The Cost Of Domestic Turbulence

Protests cast shadow over revenue target, Lost market share, credit may become the reason for regret.

Protests by the public servants at the Secretariat and at the National Board of Revenue (NBR) crippled the functioning of govt. Govt was compelled to introduce "The Public Service (Amendment) Ordinance 2025" that permits the govt to fire a public servant within 8 days. The ordinance created further grievance and rift. Earlier govt had announced to provide allowance, which was earlier cancelled, to public servants. It now would cost the govt Tk 70 billion.

The NBR staffs are protesting the separation between policy department and implementation department. No one is losing their jobs or benefits here, but govt did not consult with the staffs prior to taking the decision. Many felt deceived and started the protest. The cost is huge: govt may miss the revenue target of Tk 4.35 trillion set by the IMF. The revenue shortfall already crossed Tk 1 trillion and it is impossible to meet the target in the next one and half months. Now if the IMF does not dramatically change its position on the revenue target ,Bangladesh may fail to get the next installments , making it harder for deficit financing. Worst is that the IMF may suspend the program, signalling others to withhold their budget support. If that happens, we may see deterioration of macroeconomic conditions, leading to [rise] in market risk through currency volatility, inflation and prolonging the contractionary monetary policy.

We still have no clue where the tariff debate will lead us. Now this domestic turbulence at the heart of administration and the revenue department will undermine the economy. Since August 5 of last year, value addition to domestic tyre manufacturing industry was hampered, local market share in the tyre market declined. Indian restrictions on import of Bangladeshi goods through land ports will lower export of our agro-processed products to the country. China's decision to import mango, jackfruit from the country may further lower value addition and hamper employment in the agro-processing industry. Furthermore, the tariff debate also casts shadow [over] leather export. Since Bangladesh is delaying [implementation] of waste treatment plant as per the guidelines set by the Leather Working Group(LWG), wet blue leather export to the West was halted. The China filled the void by buying the rawhide and reexporting them to the West over the years. But the tariff debate [interrupted] the reexporting program of leather, resulting in delays of shipments and piling up of rawhide in tanneries.

Both domestic and external factors affected our manufacturing sector. Further domestic turbulence will raise the systematic risk, casting shadow over our manufacturing sector. Instead of exporting agricultural raw materials, we could encourage export of processed and value-added agro-based products. Joint ventures in leather and agro-based products could be considered to boost our export. Similarly, seeking soft grant or spending Tk 70 billion in setting up LWG prescribed treatment plant could easily open new potential [for] leather export. We can ill afford losing the next IMF credit package and losing export share of our leather and agro-based items. In this regard, wider political consensus is needed to address grievances at home.

La Semaine Dernière A Mes Yeux

( 24 mai --- 30 mai)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
24	Pain,Omelette	Riz gluant,Lait	Khichuri,Batasio Tengra	--
25	Pain,Œuf	Riz,Épinard malabar,Batasio Tengra	Riz gonflé,Batasio Tengra	---
26	Riz,Épinard malabar,Soupe aux lentilles, Purée de pomme de terre	Riz,Épinard malabar,Soupe aux lentilles, Purée de pomme de terre,Haricot vert	---	--
27	Pain,Haricot vert et pomme de terre bhaji,Jacquier	Riz,Soupe aux lentilles,Poulet,Œuf	Pain,Jaggery	---
28	Pain,Haricot vert,Œuf	Riz,Soupe aux lentilles,Poulet,Œuf	Riz,Haricot vert,Poulet	--
29	Pain,Haricot vert,Œuf	Riz,Soupe aux lentilles,Batasio tengra	Riz gonflé,Batasio tengra	Graine de jacquier
30	Pain,Œuf	Riz,Soupe aux lentilles,Batasio Tengra	Riz,Soupe aux lentilles,Orphie d'eau douce	--

The Bias In "The Unbiased Move"

The list of the corrupt spares few, Govt triggers panic anew.

Govt has decided to set up a fund of Tk 1.3 trillion by seizing the properties and assets of former ruling party politicians and cronies. Apart from that many other less important irregularities and money laundering incidents are being investigated. The newly formed fund will be used to pay back the money of trouble-ridden banks and to finance the pro-poor programs.

The UK authority already confiscated properties belong to former ruling party crony. And govt is working diligently to bring back some of the laundered money.

Since the fall of former regime, former central bank governor, former cabinet secretary, former spy bosses,former army chief, former police chief literally vanished from the country. They are on the run. This tells the magnitude of corruption taken place during the previous regime and retributive political culture in this country. These men-on-the-run do not have courage to face the press and the court. What surprised me the top 10 list of crony groups does not include business conglomerates that have close ties to former Army chief or contributed to recent political activities or just switched sides.

For instance, former finance minister's business conglomerate that was accused of stock market manipulation and other irregularities are not in this list. This group has close ties to the business group of a former mayor who was also brother of a former Army chief. It was accused of grabbing land in city's high-end residential quarter. Former finance minister was the architect behind,as claimed by himself in the Parliament, the 9-6 interest rate policy that led to macroeconomic disaster and number 1 client of a specialized bank. Interestingly, he was arrested before during the time of 2007 caretaker govt and this [time he] was allowed to flee the country after receiving prior information of the brewing political turbulence. And his business group goes off the radar of scrutiny when govt is preparing the list. This politician cum businessman was first nabbed [in 2007], then released ,allowed to lead to plunder the economy and then allowed to flee the country before others. Another businessman cum politician who was also ruling party MP and former president of Bangladesh-China Chamber of Industries is spared. Its news outlet played a role during the time of July uprising and made generous donations to newly formed political parties. Similarly, many real-estate developers who patronized the new political parties goes off the radar from this corruption scrutiny. In addition, Army backed subsidiaries that benefitted [financially] by supplying voting gadgets to controversial elections are not on that list.

Some of the business groups whose properties are seized were acted upon the instructions of high ranking Army officials tasked to deal with issues garnering attention at home and abroad. How on earth would a business group launder such sheer size of bank money without prior instruction/ blessing of powerful agencies? Even the governor in an interview with an international daily acknowledged this. The group entangled itself with the kitchen market so deeply that it even contributed to the price hike of kitchen commodities after the fall of Hasina regime.

The 9-6 interest rate policy raised the portfolio risk, affected by systematic risk,inflation risk,currency risk and political risk. There should be clear distinction between the groups/ individuals that transferred money abroad with proper business credentials and those with corruption motive using fake id and shell companies. Since the systematic risk prevails at large, the newly formed fund should be used to assist groups and individuals who may fall prey to portfolio risk.

The previous corruption drive in 2007 set a panic spree and led the massive money laundering incidents in the subsequent years. Setting up a regulatory environment and routine work instead of seasonal drive after a long hiatus will be more effective.

Since nondiscrimination is the motto the current regime adopted for its action, current anti-corruption drive should reflect it if it is eager to pursue it anyway.

Tax On Remittances: Good Or Bad?

The big bill propels another currency de facto, Back from the brink rises again the crypto.

The Trump administration has introduced a bill "One Big Beautiful Act", suggesting imposition of 5% tariff on all kinds of outward remittances. There is widespread fear here that it would lower the remittances from the USA. It is too early to make such comment. The decision would undoubtedly allow the US govt to bag huge amount of revenue to address its huge deficits.

The tariff debate, weakening of US dollar , tax on remittances hint that the US want to ease the pressure on US dollar demand. At the same time, it would encourage alternate mode of transfer. Cryptocurrency witnesses unprecedented surge after having severe regulatory restrictions across the globe. Weakening of dollar also means reduced purchasing power of the holder of dollar denominated assets. One would [in] such scenario try to convert the money into other currencies or invest in assets where one's money will grow. If one wants to invest abroad in spite of having serious restrictions at home or wants to avoid political controversy ,alternate mode of transfer and exchange would become popular. So here the cryptocurrency comes into play. Following the onset of the war in Europe, many billionaires in Russia and China transferred their wealth abroad in the face of severe restrictions at home. Weakening Yuan may be good for competitiveness but it also hit hard the purchasing power of the rich if their assets are in Yuan. In addition, there is a thing called "portfolio risk" that may hurt balance sheet of the company if its domestic return on investment is too low compared to return on investment abroad. Sometimes it casts shadow over the existence of the company. That is why there is a tremendous rush to invest/ transfer wealth abroad. As govt regulations become rigid, many try to depend on alternate mode of transfer like crypto / bitcoin in order to avoid controversy. As more people switch to this mode of transfer, it becomes mainstream and calls for global convention for its operations. In the past, organized criminal groups used this channel due to lack of global convention. Future of bitcoins depends on how this mode of transfer/exchange behaves in a world of rising protectionism and growing demand for deregulation. This is where the US tax on remittances [sets] the course for further revival of this alternate mode of transfer.

The UAE based exchange houses raised fees by 15% for outward remittances in 2024. But they kept the money-sending apps out of this regulation( For more see "Remittance Er Mashul 15% Briddhi Korbe Arab Amirat,Probashider Khoroch Barbs(UAE To Raise Fees For Remittances By 15%,Migrant Worker's Cost Will Rise)", Daily Ittefaq,April 9,2024). Despite the fee hike, the UAE became the second highest remittance source for Bangladesh in 2024. The rise in fees did not have severe impact on remittances for Bangladesh.

Imposition of tax on remittances will raise the cost for remitters. It will also eat away the gain of speculators and opportunistic groups who launder money abroad through trade invoices and remit back the money to siphon off govt subsidies. Free floating of Taka has made that money laundering activity even more costlier.

The remittance tax also made the prospect of launching apps for sending money by Bangladesh Bank /local bank even brighter. It will gain the trust of the remitters and prevent the accumulation of funds into wrong hands.

The tax on remittances at one hand resurrects the bitcoin by drawing people and popularizing it, and on the other hand opens up new opportunity in Bangladesh by preventing the money laundering activity. Drawing the lessons from UAE changes, we hope that this change will also bring good to us.

La Semaine Dernière A Mes Yeux

( 17 mai --- 23 mai)

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Ma Semaine Gastronomique

Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
17	Pain,Pomme de terre bhaji	Riz,Pomme de terre ,Gobie,Tige de l'arbre de banane,Haricot vert	Riz,Pomme de terre,Tige de l'arbre de banane,Haricot vert	--
18	Riz,Œuf,Pomme de terre	Riz,Gobie,Gourde blanche,Pois blanc	Riz,Gourde blanche,Pois blanc	---
19	Pain,Pois blanc	Riz,Épinard d'eau,Tofu(depuis marché),Gourde blanche	Soja Roshmalai(depuis marché)	--
20	Riz,Pois blanc,Œuf,Soja Roshmalai(depuis marché)	Riz,Œufs de Ruhi	Riz gonflé,Pois chiches	Ananas
21	Pain,Tofu (depuis marché),Œuf,Lait	Riz,Crevette sèche avec aubergine naine(«Teet Begun»),Œuf, Pomme de terre	Riz gonflé,Pois chiches	--
22	Pain,Œuf	Riz,Feuilles de moringa	Riz,Feuilles de moringa	---
23	Kacchi biryani	Riz,Œuf,Soupe aux lentilles et pois blanc	Riz gonflé,Soupe aux lentilles et pois blanc	--

Taka Floats Freely

Introduction of free floating Stops leakages and brings foreign financing.

Bangladesh Bank formally introduced fully floated exchange rate,removing the last obstacle getting the third and fourth installments of the IMF credit package. The decision is greeted with cautious optimism. However, many are waiting to see how the market will behave next week.

Fully floated exchange rate will reduce the incidence of illicit financial flow. From now onwards, unofficial rate will be much higher than the official rate as Taka is aligning to its true value, increasing the cost of sending money abroad clandestinely. Another reason is that it will prevent leakeges in the development projects that depend heavily on imported materials. When value of Taka drops, the cost of import rises and part of the money identified for siphoning off will get reduced. Less booty from the projects in case of frequent depreciation of Taka in a given year. Perhaps this is the reason Taka had been pegged at a certain value for a long time.

The 90-day long 30% tariff on Chines goods gives Yuan some advantages for further depreciation in this period. Instead of 145% depreciation in the worst case, this 30% depreciation seems a much more acceptable bet though inflationary pressure may spread. Given the nature of Chinese govt, they can deal with it. Meanwhile, we have to be contended with the 10% depreciation during this time provided that we have the right market conditions to do so. The spot exchange rate shows that Taka has already depreciated. Next week if dollar becomes stronger it will be depreciated even more. That is indeed a good news.

Though Bangladesh's credit rating deteriorated, foreign banks may encourage to bring more USD from abroad to widen their operations/ coverage here. Few years ago, a great part of their operating profit came from selling USD. Though the USD they bring may be small compared to remittances and export earnings ,this USD will greatly help lending credit to local investors and SMEs.

Despite the accompanying challenges, the free floating of Taka opens the possibility of thwarting the abuse of public fund. It also opens the possibility of foreign financing of local projects through operations of foreign banks.

Fear About Taka's Free Floating

Unease about motive speculative Causes the confusion and disbelief.

The short relief of tariff debate between the USA and the China reached with a reduction in tariff for 90 days. During this time, the USA will charge 30% tariff on Chinese goods [whereas] the China will levy 10% tariff on American goods. This relief will give both the countries ample time to chalkout a contingency plan. It is indeed a good news for Bangladesh since the decision has strengthened the USD against major currencies, steering a depreciation pressure on Taka. Bangladesh has mid July to ink a deal with the USA about reciprocal tariff. It has another 90 days to depreciate its currency when it has the just cause for depreciation. In the international exchange market Taka has already depreciated to 121.50/USD from 121.42/USD in past one week. Official exchange rate has not changed though.

There has been great reluctance from the side of govt to go for market based exchange rate. The fear is that speculators and international exchange houses may further depreciate Taka. Earlier Dubai and Jedda based exchange houses had been found in such malpractices. Govt even asked for another $1 billion from the IMF to implement the fully market based exchange rate instead of the prevailing crawling peg system. The market does not signal that Taka will be same as the Sri Lankan or Pakistani Rupee. Rather it says Taka is 121.50/USD. Back in December, we saw major volatility in the exchange rate of Taka due to settlement of international bills and speculators' activity at home ahead of policy rate hike in Monetary Policy Statement. Speculation concerns mostly arise from home and major trading partner countries. Speculation motives at home greatly reduced after the correct alignment between policy rate and inflation rate. For the next 90 days, it will be further reduced as US dollar will remain strong against other currencies. Property purchase in the UAE and money laundering fuelled the speculation motive in the UAE and Saudi Arabia. Bangladesh is no great trading nation whose currency will be great value to others. Speculation from abroad is also minuscule at this time as there is no reason for [speculation]. Moreover, international market rate does not say so. What would one do with stockpiling so much of Taka? Ultimately, Bangladesh Bank is the sole institution that in the end [has to] deal with it. At the end of the day[,] it is indeed a loss making project. I do not think it is a wise move not to let Taka align with the market completely. We do not have enough opportunity to depreciate Taka in the future. Because the USA wants a world where the US dollar will remain weak,leading to appreciation of other currencies. Command and control economies like China and Vietnam can depreciate their currencies through state intervention. We cannot do so easily. But I support Bangladesh's position of seeking extra $1 billion from the IMF to cushion any adverse effects from free floating of Taka.

This depreciation pressure comes at a moment when tariff debate will lower global demand,showing a downward pressure on prices of fuel. Inflationary pressure will be largely offset by this lower demand for major commodities. Moreover, such depreciation will augment revenue collection that the government is desperately seeking. 10% depreciation will make exchange rate Taka 134.2/USD ,5% will make it Taka 128.1/USD and 2% will end up in Taka 124.44/USD. Next week we may see a strong US dollar and it will be the right time to depreciate the Taka further.

$25 billion remittances in 10 months reflect earlier depreciation of Taka. Moreover, it helped bringing back export earnings in time. Since Taka is not a major trading currency, speculative tendencies should not cause a lot of concerns for not letting Taka free float. Speculative motive at home and in the countries with Bangladeshi diaspora is negligible since the market conditions dictate so. Why should government be so worry about introducing market based exchange rate?