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 have 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.

Weak Rupee,Strong Yuan And Bangladesh

Bangladesh faces opportunities and challenges When two currencies see major changes.

Opposing trends in the currencies of Bangladesh's two largest trading partners have implications for Bangladesh. In one year, Chinese Yuan appreciated around 5% against the US Dollar(USD) while Indian Rupee depreciated around 10% against USD. China and India are Bangladesh's biggest import sources. In 2024-25,Bangladesh imported $18.19 billion worth of goods from China. Meanwhile,Bangladesh imported $9.69 billion worth of goods from India in the given period. Bangladesh's export to China and India during this time were less than $1 billion and $1.57 billion respectively. Bangladesh faces a combined trade deficit of around $25 billion with the two countries. So exchange rate changes of Yuan and Rupee inevitably influence Bangladesh economy.

Rupee's sharp depreciation was more pronounced in the first six months of this year in the wake of war in the Middle East. Oil price increase raised significantly the import bills,increasing demand for dollar. Inflationary pressure lowered purchasing power of Rupee and made other currencies more attractive. Current account deficit and foreign investors' withdrawal of money from Indian market in a bid to invest in dollar-denominated assets led to large depreciation of Rupee. Fed's decision to not lower the policy rate and uncertainty stemming from war in the Middle East strengthened USD against other currencies (see "Why Is Indian Rupee Falling Against The US Dollar?",Bajaj Finance Limited,June 06,2026,https://www.bajajfinserv.in/usd-vs-inr-why-indian-rupee-falling-against-us-dollar).

Yuan's appreciation is attributed to China's huge external trade surplus, export competitiveness and internationalization of Yuan. Moreover, Chinese capital market is closed and investors cannot invest abroad on foreign stocks in times of uncertainty. So extra wealth generated in the economy gets invested into Yuan-denominated assets.China's diversified energy mix also played a role in the appreciation of Yuan. Recent trade understanding between China and the USA also made the Yuan stronger(see "Global Banks Raise Yuan Forecasts, Fuelled By China's Export Strength And Stable Us Ties", Reuters, May 18,2026,https://www.reuters.com/business/finance/global-banks-raise-yuan-forecasts-fuelled-by-chinas-export-strength-stable-us-2026-05-18/l).

Rupee's 10% depreciation poses serious risks to Bangladesh's RMG export. India's recent final talk on FTA with Britain further amplifies the risk. Depreciated Rupee plus FTA have the potentials to wipe out the Bangladeshi RMG items from British market. Furthermore, competitiveness gained through this unprecedented depreciation makes India an attractive destination for relocating manufacturing centers from China,where rising cost and trade restrictions on Chinese goods make relocation of some manufacturing units inevitable. Indian economy can absorb the transitory effect from 10% depreciation. So such depreciation poses real challenges to Bangladeshi export sector, where persistent high inflation keeps the policy rate high and shrinks subsidy.

Appreciation of Yuan brings opportunities as well as challenges. As Chinese RMG items become less competitive, some orders may shift to Bangladesh. In addition, as imported goods become cheaper in China, Bangladesh's RMG export to the country may rise. There is a growing pressure from Bangladesh to narrow the trade balance, which is tilted in favor of China. The pressure plus the strong Yuan will play a conducive role to increase Bangladesh's export to China. Meanwhile, strong USD and Yuan pose challenges too. Bangladesh has long been mulling financing the public and private projects in Yuan as USD credit becomes more costly. Strong Yuan also makes Yuan credit costly. Chinese foreign investment also faces some obstacles as Yuan credit relatively gets costlier than before. Moreover, investment bankers think that People's Bank of China may raise the required reserve ratio for foreign currency deposit accounts, curtailing dollar liquidity into Chinese market(see "Chinese Yuan Rises To Highest Level Against Basket Since 2022",Jacob Gu,Bloomberg News, June 01,2026,https://financialpost.com/pmn/business-pmn/chinas-yuan-rises-to-highest-level-against-basket-since-2022l). This may put an obstacle to Chinese investors planning to implement their investment projects abroad in USD. Only time will tell whether opportunities outweigh the challenges or vice versa.

Bangladesh can ill afford further shrinking of its export income. Already inflation in advanced economies plus tariff debate made a dent into our export earnings. Depreciation of Rupee and appreciation of Yuan bring serious issues to competitiveness, export market and foreign financing of local projects. Country is experiencing serious inflation so further depreciation of Taka is not plausible right now. Contingency plans need to be chalked out so that risks from behavior of two currencies do not make inroads into export earnings.

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".]

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.]

Depreciation Is The Key

A correction fully translates tariff's rise in import prices, To fight risks,depreciation sounds best among the choices.

As the world is still coping with the uncertainties associated with reciprocal tariffs,Mr Trump made it clear that he has no intention to "pause the tariff". Meanwhile, Bangladesh decided to sent a letter to the USA to postpone the decision for 90 days. Govt is planning to bring down the tariff on several US goods so that import from the USA could rise. Govt is even mulling to import LNG from the USA.

What is worrying is that several US buyers are withholding their purchase orders for indefinite period. Chief disaccord turns out to be who will bear the extra price emanating from the tariff. Big brands remain silent here ,but others press the exporters here to bear fully the brunt of it.

Now latest development hints that researchers from American Enterprise Institute questioned the formula used for reciprocal tariff. Let us look at the formula again:

Change in tariffs= (US exports to partner - US imports from partner) ÷ (Elasticity of import demand with respect to import prices × Elasticity of import prices with respect to tariffs × US imports from partner)

The first two terms in the denominator are set to be -4 and 0.25 respectively. But the researchers pointed out that the Trump administration erroneously used elasticity of retail prices with respect to tariffs instead of elasticity of import prices with respect to tariffs(which is set to be 0.945 or 1). Elasticity of import demand with respect to import prices shows how much import demand changes in response to a 1% increase in import prices. Similarly, elasticity of import prices with respect to tariffs shows how much import prices change in response to a 1% increase in tariffs. Product of the two terms tells how much the import demand changes for 1 % increase in tariffs.

The researchers claim the original author (Alberto Cavallo) made it clear that tariffs are passed fully to import prices and elasticity of import prices with respect to tariffs is used in the calculation of the actual formula, not the retail prices (see"Trump's Formula 'Based On An Error' - Conservative Think Tank", Jason Lemon,Newsweek, April 5,2025). If this argument is true then a 1% increase in tariff leads to a decrease in [import] demand by 4%. Inflation is also much higher than the earlier estimation.

The corrected reciprocal formula [may] significantly lower Bangladesh's tariffs to 9% (0.185 divided by 2), much lower than the earlier 37%.

Stephen Miran in his paper, discussed in the previous piece, argues that if the tariffed country fully depreciates its currency then price of the tariffed good will not rise in the USA. However, if the tariffed country does not cooperate, price of the imported good rises. So the corrected formula shows imported good's price increases fully in response to an increase in tariff, depicting the noncooperation scenario. Under the corrected formula, Bangladesh's tariff becomes even lower (7%) when trade deficits take into account tariffs already paid to the USA on exports.

So, in brief, Bangladesh faces tariffs in the range of 9% to 37%.

The USA shows no sign of relaxing it and Bangladesh is a marginalized country, hinges on exports and remittances heavily. Unilaterally, Bangladesh can depreciate Taka and retain the competitiveness , mitigating the risks posed by reciprocal tariffs. In the previous piece, I argued that Bangladesh can easily depreciate Taka 10% by now and near future without any trouble. We witness crude oil prices already dropped by 7% in the international market. The uncertainty is still there,indicating oil prices may plunge even further. So passthrough effect of 10% depreciation will be offset by fall in oil prices.

In the case of worst case scenario( tariffs stay for indefinite period), we have to depreciate the currency by 37%. So exchange rate of USD against Taka will be varied between Tk 134.20(10%) and Tk 167 (37%).

Compared to China, Vietnam and Cambodia, Bangladesh's tariffs are lower. China cannot sustain 104% depreciation of Yuan. Capital flight will be enormous. So Bangladesh does not need to compete with China to depreciate its currency by that insane amount.

Depreciation will work as incentives for the exporters and consumers will not feel the heat amid falling oil and commodity prices globally. The SMEs may incur loss from rising cost of imported goods. But Bangladesh Bank already installed a mechanism of extended credit facility for the SMEs to mitigate the loss from interest rate rise. Its coverage can be extended for mitigating risks from exchange rate variation. So more SMEs which do not know how to cope with risks from interest rate rise and exchange rate variation could be brought under its coverage. Giving them credit for 3/4 years will allow them to sustain their businesses in the face of potential risks from volatility.

Taka depreciation works to address many of the challenges emanating from this tariff debate. Meanwhile, Chinese central bank lowered the reserve requirements for the banks in a bid to increase liquidity in the market. On the other hand, the Federal Reserve is scheduled to lower the policy rate by May. This means foreign credit will be cheap in the coming months. As China is keen to depreciate the Yuan and gives its firms and institutions more money to invest ,some will end up abroad for sure.

As Taka depreciation sounds more plausible than any other measure, we should go for it. We have a valid reason for doing so. Foreign buyers want it,international commodity prices set the right context and incentives for exporters amid monetary contraction policy call for depreciation of Taka.

In brief things surfaced here from above discussion are: a claim says original formula reflects complete increase in import prices resulting from an increase in tariff. This correction [may] further lower reciprocal tariffs for Bangladesh and it is manageable for the govt [if the correction is taken into consideration]. Depreciation of Taka appears to be the plausible solution for the moment given the prevailing context.

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.