as govt took a nonchalance stance on earlier irregularities. Despite slight improvement in inflationary situation,inflation is hovering around 8% as per official statistics. Amid this,Finance minister ditched the idea of a new pay-scale for inflation-battered public servants.Another pay-scale would definitely hike the price level.Meanwhile, central bank is pursuing a monetary policy aiming to tame the inflation. In addition, govt also raised the price of electricity by 5% ahead of scheduled visit of IMF DMD.The move coupled with the idea of open market determinaton of oil price at the domestic market is a deliberate one to unhook the IMF credit package. Post offices that sell savings certificates and offer attractive rates on deposits are deserted.Once they are packed like sardines.Same picture can be seen in banks. In the banks only the time deposits bear significant interest rate. But the interest rate is well below the inflation rate. And investment of more than Tk 500,000 on savings certificate requires submission of tax return.Series of banking scam further erodes people's trust on banks. Decrease in overall deposit amount last year sums up the whole story.Govt is stubborn to cap the lending rate at 9%.It is still unknown how the government will win back people's lost confidence on the banking system. Saturday, December 31, 2022 Crisis In Banks Deepens New banks fall into liquidity trouble Instead of recovery, woes become double. Regulations on management board reform Unlikely to become the new norm. Last few weeks have been happening weeks for Bangladesh financial sector. Bangladesh Bank issued new regulations on the appointment of directors and chairman in the management board of public banks,which are at the heart of bank scam1.Earlier people with little credentials occupied the post and approved loan to projects that do not qualify for it. The result is piling up of Non Performing Loan(NPL) which is jeopardizing stability of the whole banking sector. Government even concluded initial talks with the IMF for a credit of $4.5 billion to finance budget deficit in the wake of high oil price and ongoing war in Ukraine and bad economic management.Earlier only public and some private banks are in crisis. But now banks that operate islamic banking are also in liquidity crisis. Depositors have lost their trust in them and queue behind bank booths to withdraw their deposits.But some islamic banks do not have enough money to meet depositors' demand. Crisis unfolded into these banks after one Nabil Group took Tk 90 billion loan from Islami Bank,First Security Islami Bank and Social Islami Bank. The group followed fraudulent means to unhook the loans. It floated several shell companies and then applied for loans. Addresses provided are later found hoax and all of them appeared to be sister concerns of the Nabil Group,which operates agro-processing and food grain import business in Rajshahi. Islami Bank gave Tk 70 billion to the group and First Security Islami Bank and Social Security Islami Bank provided the rest2. On some occasions, documents were not scrutinized thoroughly. So the blame puts squarely on the new management board of Islami bank, which is mostly formed by members backed by a local business conglomerate. The conglomerate itself took several loans from the banks and invested abroad. Rumours are rife that it even purchased a five-star hotel in Singapore. It is highly likely that the credit becomes another incident of money laundering. As soon as the news broke, clients’ trust on islamic Banks erodes and many opt to withdraw their deposit. It is translated into these banks' depleted deposits. Situation is so grave that the biggest one, Islami Bank offers 8% interest rate to Mobile Financial Service (MFS) operator Nagad,which is already marred by corrupt practices3. Furthermore, Islami Bank Bangladesh and Social Islami Bank along with Pubali Bank Limited received Bangladesh Security And Exchange Commission's nod to issue bond in a bid to raise Tk 21 billion from stock market.The islamic banks will use the fund to meet the acute liquidity crisis4. It appears clearly that islamic banks also face liquidity crisis. New banks fall into such crisis. In general, banking sector instead of recovering falls into deeper crisis. Serious trust deficit translates into depleting deposit and foreign banks’ refusal to LCs issued by local banks. Luckily, IMF in its upcoming board meeting in January may take a decision on approving first instalment of credit, taking into account recent central bank's decision of management board reform. But only time will tell how much it will help the cash-strapped govt and the ailing banks. Notes And References: “Rastrayatto Banker Chairman Note Lagbey 10 Bochhorer Oviggota(Public Bank Chairman Must Have 10 Years Experience)”,jagonews24.com,December 24,2022. https://www.jagonews24.com/m/economy/news/820089 “Nasty November for Islamic Bank “ ,Sanaullah Sakib,Daily Prothom Alo,November 24,2022. https://en.prothomalo.com/business/local/x60ivy2cbn “ Aat Percent Sude Amanat Chai Islami Bank (Islami Bank Offers 8% Interest On Deposit)”,Daily Prothom Alo,P-13,December 29,2022. “Lendene Goti Firchhey Na,Bond Chharbe Tin Bank(No Pace In Transaction, Three Banks To Issue Bond)”,Daily Prothom Alo,P-13, December 28,2022. Saturday, December 12, 2020 Plunder In Disorder New bout of corruption is seen in bank. Malpractices reach even low rank. Bangladesh is high on a fever. This has become the mot of some clever: "O wind! put everything in disorder! Let me relish much of the plunder!" News reports in recent weeks once again disclose that corruption and malpractices in Banking sector, which has already been reeling from earlier scams, continue unabated. No change in corporate governance and no change in business as usual. The disappointing picture is writ large on all the financial institutions of Bangladesh. A news report, dated on November 30, says government mulls retaining political appointees in the management board of public banks. In the past this kind of appointment set the path for seeking loan for project deemed not-profitable and triggered corrupt acts abusing the power. This politically motivated projects and mismanagement of the boards in the end contributed to piling up of bad loans (NPL). Back in June 2019, I wrote an analytical piece titled " Default Loans: In Search Of Root Cause" on this blog. In 2010, the amount of NPL was Tk 227.1 billion and rose to Tk 893.4 billion by the end of June 2018 (Source: Bangladesh Bank). A little less than 50% of those NPLs belonged to state-owned commercial banks (SCBs). Meanwhile, NPLs for private commercial banks(PCBs) and foreign commercial banks(FCBs) stood at Tk 389.8 billion and Tk 22.7 billion respectively. One may argue that SCBs operations and client base are much bigger than those of PCBs and FCBs. Gross NPL to total loan or net NPL to total loan , which Bangladesh Bank uses to measure asset quality, may give a better indication of comparison of bad loans by types of banks. In 2010, gross NPL to total loan by SCBs was 15.7. Meanwhile, it was 3.2 per cent for PCBs and 3.0 per cent for FCBs.(Source: Bangladesh Bank) By the end of June 2018, gross NPL to total loan for SCBs, PCBs and FCBs rose to 28.2, 6.0 and 6.7 percent respectively. It is evident that percentage of bad loans to total loans is far more higher in SCBs than those in PCBs and FCBs. How the decision is made at the management board calls for greater scrutiny. One of the public banks has come under scanner after a news report divulged that $603,947 had gone missing from an exchange house in New York operated by Janata Bank. Stealing had taken place in the transition period, when outgoing CEO would hand over the responsibility to incoming CEO. A temporary worker had been playing the role of acting CEO in the meantime. The exchange house maintained an account at the Habib American Bank's New York branch. It appeared that the acting CEO did not deposit the money at the Habib Bank account contrary to her claim. While the acting CEO was stopped answering to official emails and shut all the contact with her employers. The Janata Bank authority decided to settle the matter through legal means. It is surprising that a temporary telephone operator turned CEO was given the charge to run an exchange house, which has already been on a loss-making path, in foreign shore. This incident laid bare how clumsily decisions are being made in public financial institutions. Unbridled corruption is taking place at private banks too. A data entry operator, who got the job by forging educational certificate, swindled Tk 80 million from NCC Bank. He even constructed a six-storey building, bought residential plot and car at native village. A staff at Premier Bank in Rokeya Sharani branch took loan in the name of two clients manipulating office documents. He invested the money in his family run grocery. One of the victim clients got aware of this when he applied for loans in other bank. Bangladesh Bank has stipulated that client took a certain amount loan not be eligible for further loan. Denial of the client's loan request surfaced the murky scam. Last year I did a small survey among some rickshaw pullers. One puller shared with me a fraudulent incident. The rickshaw puller opened a deposit account, which would become mature in two years, at a private bank. He regularly deposited the monthly amount in time. By the time the account got matured , he came to learn that he would have to wait for another year for its maturity. He protested. But he was told one of the cashiers did not keep record of any money of his account for a year. Daily wage earners are not even spared from the greed of corrupt staffs. What we are seeing is mimicking of corrupt practices at individual level in the banks. If the management and high officials could indulge in corrupt practices and go scot free then it is ok for a staff to take one or two "peanuts"! More aptly, trickle down of corrupt practices from top to bottom. When the fever of "Ektu Elo Melo Kore De Ma/ Lute Pute Khai( O wind ! put everything in disorder / let me relish much of the plunder)"[I borrow the lines from a popular song of the film "Jamai 420"] sweeps across the Bangladesh, it would be naive to expect dramatic improvement in corporate governance. Until the feverish pitch for corruption subsides, replacing one political appointee with another, curtailing the power of central bank, changing regulations, interfering with the decision making process of the management board will not produce the desired outcome in financial institutions. What has to be changed first is the attitude and tolerance towards corruption. Subscribe to: Posts (Atom) About Me Rezaul Hoque Hi, this is Rezaul from Bangladesh. Single,Male.Born in 1981.This website is created as an alternative to, and complements,https://rezaulhoque.wordpress.com. Here I share my analyses on various issues including economics and governance. In addition, I also share my weekly news review on the incidents that took place in past one week. I do not make money out of my content. I do not receive any govt social security benefit or any kind of perks. I do not belong to any political group or university or foreign cultural institute.I do not work for any media outlet. Nor do I represent any security agency or private organization. Praises or blame for the contents of this website should be attributed to me and not to my former employers. ©Rezaul Hoque All the contents(including claimed web programs of individual content) are copyright protected. Without prior consent, reproduction of any of the contents,be in part or full, in any format or platform is not allowed. View my complete profile Translate Blog Archive ▼  2026 (56) ▼  September (7) La Semaine Dernière A Mes Yeux La Semaine Dernière A Mes Yeux Wake Up BCC Nano Loan For Fighting Inflation La Semaine Dernière A Mes Yeux La Semaine Dernière A Mes Yeux Distinct Role For Distinct Entity ►  August (9) ►  July (10) ►  June (8) ►  May (8) ►  April (9) ►  March (5) ►  2025 (110) ►  December (3) ►  November (9) ►  October (9) ►  September (10) ►  August (9) ►  July (11) ►  June (10) ►  May (11) ►  April (9) ►  March (10) ►  February (9) ►  January (10) ►  2024 (140) ►  December (8) ►  November (8) ►  October (10) ►  September (9) ►  August (9) ►  July (8) ►  June (11) ►  May (13) ►  April (14) ►  March (20) ►  February (21) ►  January (9) ►  2023 (105) ►  December (8) ►  November (9) ►  October (8) ►  September (10) ►  August (9) ►  July (9) ►  June (9) ►  May (9) ►  April (8) ►  March (10) ►  February (7) ►  January (9) ►  2022 (104) ►  December (9) ►  November (8) ►  October (9) ►  September (9) ►  August (8) ►  July (10) ►  June (9) ►  May (8) ►  April (10) ►  March (8) ►  February (8) ►  January (8) ►  2021 (102) ►  December (10) ►  November (8) ►  October (10) ►  September (8) ►  August (8) ►  July (9) ►  June (8) ►  May (8) ►  April (8) ►  March (8) ►  February (9) ►  January (8) ►  2020 (66) ►  December (8) ►  November (9) ►  October (7) ►  June (1) ►  May (9) ►  April (8) ►  March (10) ►  February (7) ►  January (7) ►  2019 (103) ►  December (9) ►  November (7) ►  October (8) ►  September (7) ►  August (10) ►  July (8) ►  June (10) ►  May (8) ►  April (6) ►  March (11) ►  February (6) ►  January (13) Awesome Inc. theme. Powered by Blogger.