Trapped In Contradiction

Contradiction in stated policy May make the things messy.

Some recent decisions divulged the anomalies in pursuing the ongoing economic policy. Funding crisis has become acute as new commitment for budget support has dried up. So govt indulges in monetary fiscal expansion instead of pursuing the tightening policy.

Funding crisis led the govt to slash Tk 490 billion from the development budget. It is in line with the fiscal tightening policy, which complements the contractionary monetary policy.

But the Bangladesh Bank is unable to stay strict in its stated policy. In the latest move, it decided to print and inject Tk 20 billion into two trouble-ridden banks. The money will ease the liquidity crisis of the banks during this festival month of Ramzan when the clients need cash to spend. Earlier in November last year , it had printed and provided Tk 220 billion to some troubled banks. Later it also injected another Tk 125 billion into six more banks on the eve of new year. In total, this govt printed and injected Tk 345 billion into banking system since it took power.

Another news also divulges that govt is also mulling to "revisit" the corporate tax. The decision may further relax the corporate tax amid a revenue shortfall. This is happening when revenue deficit is widening. Instead of focusing more on direct tax revenue, the stand is similar to fiscal expansion. The IMF's revised revenue target for current fiscal year is Tk 4.55 trillion, which is unlikely to be met during the rest of the fiscal year.

Meanwhile, the National Board of Revenue (NBR) is determined to separate the policy department from the implementation department by July. It is one of the IMF's goals to get the next instalment.

Moody's downgrading of Bangladesh's credit rating from B1 to B2 makes foreign credit costly for the private sector. So govt has to take the next instalment of IMF credit package, scheduled to be released in June, to meet the budget deficit and provide the liquidity support to the private sector.

Contradiction in govt's stated policy is not convincing everyone about govt's ability to contain the inflation. That is why Moody's is projecting an inflation rate over 9.52% around the year. This is indeed a bad news as fixing the economy is the main reason why the govt is here. Yet the policies worsen the situation instead of improving it.

Troubles With BBS CPI - II

Flaws in CPI calculation May prolong the bad situation.

Bangladesh Bureau of Statistics (BBS) provides this information about calculation of CPI.BBS prepares food and non food CPI for three groups :National ,Urban and Rural. CPIs for the three groups are classified further into twelve sections which include food,beverages, alcohol,housing,clothing transportation, recreation etc among other things.

Later two consumer baskets-- one for urban and another for rural---are derived from Household Income And Expenditure Survey(HIES) 2016-17,comprising of 383 items prepared for computation of CPI.An item's weight is prepared from its percentage share in the total expenditure on all items faced by a consumer.

[credit: BBS]

For data collection, BBS collects price data from 154 markets across the country. Among 154 markets, 90 markets are from urban and the rest are from the rural areas. Three price quotes for each item are collected from each market. Prices of 127 food items and 256 non-food items are collected. Another important thing to note is that rural and urban price data are collected on monthly basis. But data from Dhaka and Chattogram City Corporation areas are collected in every week.

Now some issues I would like to raise here for CPI calculation:

1. BBS could easily introduce two / four more groups(North-South or East,West,North,South) into the existing three groups of National ,Urban and Rural level. Average income and spending are different for different regions. Even the informal sector wage is different in these regions. Differences of income opportunities and consumption spending of these regions should be reflected in the CPI.
2. The 383 items do not reflect which one is tradable and which one is not. External sector has leverage on tradable items( i.e. food grain,cooking oil,fabrics etc). Changes in international prices and exchange rate variation influence prices of these commodities. On the other hand, nontradable items (i.e. housing, medicare,education,transportation, recreation etc) are often influenced by internal situation. This should be reflected in official reporting of inflation data. It will further dispel any policy ambiguity on inflation.
3. Data collection from 154 markets is not well balanced. Urban bias is more pronounced.Urban data are more recent than rural data. Urban consumption spending is different from rural consumption spending. CPI should remove this bias by allowing more rural markets into data collection process.
4. Jevons method is used for calculating CPI in Bangladesh. The other two formulae are Carli index and Detot index. But the problem with Jevons index is that it is deeply influenced by fall in prices. So when vegetables prices drop ,Jevons index is likely to produce a wider fall in overall CPI than as usual. In case of price fall,BBS can calculate CPI using Dutot index. Dutot index generally attaches more weight to expensive items and less weight to cheap items. So usual estimate of the CPI can be captured using Dutot index when there is a price fall ( See "Calculating Consumer Price Indices In Practice" by the IMF).
5. Calculating high level indices require individual item's weight from a base year,which is different and precedes the price reference period(p⁰). This weight is derived from Household Income And Expenditure Survey(HIES). BBS gets its weight from HIES 2016-17. Here comes the crucial thing : the more recent is the weight's base year ,the more pronounced is the variation in overall CPI from the variation of an item's CPI. So BBS needs to update the weights,based on more recent HIES survey. Though HIES survey is costly and time consuming, for the sake of greater macroeconomic stability regular HIES survey should be conducted in short intervals.

BBS inflation reporting is replete with bias and wider variation in some instances. A balanced,unbiased CPI reflecting just variation can provide true estimate of inflation. To attain that, more recent survey, representative data should be introduced.

La Semaine Dernière A Mes Yeux

( 8 mars --- 14 mars)

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Ma Semaine Gastronomique

Date	Petit déjeuner/Début de jeûne	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures/Fin de jeûne
08	Riz,Pois blancs avec banane verte,Ruhi	---	---	Khichuri,Poulet,Œuf
09	Khichuri,Poulet	---	Lait	Riz,Ruhi,Brinjal avec sec ruban,Soupe aux lentilles
10	Riz,Brinjal,Soupe aux lentilles,Ruhi,Œuf	---	Lait	Riz,Ruhi,Poulet,Brinjal avec sec ruban,Soupe aux lentilles
11	Riz,Gourde serpent,Soupe aux lentilles,Œuf	---	Pastèque,Melon sucré,Poire	Riz,Poulet,Gourde serpent,Feuilles de gourde bouteilles
12	Riz,Brinjal,Soupe aux lentilles,Ruhi,Œuf	---	Rice pudding,Melon sucré,Patate douce	Riz,Loufa avec papaye,Omelette, Courge amère
13	Riz,Brinjal,Ruhi	---	Nouilles	Riz,Ruhi,Papaye dans soupe aux lentilles,Patate douce,Poire
14	Riz,Papaye dans soupe aux lentilles,Ruhi,Lait	---	Melon sucré,Patate douce,Rice pudding	Riz,Luffa avec papaye,Omelette,Courge amère

Troubles With BBS CPI

Flaws in CPI calculation May prolong the bad situation.

February inflation data is out. Overall inflation declined to 9.32% from 9.94% in January. Food inflation for the first time reached to a single digit, shrinking to 9.27% from 10.72% in January. Prices of winter vegetables and import declaration of rices contributed greatly to the decline of overall prices. Govt has started procuring rice from various sources apart from the traditional importing countries. However, non-food inflation registered a slight increase in February, rose to 9.38% from 9.32% in January.

Many economists remain sceptics about the sustainability of drop in inflation in the coming months. They have valid reasons to remain so. What we are seeing now is the result of collective effort taken 3 months earlier in a bid to contain the inflation during the fasting month of Ramzan. Yet soybean oil, meat prices remain high. After Eid ,if this collective effort may dry up,a different scenario will prevail at the market. But I think the much hyped narrative of winter vegetables prices contributing to bringing down the price levels may turn out to be flawed perception upon closer scrutiny. Here comes the crucial question again: Are we calculating the CPI the correct way? Consumer Price Index computation assigns weights to individual items in case of calculation for multiple items. Here comes million dollar question: how do we assign the weight to individual items? Bangladesh Bureau of Statistics can answer that question to clarify lots of things. One simple approach may be based on importance. Now think of an individual consumer's monthly consumption basket. In this basket , carbs,cooking oil and proteins will get priority over vegetables. Goods that households have to buy (price inelastic demand) irrespective of price changes every month will not get the same priority as the winter vegetables enjoy. A consumer's spending behavior over months determines the priority. Now when vegetables prices drop, households definitely increase their consumption of vegetables but not to a great extent. A kilo of potato cost Tk 70 three months ago. With that price, one can now buy a kilo of potato as well as other vegetables in varied amounts. Without altering greatly one's monthly spendings on vegetables, one can increase his/ her consumption of vegetables. So vegetables' share in monthly spendings decides the importance consumer attaches to it. Then comes the question of spending behavior of different income groups and spendings in different regions. When BBS assigned the weight ,did it take into account these factors? I hope they did not randomly increase the weight of winter vegetables just to show the drop in inflation. If BBS did not randomly increase the weight of winter vegetables, then how did we construe that prices of winter vegetables bring down inflation when it occupies the lower rung in the consumption basket? This whole narrative of winter vegetables bringing down inflation is highly misleading. Just look at the formula of the CPI for multiple items:

CPI = (∑ _i=1ⁿ CPI_i x weight_i)/(∑_i=1ⁿweight_i)

Now think of just two items in the market: winter vegetables and rest of the items. Now looking at the sudden drop in prices of winter vegetables ,if you assign more weights to winter vegetables' CPI ,you will get higher drop in overall inflation. It is simple arithmetic. In this case , assignment of the weight is based on purely biased consideration. I just wanted to see winter vegetables is playing a role in overall inflation ,so I just raised the weights! Voilà! It is pretty similar to the incident of including laptop prices( a typical household here buys a computer/laptop once in every 10/12 years!) in consumer basket. BBS should come up with explanation how this weight on vegetables is determined. This whole thing also captures seasonal variation in the CPI. Now another crucial question arises: should seasonal variation in CPI be deemed important for long term trend? Three and half months later we are going to have Bakri Eid. Usually, meat prices remain low for two weeks after Bakri Eid. Based on this information ,if CPI registers a lower trend in inflation ,should we conclude lower meat prices bring down inflation?

BBS in the past involved in data engineering. Though this is an apolitical govt, some economic policies at the beginning indicated that it is following foot steps of its predecessor in some cases. So I am taking the inflation data produced by BBS with a dollop of salt. I hope and believe BBS has discarded past habit of data engineering. Only correct CPI calculation yields correct inflation data. And the right inflation data helps us setting the right interest rate. With flawed inflation data and interest rate, our economic recovery will only be delayed.

La Semaine Dernière A Mes Yeux

( 01 mars --- 06 mars)

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Ma Semaine Gastronomique

Date	Petit déjeuner/Début de jeûne	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures/Fin de jeûne
01	Pain,Pomme de terre,Œuf	Riz,Tête de poisson dans soupe aux haricots mungo	Pain,Tête de poisson dans soupe aux haricots mungo	---
02	Riz,Tête de poisson dans soupe aux haricots mungo	---	Riz,Citrouilles avec pomme de terre	Riz gonflé,Rice pudding
03	Riz,Citrouilles avec pomme de terre,Poulet,Soupe aux lentilles	---	Riz,Papaye avec banane verte,Œuf,Soupe aux lentilles	Patate douce,Tomate
04	Riz,Soupe aux lentilles,Ruhi	---	Riz,Petit poisson	Faluda
05	Riz,Small fish	---	Khichuri,Egg,Gourde serpent	Faluda,Orange
06	Khichuri,Poulet	---	Riz,Poulet,Pomme de terre bhaji	Paratha,Omelette, Pois blancs avec banane verte,Orange
07	Riz,Poulet,Pomme de terre bhaji	---	---	Riz,Pois blancs avec banane verte,Ruhi

Collapse Of Regulatory System

Three incidents lay it bare, Regulatory system provokes a sense of despair.

Three incidents recently brought to fore collapse of regulatory system in Bangladesh. First one was put forward by the US President Donald Trump who alleged that USAID had granted $29 million to a 2-men-run NGO in Bangladesh in a bid to strengthen democracy. In Bangladesh, NGO bureau that oversees NGO activities and foreign funding of local NGOs denied presence of such NGO and acceptance of fund. Transparency International Bangladesh also echoed similar stance. NGO bureau is under the auspices of Prime Minister's office but rumor has it that its foreign financing approval is given by the military intelligence. The money for the project here came during the tenure of previous regime. USAID gave the money to Democracy International and which NGO in turn received the money still remains a mystery.

I do not think the US President made such allegations without evidence. He must have documentary evidence that led him to disclose the thing publicly.

If the allegation is true, it proves how this oversight of NGO activities completely broken and how corrupt practices swallow purpose of NGOs. Misappropriation of climate fund is an apt example. Both govt and TIB's findings divulged nitty-gritty of it (Read "Climate Commitment Or Enhancing Corruption?" published here on February 16,2024).

This again proves how lack of transparency of the security establishment led to spread of corruption in other sectors. In this case ,the NGOs. If there were proper accountability in place ,then this money would not end up in this way in the hands of some opaque NGO.

Another incident is the chronic crisis of soybean oil amid tariff waiver on soybean oil import. Previously, at the wholesale level, soybean oil transaction was taken place without any money receipt. I do not know whether this practice is still being taken place. I touched the issue couple of times here. Only handful of big groups including an Army-run subsidiary operate this industry. One of the groups laundered money abroad with blessings from security establishment and jeopardize the supply chain by disrupting the supply. Another group is under the scanner of the Anti Corruption Commission. All the business conglomerates engaged in soybean oil business have media outlets. This way they can shape the narrative. I earlier discussed here why it is bad for consumer welfare when a company has significant market share in the input market as well as in the final output and in the media( read "Enforce Laws To Protect Consumer Rights" published here on September 4,2019).

Routine functioning of Bangladesh Competition Commission (BCC) is absent here. It recently published an announcement, seeking complaints from people. Intervention of BCC is needed in the soybean oil market. It should convene an audition ,inviting representatives of big groups and ask them explanation for the rising prices of bottled soybean oil. This will at least give the market a signal that government is functioning.

Another incident is the attack on an administrator of a Mobile Financial Service(MFS) provider and his subsequent resignation. The administrator was appointed by the govt in the scam-ridden MFS(Read "What Does Nagad Ownership Row Reveal?" published here on September 12,2021, and "BB Detects More Suspicious Transactions" published here on March 19,2022).This attack unveils govt cannot consolidate its grip over trouble-ridden entity. Parallel administration is still strong, challenging govt's authority.

The three incidents are an eye-opener that the regulatory environment is in tatters and requires serious overhaul. Without proper regulatory set up, govt cannot ensure routine functioning, let alone carry out ambitious reforms.

La Semaine Dernière A Mes Yeux

( 22 février --- 28 février)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
22	Patate douce	Riz,Tomate,Chou	Riz,Poulet,Chou,Tomate	---
23	Pain,Chou,Soupe aux lentilles,Œuf	Riz,Pianju(depuis marché),Gourde serpent,Soupe aux lentilles,Épinard malabar	Riz,Tête de chèvre dans pois blancs	---
24	Khichuri,Tête de chèvre dans pois blancs	Riz,Pomme de terre,Tête de chèvre dans pois blancs	Pain,Chou	---
25	Riz gonflé	Riz,Chou fleur,Soupe aux lentilles,Œuf	Pain,Chou,Soupe aux lentilles	---
26	Riz gonflé	Riz,Haricot rouge avec sec ruban	Pain,Haricot rouge avec sec ruban	---
27	Pain,Haricot rouge avec sec ruban poisson	Riz,Haricot rouge avec sec ruban poisson	Patate douce	---
28	Pain,Œuf,Pomme de terre	Riz,Gobie charmante,Gourde serpent,Soupe aux lentilles	Pain,Gobie charmante,Soupe aux lentilles	Biscuits