Policy Rate Perks And Taxing Export

Policy rate has many solutions to offer, Tax export to fill govt coffer.

Latest inflation data reveals that inflation rose to 8.55% from 8.48% in July. Constant increase in rice prices,caused food inflation to rise to 9.56% in June , and rise in nonfood inflation from 9.37% to 9.38% maybe the reason for this hike. Rice price in particular increased by Tk 8/ kilo, prompting govt to allow private importers to import rice.

Meanwhile, keeping the policy rate at double digit is still being criticized though it brought down inflation from 11% to current level. The govt is apolitical and it has courage to do this thing before election. Otherwise, popular govt may have difficulties maintaining this kind of contractionary policy amid pressure from various groups. Before election, investors are reluctant to go for new investment and poor private sector credit growth tells all of it. So the timing is good and central bank is doing the right thing though many thought it was wrong.

As I highlighted before, keeping the policy rate high thwarted would-be launderers from taking loans and keeps Taka's value stable. Lowering the policy rate may make central bank's intervention in the foreign exchange market ineffective. With the high policy rate, depreciation pressure on Taka is low, so central bank's intervention in forex market will lead Taka keep a desired value. With low policy rate, depreciation pressure on Taka will be higher as the NPL keeps growing, so forex market intervention may not yield the desired result and wild fall of Taka maybe observed, worsening the passthrough effects of inflation and farther raising the cost of goods and services. Another thing I mentioned in one of my earlier posts is that higher policy rate is helping many ailing private and public institutions and it helps provident fund to grow,addressing the inflation. Otherwise, govt would have to intervene and provide cash to them through printing money or using the bloc grants. The balance sheets of many institutions say ,as the news reports revealed, they made profit through investment in treasury bonds. Again market mechanism addressing the prevailing maladies, when investment prospect and law & order situation is doomed at grassroot level. Recently, I encountered a news report on a public sugar mill[,located in Jhenidah,] bogged down with unsold sugar worth of TK 360 million as market price is lower than the govt set price. The mill is waiting with the sugar stock amid undue payments for the workers. If the provident fund's money is invested into treasury bonds, then by this time workers would take loan from provident fund and may not face financial hardship. They might sell the sugar in favorable time and clear the loans. Govt intervention would not need at all. Moreover, situation like workers [descending] on streets could be avoided.

The 20% tariff is not something to remain complacent. Back in February, no one would imagine such a situation might pop up. But it happened and seriously jolted the macroeconomic situation. We have to accept that WTO is dead and we live in post WTO world. We exactly do not know what will happen in the next two quarters. So there is no reason for being content with the 20% tariff. Rather, we should chalk out contingency plan how to avoid situation like this again.

It is indeed interesting that other countries are imposing [tax] on our exports and remittances while we are charging nothing. I argued several times if we would tax remittances and export(*see "Tax On Remittance: Good Or Bad?", published here on May 20,2025), govt coffer might fill with ample money to provide more private sector credit. 1% tax on remittances and export will bring Tk 4/5 billion revenue , discarding the need for imposing minimum tax on all the TIN holders. Revenue will be used to intervene in the forex market to depreciate Taka in a bid to give incentives and provide private sector credit to banks. There should be two way traffic of receiving incentives and giving tax.

It is indeed a good move to keep the policy rate same as it screens out would-be launderers, improves balance sheet of companies amid stagnant business, keeps the depreciation pressure low, checks cost of production and [reduces] need for govt intervention. 20% tariff does not herald a new dawn rather exposes challenges in a post WTO world where black swan events will be more frequent. We should start imposing tax on remittances and exports to cover the incentives. Preparing and bracing ourselves against the black swan event will prevent the need for Middle Eastern intervention for saving the day.

[*Update: this piece is updated on August 12,2025. The update includes reference to tax on remittance argument.]

La Semaine Dernière A Mes Yeux

( 03 août --- 09 août)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
03	Pain,Jaggery	Riz,Haricot rouge avec sec latya	Riz,Haricot rouge avec sec latya	---
04	Riz,Haricot rouge avec sec latya	Riz,Papaye,Pangash	Pain,Haricot very,Soupe aux lentilles	---
05	Pain,Soupe aux lentilles	Riz,Soupe aux lentilles,Pomme de terre,Mangue(depuis marché),Lait poudre	Riz,Soupe aux lentilles,Pomme de terre,Latya	----
06	Pain,Papaye	Pain,Soupe aux lentilles,Papaye,Bronze featherback	Riz,Papaye,Soupe aux lentilles	dattes
07	Pain,Papaye	Riz,Soupe aux lentilles,Pomme de terre,Papaye	Riz,Papaye	Dattes,Biscuits(depuis marché)
08	Riz,Papaye	Riz,,Pangash	Riz,Papaye,Pangash	dattes

MPS And The New Tariff

Challenges are there amid low tariff, MPS targets depend on but and if.

Bangladesh Bank formally published the Monetary Policy Statement (MPS) for the second half of 2025. Inflation declined to [8.48%] in June,yet it has not touched the desired level of 7% ,below which policy rate may witness a drop. MPS aims to achieve 5.5% GDP growth rate in FY 2026. Key developments in the first half of this year set some positive indications on that direction. Free floating of exchange rate did not witness sharp fall of Taka rather Taka appreciated and the central bank had to intervene to depreciate Taka in order to give exporters and remitters incentives. Forex reserves start to grow and stopped the continuous decline.

However, private sector credit growth was low compared to what it had been projected. Only 6.4% growth achieved against the target of 9.8%. For this reason, the target is set to be 7.2%. Election uncertainties, poor law & order condition and drop in deposit growth might have contributed to the poor private sector credit growth.

Broad money growth also witnessed decline. Its impact may be seen in the next 2 months. As demand for major commodities will be lower, anticipated in the MPS, in the international market and dollar may be further weakened impact of import-induced inflation may be lower. So deflationary pressure may prevail provided that govt's grain procurement is satisfactory and no deterioration or fresh eruption of regional conflicts in multiple regions.

MPS highlighted govt's formation of three task forces to reform the banks,stricter policies to classify loan, review of risk guidelines, introduction of new laws to get rid of troubled banks and managing the Non Performing Loans (NPL). But the NPL turned worst and keeps growing. So it is highly unlikely that NPL situation will improve dramatically when domestic private sector investment is stagnant and govt is heading towards election preparations.

Lowering of US tariff to 20% from 35% came as a relief to the cash strapped economy. But there is little room for complacency. China faces 30% tariff, India 25%, Vietnam 20%,Indonesia 32% and Pakistan 19% tariff. Most of these countries have huge investment in backward linkage industry. Their value addition to readymade garments,particular in woven, is relatively higher than Bangladesh. But Bangladesh has the largest number of US and EU compliant green factories and Bangladeshi workers are more productive than workers of those countries. But both China and Vietnam have sustained policies to weaken their currencies. India has to depreciate its currency by 5% to be on per with the other competitors. So this tariff rate is only delusional, it is the macroeconomic policy, productivity, investment in value addition that will be the deciding factors in capturing the US market share. Though for the moment depreciation pressure on Taka is low, keeping a close tab on how Yuan, Rupee and Dong behave against USD in the next 2/3 months will chart the course for our exchange rate policy.

Despite favorable context in the international commodities market and export market, there are challenges in achieving the 5.5% GDP growth rate. Govt itself apprehends domestic turbulence ahead of election. In addition, low private sector credit growth shows no sign of optimism. If govt bars the undocumented money into real estate and allows it to banks,then law and order situation may dramatically improve and liquidity situation in the banks may improve as well.

Non Trade Issues Shape Businesses

Businesses hurt by spreading of panic, Buying US jet is to comply decision strategic.

Bangladesh keeps the policy rate same and signals to continue contractionary monetary policy. Meanwhile, it is the deteriorating law and order condition that holds back businesses rather than the short supply of credit to the private sector. Investors and businesses are waiting for the next election. What is interesting govt machinery itself is causing confusion and complicating the situation.

Take for instance, a directive from the Police's special branch to stay alert ahead of July anniversary for possible subversive activities. The Chief of Police and even the Minister of Home Affairs played ignorant about such directive. The panic mongering is created by the govt itself. Police is supposed to provide assurance instead of spreading panic.

This lack of coordination and widespread extortion is hurting business confidence. It is a pity that this apolitical govt,which is largely formed through blackmailing, is facing this kind of troubles. Our restoration to democracy and pre COVID level economy will be challenging compared to Sri Lanka where all the parties reached consensus, ensured justice to all (including victims of ruling party) ,and held a free and fair election.

Meanwhile, as a desperate measure, Bangladesh pledged to purchase 25 aircrafts from Boeing to break the ice on the negotiation table before August 1 deadline. Bangladesh also pledged to buy US wheats for the next 5 years. Soybeans, cotton are also on the commitment list. It is interesting that head of the national flag carrier did not know the purchase of Boeing aircraft. But the ministry officials said it was a strategic move. So far the commitments are for next 5/7 years. It is not known with certainty whether Bangladesh economy will back on track in the next 4 years and the national flag carrier has expansion plan of such big number of aircrafts (Biman does need aircrafts, there is no need).But Boeing also makes combat aircraft. In association with SAAB, Boeing manufactures advanced jet trainer Red Hawk T-7. It has a base price of $20 million, but with spares, munitions, maintenance and training, the cost may reach around $50 million. 25 of such aircraft will cost the BAF, which is likely to retire its entire Chinese F-7 fleet, around $1.2 billion. Adding the purchase commitment of wheat,soybeans,cotton and other US goods (+ services) , Bangladesh's import from the USA may rise to around $4/5 billion in the next 1/2 years, significantly reducing the trade surplus it currently enjoys.

It does make sense buying the T-7 Red Hawk when the country is facing economic crisis and the BAF requires new jets to replace the aging fleet. It is within the budget and in compliance with the US demand from moving away from the Chinese military hardware.

Govt's poor management worsening the law and order,hurting businesses. Bangladesh's prevailing economic conditions and strategic consideration insinuate it is likely to induct US advanced trainer jet.

La Semaine Dernière A Mes Yeux

( 26 juillet --- 02 août)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
26	Riz gonflé,Lait	Riz,Feuilles de Moringa,Œuf(depuis marché),Papaye	Riz,Purée de feuilles de taro,Papaye	---
27	Riz,Lait	Riz,Poulet,Gourde blanche	Pain,Poulet	Riz gonflé
28	Riz,Œuf (depuis marché),Papaye	Riz,Haricot rouge avec sec latya	Pain,Haricot rouge avec sec latya	Riz gonflé,Mangue
29	Riz,Œuf(depuis marché),Haricot rouge avec sec latya	Riz,Épinard d'eau,Haricot rouge avec sec latya	Pain,Haricot rouge avec sec latya	Mangue(depuis marché)
30	Riz,Œuf (depuis marché),Soupe aux lentilles,Haricot vert	Riz,Haricot vert,Purée de banane verte,Soupe aux lentilles	Pain,Papaye	Riz gonflé,Mangue(depuis marché)
31	Riz,Œuf,Purée de banane verte,Papaye	Riz,Papaye,Soupe aux lentilles,Pois chichea	Riz gonflé,Pois chiches	Mangue
30	Riz,Œuf,Soupe aux lentilles,Poulet	Riz,Poulet,Soupe aux lentilles	Pain,Papaye	Riz gonflé,Mangue(depuis marché)
01	Riz,Poulet,Œuf,Soupe aux lentilles,Mangue	Riz,Poulet,Soupe aux lentilles	Riz gonflé,Poulet	Mangue

Combat Aircraft Loss And Governance

[Reproduced below is a piece written back on April 04,2019 to see impact of governance on BAF. I think it is relevant to reproduce it again]

Recently I have come across a very interesting stat posted on the social media page of a defense lover group. It is about the crash record of Bangladesh Air Force since Bangladesh came into being. With one or two minor omissions it includes all the crash data of BAF. BAF suffered 90 aircrafts loss in 48 years.Suddenly the idea of finding the link between governance and crash record came to my mind. Common perception is that under "representative regime" , there would be better governance in every sector and they would run smoothly. There would be better maintenance of aircrafts, better storage facility and better training.

BAF lost 11 aircrafts in 2013-2018, a period many described as "hybrid regime".Having a closer look at the breakdown of crash incidents reveals that crashes under a "representative government" (27) surpasses that(19) under a "non-representative government".

But I hold the common perception and did a statistical analysis.
Though the result is a bit contradictory, it is interesting. The 48 years of Bangladesh is divided into 9 distinct periods. Depending on the nature of the government, the regime is dubbed as "representative" or "not representative". The representative regime, which is assigned to value 1, is assumed to come to power through free and fair poll. I did not decide the type of regime , rather its recognition by local and international bodies decided its type.

Since there are too many regime changes in the 70s, I termed 1972-80 as one distinct period. Then I counted the crash incidents took place in that period. BAF's worst moment came in 1991 when tidal wave rendered 40 fighter jets and 4 helicopters useless.Aircraft loss due to war or natural disaster however was not taken into consideration. For this reason, I ignored the 1971 trainer crash and loss of BAF 44 aircrafts in 1991 cyclone.

To test my conviction that "representative regime" has lower crash record, I ran a Poisson regression. For that, I first tried to find out the total number of combat aircrafts at BAF's disposal at the end of the respective period and proportion of crashed aircrafts to the total number of aircrafts in that period, which I called "fraction" here. Since it is difficult to get the exact number of BAF inventory, I took assistance of Wikipedia to get an approximate number of aircrafts in 2018 and then scaled down the total to glean information for earlier periods.Another thing to note is that I also took into consideration the aircrafts of Army Aviation Group but discarded the ones operated by the Navy while counting the total. Proportion of crashed aircraft to total aircrafts will give a better reading because loss of 1 aircraft from a total of 2 means a loss of 50%. Similarly, a loss of 1 aircraft from 20 means a 5% loss. Absolute number of loss could lead to misleading information. That is why I rest my trust on proportion, "the fraction" in this case.

While running the regression I dropped the observation for 1986-90, because no crash took place during that period. And exposure does not count any zero.

I first ran the regression with exposure( ) and then without the exposure( ) but including the variable that would normalize exposure.

The first run says combat aircraft crash under "representative regime" is 1.185 times larger than that of "non-representative regime". However, since it falls within the 95% confidence interval, I cannot reject the hypothesis that "representative regime" has lower crash records. The second run, without exposure, yields similar results. It is still 1.185 times larger and I cannot rule out that crash record under "representative regime" is lower. Due to the results from regression, I cannot draw a definitive conclusion between BAF aircraft crash and governance.

[Please send your comments, contested views at mrh4478@gmail.com]

La Semaine Dernière A Mes Yeux

( 19 juillet --- 25 juillet)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
19	Pain,Sucre	Riz,Latya	Riz,Soupe aux lentilles	---
20	Riz gonflé,Lait,Œuf	Riz,Poulet,Gourde bouteille	Riz gonflé	---
21	Riz gonflé,Œuf	Riz,Poulet,Purée de poisson	Riz gonflé	---
22	Riz gonflé,Lait,Œuf	Riz,Poulet,Épinard malabar	Riz gonflé	Mangue
23	Riz gonflé,Œuf,Lait	Riz,Poulet,Épinard malabar	---	---
24	Riz gonflé,Lait	Riz,Soupe aux lentilles,Épinard malabar	Riz,Poulet	---
25	Riz gonflé,Lait,Guave	Riz,Latya(depuis marché),Feuilles de moringa	Riz,Latya(depuis marché)	---