Stop Policy Duality

Practising policy duality Does not create same reality.

Govt backed dual system may be present in many areas. But exchange system is the area where it is present conspicuously and does much harm than benefit. Last week the central bank verbally notified all the banks not to trade US dollar above Tk 123.82 after the greenback witnessed increase in demand (for more read"BB imposes informal cap on dollar rates amid rising pressure",ASM Saad,The Business Standard, July 29,2026,https://www.tbsnews.net/economy/banking/bb-imposes-informal-cap-dollar-rates-amid-rising-pressure-1500561). Sudden rise in import bills caused the demand for USD to soar. In the foreign currency market, the USD is being traded at more than Tk 124 on some occasions. Govt is still following the crawling peg system, allowing the exchange rate varies between lower limit and higher limit with the difference with the market rate no more than a Taka. Yet setting another exchange rate is not unprecedented.

During the Awami League govt,we saw multiple exchange systems. Importers paid for dollars one exchange rate while exporters paid other exchange rate and remittance earners faced another exchange rate plus the incentive.The incentive was 5% initially and later reduced to 2.5%. Exchange system for the remittance was the highest offered by the govt including the incentive. Mr Ahsan H Mansur,the central bank governor during the interim govt,in an interview revealed that govt annually spent Tk 7000 crore to support the remittance incentive.

Having too many systems [has] downsides. Those who have access to subsidized official rate of USD could easily sell part part of the USD holdings in the unofficial market where the rate was high and made windfall gains. Credit was cheap back then as the central bank was pursuing a flawed 9% lending rate and 6% deposit rate. Money laundering soared. Part of the laundered money brought back under the cover of remittance,reaping benefits like incentive. So people with easy access to USD laundered it abroad and brought them home later to take the incentive money plus the extra money the exchange system offered for remittance. Police even arrested a chairman who turned out to be highest remittance earner in a given year and thereby highest recipient of the incentive. Even news reports showed parents of a student studying abroad stashed USD under floor. USD hoarding became a booming business back then.

Venezuela is perhaps the perfect example that shows the consequences multiple exchange system brings. Back in 2016 and 2017, the country introduced multiple exchange systems for foreign currency market. Politically connected rich people took full advantage of it. They availed the cheap subsidized dollar from the govt. Some importers also got hold of this cheap subsidized USD. Then they resold the USD in the black market where the exchange rate was staggeringly high. Importers found the arbitrage opportunity increasingly profitable. So they used a big part of the USD meant for importing essential goods to trade in the black market. Venezuela, which imports almost everything from abroad, witnessed shortage of essential goods as less goods imported. Bolivar was losing its value against other currencies. At one point, 1 Euro fetched 35000 Bolivars. This hyperinflation impoverished ordinary Venezuelans but enriched the elite of the society(for more read "Venezuela’s hyperinflation fuels misery for poor but enriches elite through currency exchanges",Jay Weaver and Antonio Maria Delgado,September 13,2018,Miami Herald, https://www.miamiherald.com/news/local/article217868465.html#storylink=cpy https://www.miamiherald.com/news/local/article217868465.html).

This is why multiple exchange and pegging currency at fixed value ignoring the market value is bad. And ultimately people pay the price for belated adjustment and correction. Foreign currency market often sees upward or downward pressure on major currencies, resulting from sudden import surge or record remittance inflow ahead of major festivals. In a bid to control currency exchange rate , any unconventional intervention like capping the rate through verbal notice is not desirable. By doing this kind of act govt is introducing some sort of dual policy into the system. It will ultimately benefit few but hurt a great lot of people. Apart from currency exchange, we see central bank plays a dual role in the credit market too. Central bank's policy rate was 10% and now it becomes 9.5%. Central bank in a latest move offered Tk 2000 crore at 7% interest rate to the people involved in leather industry. Earlier it had made subsidized interest rate offer to other sectors as part of the stimulus package, bizarrely managed by the central bank. Remember it is the central bank,not commercial banks, that offered this subsidized interest rate much below the inflation rate, which is still hovering around 9%. By offering such move, the central bank is undermining its policy rate and its inflation containing effort. And it is doubtful whether central bank can achieve the stated objectives from subsidized interest rate when high interest bearing assets like treasury bills may easily draw this money. While ordinary citizens and SMEs are paying higher rate of interest , policy duality creates opportunity for some people to make money through arbitrage.

Policy duality should be avoided. As it is seen,less accountable society has policy duality that ultimately hurts the ordinary citizens. If we are a democracy , then any kind of duality in policy should be discarded.

Weakening Of Taka: When Desirable

Competitiveness through depreciation, Desirable when there is less inflation.

For the major part of the FY 2026,Taka remained stable against the USD. There is an overall balance in the Balance of Payment. And foreign exchange reserve is continuously increasing. Till June 2026, forex reserve stood at $31.74 billion. According to MPS, reference exchange rate was Tk 123.18/USD in June 2026,registering 0.39 % depreciation in FY 2026.

The depreciation rate is decent. But further weakening of Taka could be good for economy. Inflation is the obstacle in the path of major depreciation. Inflation in June was 9.14%, a slight decrease from 9.42% in May 2026. A larger depreciation may aggravate the inflation.

Export and remittance are the two sectors that enjoy greater benefit of depreciation. But the two jointly account for around 16% of GDP. Meanwhile, dollars earned and received go for paying up the import bills and foreign debt repayments. Our import was $61 billion in 2025 and external debt was around $112 billion (source: Wikipedia). They jointly account for 33.92% of GDP. Crux of the matter is sectors benefitted from large depreciation of Taka account lesser percentage of GDP than sectors affected by such depreciation. Large depreciation may spike the imported inflation and increase our debt service payment in Taka amount.

But depreciation is related to export competitiveness. So when competitiveness is top priority depreciation is the way. Vietnam, where export accounts for 90% of GDP, witnessed around 0.11% depreciation of its Dong in the first six months in 2026. Since a communist regime is in charge of running the country and export accounts for a huge percentage of GDP, Vietnam is in a comfortable position to use its currency to increase its export competitiveness.

Even India witnessed 10% depreciation of Rupee in one year and large part of it happened in the first six months of 2026. In India, export and remittance jointly account for 23.97% of GDP while import and external debt jointly account for 41.95% of GDP.

I think slow and gradual depreciation is ok for our economy. 1% or 2% depreciation will not aggravate the inflation that much. Regular intervention of the central bank,therefore, in the forex market is necessary. According to MPS,in FY 26,central bank spent $6.43 billion in forex market intervention.

Steady flow of remittance and BB's intervention translated into 0.39% depreciation of Taka. This is why central needs to hold lots of Taka. That is why it is not right to use central bank's money in other purposes, particularly in meeting political pledges. Central bank plans to spend Tk 19000 crore of its money as part of stimulus package. Central bank needs money to emergency intervention and that is why its money should be untouched.

Use of local currency to boost export competitiveness is indeed good for the economy. Timing and priority are the two factors that influence the decision regarding the depreciation. Since fuel price is rising amid high inflation at the local market, this is not high time for big depreciation. However, central bank's intervention ,which requires huge amount of money at its disposal, in the forex market at right time can thwart any appreciation pressure on Taka and ensure export competitiveness.

Will Taka Remain Stable?

War leads to further rise in inflation, Policy rate cut may cause depreciation.

Last week exchange rate of Taka reached 123.30 against US dollar. Now the rate settled at Tk 122.75 per USD. The ongoing war in the Middle East cast a shadow over remittance inflow and supply of energy through the [Strait] of Hormuz. Moreover, govt changed Bangladesh Bank governor abruptly and the new governor hinted to lower the policy rate while inflation rate increased further and hovering around 9.13% in February. In January ,it was 8.58%. In this backdrop, serious question raised over continuity of regulatory discipline.

Throughout the fasting month of Ramzan ,key kitchen items registered higher prices. A new war in the Middle East risks worsening the inflation by causing supply problems [for] energy and spiking the fuel price. Despite govt assurance of no fuel crisis at home, the long queue of motorbikes and cars in front of petrol pumps is a testament to panic prevailing at the ground. Central banks of major economies already shelve their plans to lower policy rate while ours one walks on a different direction. Furthermore, abrupt dismissal of governor sent a wrong signal abroad about commitment to reforms. It may delay improvement of our credit ratings, causing troubles to get foreign credit for private sector.

Taking a look at major macroeconomic indicators tells that time is indeed not right for a policy rate slash. During July-January period of 2025-26, export declined to $26.09 billion from $26.36 billion in 2024-25. Trade deficit increased to $13.79 billion in 2025-26(July-January) from $11.74 billion in 2024-25(July-January). Current account deficit declined to $381 million in 2025-26(July-January) million from $1.31 billion in in 2024-25(July-January),riding on growth of remittance. Remittance rose to $19.43 billion in 2025-26(July-January) from $15.96 billion in 2025-26(July-January)(See https://www.bb.org.bd/en/index.php/econdata/bop). Despite improvement in current account deficit, situation is not right for discarding the tight momentary policy. [Particularly] when the war may derail the growth of remittance. At one hand trade deficit is growing ,on the other rising import and uncertainty over remittance put overall macroeconomic situation at a precarious position. In this situation, lowering the policy rate will increase the depreciation pressure on Taka against other currencies. Any wild fall of Taka worsens inflationary situation through pass-through effect of the new exchange rate.

Moreover, further worsening of war will spike fuel prices and deteriorate inflation in advanced economies, where most of our exportable items go. This will cut the purchasing power of their nationals and lower overall consumption. Declining trend of export will further cause depreciation pressure on Taka. When exchange rate and inflation rate will both rise ,real effective exchange rate will fall further given denominator part of the formula remains same(look at the formula).

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)

So far US dollar appreciated against other currencies following the start of the war. Since we do trade with other partners in USD ,a stronger USD translates into depreciation of real exchange rate of Taka given other things remain same. However, inflation is likely to rise amid escalating war . When average of inflation rates in partner countries is higher than exchange rate of Taka and inflation at home,then Taka will appreciate in real term (see the formula).

Stability of Taka depends on many things. But so far the development indicates Taka is likely to depreciate further if the war turns out to be a protracted one. We coped with 40% depreciation of Taka all these years. Similar or more depreciation will be unbearable for us. So cautious monetary policy ,which implies a tighter one, will be good for us. Does the central bank have courage and commitment to do so?

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".]

Cushioning Fall Of Taka

Allow businesses to transfer money abroad To keep the incentive spending short.

The uncertain situation about Non Performing Loans casts serious doubt about Taka's stability next year. Exchange rate of Taka against US dollar in this week is Tk 122.46/USD ,which was Tk 121.75/USD a month ago. Though this depreciation is within the tolerable limit and the expected range of Bangladesh Bank,a big fall may cause serious trouble. As I have mentioned several times in this space, Bangladesh can afford depreciation of Taka between 5%(Tk127/USD) and 10%(Tk 133.1) in a year. Transitory effect of depreciation will be manageable and less severe given more forex making entry into the country. Otherwise, it will make lives miserable by pushing up the prices of essential goods and services and accelerating capital flight from the country. A macroeconomic nightmare for any govt.

The chance is high that after the election when many restrictions will be relaxed a fresh round of capital flight may be observed. The volatility of local currency in short span of time increases the risk for fund management of the companies as it shrinks their assets if those are denominated in Taka. Unfortunately, Bangladesh Bank has stricter policy to transfer money abroad through official channels. For this reason, many opt for clandestine means to launder money abroad. If these companies have means to invest their money into foreign resources through legal channel , I think incidence of money laundering could be [curbed] to a great extent. One way is to set a ceiling on investment abroad and provide some quota on foreign investment by a Bangladeshi company. Another approach is to allow investment on commodities, foreign bonds through Bangladesh. Soon commodity exchange market will be operational in Bangladesh. If local companies can invest part of the assets in gold,silver,platinum, copper ,then part of the money they launder abroad will stay at home. Similarly, if we allow them to invest in foreign bonds through local stock exchange or by any other means then that will add great value to their investment. At the same time, purchase of foreign real estate should be legalized inside Bangladesh. The central bank can have a clear tab on investment on such property and repatriation of capital gain from resale of such property. At the moment,Bangladesh Bank remains in the dark about [laundered] money caused by political uncertainty and currency volatility. The measures suggested here will give the central bank some idea how much money will go abroad and how much proceed/ return on investment will come back to home. Most importantly, it will hold back to some extent the capital flight.

Nonchalance stance to take money abroad legally puts pressure on government incentives. When these companies will fall into trouble due to currency volatility ,they usually seek public incentives. In most of the cases govt complies to their demand, costing tax payer's money. Allowing businesses to transfer money abroad for investment purposes legally discards the need for such incentives.

The $800 million Chinese investment pledges,which is likely to happen in next 12/24 months in the textile and RMG sector, is mostly influenced by global tariff debate, China's shrinking opportunity to invest in Occidental countries and not by uncertainty about Taka's value. China has excess capital of more than three trillion dollar. They have a controlled money market and problem-stricken property market, denting in their returns. The Chinese does not spare opportunity to invest this money abroad. This is why they aggressively invest in the RMG sector in this country. The volatility of Taka has little impact [on] their business decision because in any such case they will simply convert it into Yuan and repatriate the money back to China. And the Chinese central bank is willing to lend Bangladesh more Yuan when the Chinese investments will be in trouble in Bangladesh. The point is instability of Taka poses serious threat to future FDI and local investment given Chinese investment is an exception.

To protect domestic companies from currency volatility risks, the central bank should allow them to invest abroad. Or let them purchase foreign assets from Bangladesh. The move is aligned to check public spending and keep the private business balance sheet healthy without the need for govt intervention.

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.

Acknowledging Defeat?

Tax cut and relaxing duties on oil May worsen the economic turmoil. Ensuing debt and high tax in future New government has less for expenditure.

Last week Bangladesh Bank held press conference to convince clients that there is no liquidity crisis. In fact, there is a liquidity of TK 169 trillions in Bangladeshi banks. The announcement came in the wake of many banks' inability to open LCs as per govts' instruction to curb import(Source: “Bank e Takar Sonkot Holey Debe Kendriyo Bank(In Case Of Liquidity Crisis Central Bank Will Pay)”, Daily Prothom Alo,November 15,2022,p-1).

Meanwhile, import is still higher than export,which witnessed fall in the two consecutive months. Traditional sources of remittances like UAE,Saudi Arabia also witnessed negative growth.Current account balance and overall balance is still negative (till September). Taka is hovering around Tk 102/USD as per official figure. But market rate is a bit higher. Government is however optimistic that by the end of January there will be no dearth of US dollar.

But we have to acknowledge that before and after election years big depreciation/fall of Taka against US dollar was observed in the past.In 1990-91,rate of taka was Tk 35.67/USD . In 1991-92,it was Tk 38.14/USD.In 1996-97, it was Tk 42.70/USD. In 1997-98,it was Tk 45.46/USD. In 2000-2001,it became Tk 53.95/USD. In 2001-02,it was Tk 57.43/USD. In 2005-06, it was Tk 67.07/USD. In 2007-08,it became Tk 68.60/USD.Biggest depreciation came this year. Now in the open market Taka is being sold at Tk 106/USD.

Year	Exch.Rate(TK/$)
1990-91	35.67
1991-92	38.15
1995-96	40.84
1996-97	42.70
2000-01	53.96
2001-02	57.44
2008-09	68.80
2009-10	69.18

Source:Bangladesh Economic Review 2019

To finance the budget deficit and prop up the forex reserve, govt is heavily relying on borrowing. Govt is inclining more and more towards banks for domestic borrowing as sales of national savings certificates hit the nadir this year. This year only Tk 7.32 billions worth of NSD certificates have been sold after govt made tax return mandatory for purchase of NSD certificates worth more than Tk 500,000(Source: “Sanchaypatra Bikri Komechhey,Sudo Komtey Parry(NSD Sale Lowers,Interest Rate May Follow Suits)”,Daily Prothom Alo,November 13,20222,p-11).

Pledged budget support from multinational donor may assuage the problem temporarily but raises the total debt stock. It is highly unlikely there will be 180 degree change in the governance,which led to this situation,during the rest of the tenure.

Meanwhile, govt did little to raise the revenue. Surprisingly,it reduced corporate tax from 22% to 21%. And special duty on diesel and gas was also lifted. Yet Non Performing Loan (NPL) keeps rising. A tax cut in the present means more taxes in the future as argued by Olivier Blanchard.

I put forward some observations that hint some important change in the future:

1. A managed floating exchange rate discouraging exporters to bring exports and encouraging importers.
2. Corporate tax cut, removing duties from oil and gas,relieving bureaucrats from submitting tax returns.
3. Releasing forex reserve money to stabilize dollar market.
4. Holding back data on balance of payment, inflation,NPL that is costly for the govt.

This growing budget deficit and revenue fall also curb future govt's ability to spend more. Guido Tabellini and Alberto Alesina in an article titled “Voting On The Budget Deficit “,published on American Economic Review (1990) argue that how one group of policy makers' belief about future govt and its policy leads to inefficient outcome like high debt. More generally, if the current govt thinks future govt may be run by the opposition then it causes the current govt to borrow more now so that future govt may not spend more in the wake of high debt.In that light govt itself is acknowledging its defeat in the next election scheduled to be held by the end of 2023! It is indeed interesting how the govt responds to the reform works it pledged to the creditors.

IMF Assistance & Gradualism

Central Bank picks gradualist policy, To fight inflation and stabilize the currency. Past management and sources of tax Expose economy’s hidden cracks.

Last week, International Monetary Fund formally disclosed that Bangladesh sought assistance from it. $4.5 billion worth assistance package may come from several fund facilities offered by the IMF. This is for the first time Bangladesh sought assistance from Sustainability and Resilience trust fund ,reserved for mitigating adverse challenges posed by climate-change,apart from Balance of Paymey support fund¹.Earlier Finance minister had stressed that Bangladesh would not take loan from IMF if the conditions were not favorable.

Unprecedented inflationary pressure with rising import bills worsened by Ukraine war and record current account deficit prompted the government to seek such assistance. Though government projected the inflation rate below 7.5%,NGOs apprehend the inflation may cross the double digit figure, incapacitating further the cash-strapped government’s ability to spend.

Prior to IMF announcement, govt raised the policy rate by 50 points basis, raising the interest rate to 5.5 %. This will eventually curb the money flow,easing the inflation. The latest MPS also envisages to encourage import substitution industry through incentives.

As the policy rate is increased, lending rate of commercial banks should be raised accordingly. But govt is reluctant to raise the lending rate and willing to maintain the ongoing 3% spread between deposit rate and lending rate. Even a 1% increase in deposit rate will not offset the inflationary pressure. Moreover, ahead of election year when the government is poised to carry through projects that will create jobs,any increase in lending rate will be greeted with bitter reactions.

In key export markets of Bangladesh(USA,Canada,EU), central banks raised policy rates. This insinuates consumption in these countries may shrink in future, resulting in fewer orders. In addition, rising defense spending in these countries cuts spending on other sectors. That poses serious doubts about further obtaining assistance and funds for humanitarian grounds. Not only that domestic companies' borrowing from overseas also gets costlier.So it could be another stumbling block for the local industries that eye for foreign credit.

Falling demand in Occidental countries and rising interest rate is expected to improve current account deficit by reducing the import bill. But to stop Taka's depreciation, govt needs to do more. Bangladesh inked several strategic agreements with Middle Eastern countries. Why does Bangladesh not approach these countries to do some favors in this critical time? Bangladesh could propose them to accept Taka in exchange of oil or to defer the oil payments by half a year or a year at a discounted exchange rate. Similarly, Bangladesh could make request to other friendly countries to trade with Bangladesh in Taka. This growing demand for Taka could at least peg the Taka at some fixed value against major currencies.

Govt's past record in utilizing climate fund is not good. Anti corruption bodies published detail accounts about this. Luckily ,central bank is responsible for using the credit this time. But government is implementing the budget, so mismanagement of budget support fund still looms large.

Bangladesh’s internal revenue generation still hinges on indirect taxes. Tobacco and telecommunications are the key sources of indirect tax revenue². Without increasing the tax revenue, this IMF support may come less handy at the end of the day. Public credit growth outweighs the private sector credit growth. Private sector is struggling to get credit. In this backdrop,how the government could attain MPS goal of employment generation through import substitution industry is indeed a puzzling one.

Notes And References:

1. “IMF says It Is Ready To Support Bangladesh After Loan Request”, Business Standard, July 27,2022. For more read at https://www.tbsnews.net/bangladesh/imf-says-it-ready-support-bangladesh-after-loan-request-466422
2. “Dosh Company Dilo Chollish Percent VAT(10 Companies Account For 40% VAT Payments)”,Jahangir Shah,Prothom Alo(P-13),July 27,2022

La Semaine Dernière A Mes Yeux

(27 mai--- 03 juin)

Selon un reportage, le Bangladesh et l'Inde ont inauguré un nouveau service de train entre Dhaka et Jalpaigudi,une ville se situe au pied de montagne de Darjeeling.

Selon un reportage, deux policiers bangladais ont déserté et disparu au Pays-Bas. Ils y sont allés pour participer dans une formation.

Selon un reportage, la Banque centrale a arrêté fixé le taux de change de Taka contre dollar américain.

Ma Semaine Gastronomique

Date	Petit-déjeuner	Déjeuner	Dîner	Snacks,Sucrerie et Fritures
28	Eau de citron ,pain , omelette, thé sans sucre	Riz, gombo, Pama croaker poisson, Courge amère,Soupe de lentille	Riz battu au lait chaud avec datte	Muraly,Thé sans sucre,Biscuit,Riz gonflé avec Chanachur
29	Eau de citron et Psyllium Husk,pain,omelette,gourde serpent avec thé sans sucre	Riz,feuille de calebasse gourde,Anchois gangétique curry,gombo,Courge amère et Soupe de lentille	Riz gonflé, feuille de calebasse gourde,Anchois gangétique curry et Soupe de lentille	Biscuit,Graines de Jacquier,Arachide,Thé sans sucre,Jamrul/Champoo
30	Eau de citron et Psyllium Husk,Pain,Omelette,Luffa et Thé sans sucre	Riz,Épinards de buffle,Ruhi poisson	Riz gonflé,Chanqchur, Épinards de buffle	Riz gonflé, Chanachur,Patate douce,Thé sans sucre,Muraly
31	Pain,Omelette,Lait et Thé sans sucre	Riz,Haricot vert/yardlong,Ruban séché poisson avec Gourde épineuse et graines de Jacquier,Ruhi poisson et Soupe de lentilles	Patate douce	Muraly,Thé sans sucre,Riz gonflé et Chanachur
01	Pain,Haricot vert/yardlong, Thé sans sucre	Riz,Ruhi poisson,Épinards d’eau, Gourde serpent, Soupe de lentilles.	Patate douce	Muraly,Thé sans sucre,Riz battu au ait l
02	Pain,Gourde serpent,Thé sans sucre	Riz,Purée de pommes de terre,Anchois gangétique,Poisson ruban séché dans gourde épineuse, graines de Jacquier, Haricot vert	Nouilles, Riz battu au lait froid	Thé sans sucre,Biscuit
03	Pain,Haricot vert,Thé sans sucre	Khichri(un plat de riz et lentilles populaire dans jour pluevial),haricot vert, omelette, concombre et citron.	Pois de chiches,Chanachur,Riz gonflé	Thé sans sucre,Riz gonflé, pois de chiches

What Does Wild Fall Of Taka Portend?

Wild fall of Taka causing worries,
Most blame goes to deferred LCs.
Before and after election year,
Gathers abroad illicit capital sheer.

The rapid fall of Taka against major currencies has become headlines recently.Central Bank is selling dollar at Tk 86.70.However, at the exchange market US dollar is selling at TK 93. This rapid depreciation of Taka has been reported to be caused by rising commodity prices,settlement of deferred Letter of Credits, lack of foreign tourists, and rising trade deficit¹.

Government even issued notice banning unnecessary travel of the bureaucrats. But I think bureaucrats’ visit abroad and lack of tourists are poor reasons attributed to wild fall of Taka.The two represent a miniscule part of demand for dollar. The ban came at a time when a minister and her relatives’ visit to another country drew lot of flak in the press. Later, minister claimed that she paid her own expenses and never relied on public money for meeting the expenses. So govt's ban is a diversion to pass the blame to others.

Unease of the govt is compounded by falling remittances, which earlier offset trade deficit and made a current account surplus. In addition, medium and long term debt commitment has also increased, but as percentage of export earnings it is still below 25%(as per my calculation).Along with Occidental multilateral institutions, which are more generous towards Bangladesh, Russian and Chinese credit repayments do not pose serious problem for the moment. Loan repayments of Russian credit line would start from 2023 and some social media put the annual payment somewhere between $565 million. The Ban on Russia and Russian decision to repay the credit in local currency would not cause pressure on US dollar demand. However, such ban could increase dollar demand if US dollar payment could take place in disguise of legitimate international trade via other friendly countries. It is hard to trace such trade payment, so it is better not to embark on such speculation.

So the single reason stands out among others is the deferred LC payment. Most of the LCs opened for importing capital machinery, raw-materials,cooking oil and grains².Rising commodity prices also raised the import expenditure and it is causing the depreciation of Taka. Now here comes another point that we are missing. 2022 is the year before the election scheduled to be held in 2023. Years before and after the election generally witness illicit financial outflow through trade misinvoice. Bout of skirmishes and deteriorating law and order sow panic and lack of trust on domestic system among some quarters. Panic mongers work as sales executive of places where illicit capital finds safe sanctuary.

In an embarrassing report in 2017,Global Financial Integrity (GFI) revealed worrying accounts of illicit financial flow from Bangladesh between 2009 and 2015 with an average flow of $ 8.8 billion. The mismatches between declared value of goods on the invoices and true value of goods were reported to be $5.2 billion in 2008, $6.9 billion in 2010,$8.8 billion in 2011,$7.65 billion in 2012,$9.35 billion in 2013 and $11.92 billion in 2015 ³.As US places sanctions on some personnel of law enforcement agencies for violating human rights, many are under spell of panic. In addition, retribution in politics looms large. Political situation in neighboring countries makes that threat more credible. So exists there a perfect ground for clandestine capital flight through trade anomalies.

However, Canada postponed its residency permit through purchase of flat for two years. But our RMG items are being regularly exported to Canada. And recently one Canadian minister expressed desire to export cooking oil to Bangladesh. So ample means are there to channel out the money.Moreover, Turkey recently opened 2nd-home program like Malaysia. UAE is also running similar campaign.

Two or three quarters later a picture may emerge about the volume of illicit flow. As it happened in the past, this speculation---illegal money transfer through trade data anomalies---may have some roots and may be a reason for depreciation of Taka that is widely ignored.

This depreciation of Taka will work as instrument to curb further import as import is going to be costly. Meanwhile, govt is going to receive another $250 million of ADB’s budget support pretty soon,as reported by the press. Hopefully, Taka will be hovering over some fixed figure for sometimes after that.

Notes And References:

1 “ Dollarer Bazar Osthir,Oshosti(Volatile Dollar Market, Causing Unease)”,Sanaullah Sakib,Daily Prothom Alo(page-1),May 12,2022.

2 “Bank O Khola Bazar E Dollarer Damer Parthokya 8 Taka Chhariyechhey( Difference Between Dollar Exchange Rate At Bank And That Prevails In Market Crosses Taka 8)”,Sanaullah Sakib, Daily Prothom Alo(page-01),May 13,2022.

3 “Bangladesh Lost $50 Billion To Trade Related Illicit Financial Flows In Six Years: Report”,bdnews24.com,December 17, 2021.

La Semaine Dernière A Mes Yeux

(06 mai--- 13 mai)

Selon un reportage,une cour bangladaise a trouvé 46 personnes coupables pour avoir mené l’opération Ponzi et escroqué TK 18,61 milliards des clients.

Selon un reportage, pluies torrentielles provoquées par cyclone Ashani ont causé dégâts aux champs de riz au Bangladesh.

Selon un reportage, le taux de change de Taka baisse contre dollar américain en causant inquiétudes au Bangladesh.

Oil Price And BPC Profit

Bangladesh Petroleum Corporation is perhaps the biggest public entity that has the largest turnover and receives huge amount of subsidy every year.This time I tried to take a look at the BPC profit/loss between 2001 and 2018. I also probed how the oil price,  crude oil spending, diesel and other petroleum  spending and dollar-Taka exchange rate shaped the annual BPC loss /profit in the given period.

During the period the oil price fluctuated , hitting the nadir of $28.17 /barrel to reaching the apex of $111.29/barrel. Meanwhile, Taka depreciated gradually over the period.

Between 2011 and 2014, when the oil price in the international market was sold on average above $105/ barrel, BPC's annual loss also reached its peak. In this period , BPC made an annual loss of Tk 7184.25 crore on average. It made the highest loss Tk 11790 crore in 2012. To make up those losses it heavily hinged on government subsidy. According to a study by Policy Research Institute,energy subsidies reached 1.1% of GDP in 2012-2013. During the same period, its annual subsidy on average was Tk 7146.36 crore. In this period it received the highest subsidy of Tk 13557.83 crore in 2013. From 2014 onward, oil price fell below $50 / barrel and BPC made profit since then. Between 2016 and 2018, it did not receive any subsidy from the government. In addition, it reached break even stage in December 2018, as widely reported by the press. It reported a profit of Tk 5268 crore in 2015, Tk 6342 crore in 2016, Tk 4399 crore in 2017 and Tk 3995 crore in 2018. I had a lot of trouble while gleaning information on BPC subsidy and profit/ loss.  Bangladesh Economic Review, source of my BPC data, provided data on BPC profit/loss till 2009 after that it reported annual subsidy BPC received. So I delved into press reports, independent studies done by public and private think tanks. BPC website did not come to any help in this regard.

As possibility of oil price crossing $100/barrel mark in international market looms large, BPC again steps into a situation of making a huge loss. This year prior to budget a plea of Tk 8000 crore energy subsidy was made to the government. I have a conviction that any depreciation will cause the government to spend more on BPC subsidy.  I also ran a VAR model using the data on crude oil spending, diesel spending, oil price, BPC profit/loss and USD-Taka exchange rate. To my dismay, I was not successful and the model did not give a better reading of the situation in the given period. Granger causality test between just BPC profit/loss and USD-Taka exchange rate yielded no causality between the two. However all the crude oil spending, diesel spending and oil price were introduced into the model later and I reran the VAR model. This time the model dropped the USD-Taka variable due to multicollinearity. Moreover the forecast graph shows during the given period the model was not good at reading the changes in oil price, crude oil spending and diesel spending.

So, I still hold the conviction that any depreciation of Taka against US Dollar will increase the spending on government subsidy to BPC. And any increase in energy subsidy will compromise the social security spending and development expenditure.