Awami govt set to destroy backbone of Bangladesh economy

[idune]

One hand Awami regime paying higher rate 7:00 tk - 14:00 tk for contarct awarded to Awami party man without tender process including commerce minister.

On other hand Awami regime will pay hefty oil subsidy for these party man who got the oil based power plant, bankrupting Bangladeshis.

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Govt subsidy set to soar by 40pc for oil price hike
M Azizur Rahman

Government's subsidy in running fuel-run power plants is set to soar by 40 per cent additionally due to substantial surge of oil prices in international market, a top government official said Monday.

State-owned Power Development Board (PDB) is at risk of counting loss worth over Tk 20 billion this year due to the oil price hike.

Cash-starved Bangladesh Petroleum Corporation (BPC), which is already struggling to import fuel, might face further trouble in arranging funds to import fuel from the soaring international market, the official said.

International oil market is now volatile and the price upswing might continue further until the Middle East crisis including that of Egypt is over, market analysts said.

A power ministry official said crude oil prices in the international market was hovering around US$60 per barrel when the PDB inked deal with most of the rental, quick rental and public sector oil-based power plants.

But the price is now hovering around $100 a barrel, he said.

PDB had been counting loss worth around Tk 10 billion in the past several years as it purchases electricity at higher rates but sales it at lower rates.

An additional loss of Tk 10 billion will be added this year as over a couple of a dozen fuel-run power plants are set to initiate operation this year.

It would soar further with the increase of fuel-run power plants into the electricity distribution network.

PDB's electricity purchase rate from the new furnace oil-run power plant is around Tk 7.50- Tk 8.0 per unit (1 kilowatt-hour) and from diesel-run power plant is around Tk 13-Tk 14 per unit.

The tariff rate is not fixed but dependent on the movement of international oil market, said a PDB official.

Officials said the government has moved to implement a road-map of generating around 10,000 megawatts (mw) of electricity by 2015 and half of the total generation or around 4,270 mw of electricity will be produced by high-cost diesel and furnace oil-run power plants.

Some of the dual fuel power plants to be run by furnace oil or diesel will also be operational within this period, he said.

Govt subsidy set to soar by 40pc for oil price hike

 

[idune]

Country's BoP in negative territory
Decline in remittance flow, higher import payments blamed

Siddique Islam

The country's overall balance of payments (BoP) has entered the negative territory after a long time due to widening trade gap, lower growth of inward remittance and deficit balance in the financial account, officials said.

"Due to deficit of US$ 873 million in financial account the overall balance showed a deficit of $584 million during July-November, 2010 against the surplus of $2156 million during July-November, 2009," the central bank said in its Major Economic Indicators: Monthly Update-January, 2011.

The current account balance also decreased by over 66 per cent to US$563 million during July-November period of fiscal 2010-11 (FY11) from $1.674 billion of the same period of previous fiscal.

"The pressure on external sector may continue in the near future following widening trade gap and poor performance of inward remittances," Director General of the Bangladesh Institute of Development Studies (BIDS) Mustafa K Mujeri told the FE Monday.

Mr. Mujeri, also former chief economist of the Bangladesh Bank (BB), predicted that the country's external sector might come under more pressure in the coming months due mainly to nominal growth of remittances.

The country's overall trade balance, on the merchandise account, recorded a deficit of $2.752 billion during the period under review as compared to that of $1.976 billion of the corresponding period of the previous fiscal.

During the period, export earnings stood at $8.299 billion against the import payments of $11.051 billion, the BB data showed.

"We hope that the overall balance of payments will turn positive by the end of this fiscal," an executive of the central bank told the FE Monday.

He also said the pressures of import payments particularly for food grains will ease in the coming months after Boro harvest.

Meanwhile, the country received $4.581 billion as remittances during the period, registering a 1.67 per cent negative growth over the corresponding period in the previous fiscal.

"The inward remittance growth turned positive in December last after months of stagnation," a BB senior official said, adding that the positive remittance growth also continued in the month of January 2011.

The country received $6.510 billion during the July-January period of fiscal 2010-11, registering nominal a 0.386 per cent growth over the same period of the previous fiscal, according to the central bank statistics.

However, the flow of net foreign direct investment (FDI) rose to $320 million during the period against $285 million of the corresponding period of the previous fiscal, the central bank officials said.

The portfolio investment witnessed a significant rise to $56 million in the period from $34 million deficit of the same period of the last fiscal.

The net receipts of foreign aid declined to $437.69 million during July-December period of this fiscal against $1.1426 billion of the corresponding period of previous fiscal, the BB officials confirmed.

However, the central bank officials said they are not worried about the negative position of the BoP as the country has 'a satisfactory level of foreign exchange reserve'.

But the BB officials admitted that pressure on foreign exchange reserve has gradually increased due mainly to higher import payments, particularly for fuel oils, food grains and power plant equipment.

The foreign exchange currency reserve stood at $10.46 billion Monday after selling of $84 million to the commercial banks on the same day.

"We expect the country's overall balance of payments to improve further as the country is set to receive more funds from multilateral development partners by the end of this fiscal," another BB official said.

Country's BoP in negative territory

 

[idune]

Power tariff-hike comes, what's about supply
Shahiduzzaman Khan

Power tariff has been raised again. The energy regulator enhanced the tariff by 11 per cent for bulk consumers and 5.0 per cent for retail consumers with effect from February 01, 2011. Even this hike has not been considered enough and the regulator has announced that a further hike of bulk tariff by 6.66 per cent will be made effective from August 01, 2011. Thus, the overall hike in power tariff for bulk consumers will be 18.14 per cent higher from August next.

The announcement of power tariff-hike came at a time when the entire power sector is struggling hard to survive in the face of a messy situation, created by years of neglect, mismanagement and corruption over the years. Successive governments had failed to rid the sector of inefficiencies, irregularities and graft. Providing new power connections remains suspended for the last 17 months. Many ready homes and apartments stand vacant due to absence of power and gas connections. Real estate sector has been in a dilemma due to such a deadlock in power sector. Stringent conditions have been imposed on the realtors and home-makers to get new power connections. The trend suggests that new connections would not be available until April this year. That means more months of long wait for the consumers.

The country's power sector is, thus, in a pitiable state. The country is now reeling under a nagging problem of electricity supplies, coupled with low voltage and frequent load-shedding. This has resulted in slowing down of business activities, fall of industrial output and ultimate sufferings of the people. Most power plants in the country are old and dilapidated. These are failing to generate adequate electricity for the consumers. If the old power plants could be overhauled through proper forward planning beforehand, a number of such units might have functioned at or near their capacity. The present government is trying frantically to bring about a 'change' in the power sector. Several agreements were signed for building power plants. But there is yet no sizeable amount of new electricity generation for being added to the national grid. With the country's growth rate hovering at 6.0 per cent per annum over the recent years, power generation is failing to cope with rising demand for it.

The supply-side situation in the electric power sector has miserably failed to match the growing demand for it. Bangladesh Power Development Board (PDB) still remains an inefficient organisation. It survives on mounting subsidies given by the government every year. In order to reduce the burden of this subsidy, periodic power tariff-hike has been the option for the government. Whatever the reasons for such hikes in power tariff, the consumers have generally been paying for the PDB's inefficiency. The people have to bear the load of the penalty for systems loss, pilferage and other operational inefficiencies in the power sector.

It has been reported that the decision to hike power tariff rate has been taken in order to help contain mounting subsidies. Costs of electricity generation have gone up in a marked way following the installation of a number of rental power plants, run by diesel and furnace-oil. Building of power plants by local and foreign firms, avoiding the tendering process, has been allowed by the government as a part of short-term action plan to help augment power supplies. On their part, the people are least bothered about who builds up power plants but they would like to know why should pay for the high-cost installation of the power plants.

A number of 'approved' rental power plants have yet been able to generate electricity in time. And, the government's drive to raise electricity generation through costly rental power plants might not serve well the long-term interests of the users. The absence of any proper policy about rental power plants and their diversified tenure, ranging from three years to 15 years, might trouble the regulator in future. Concern has already been expressed by different quarters over the adverse budgetary impact of purchasing electricity from the rental power plants by the government and also over the effects of costly imported fuel to run such plants on the country's balance of payments situation. The burden may limit the country's economic growth in the range between 6.1 per cent and 6.3 per cent, according to a study. The government is, thus, at risk of providing hefty subsidy worth over Tk 150 billion by 2013 in power sector because of generation of electricity from high-cost diesel and furnace oil-run power plants, instead of gas or coal.

This situation, if it continues, will entail further power tariff hikes in the future in order to keep the subsidies bill within a manageable limit. Meanwhile, businesses have expressed their concern over the power tariff hike which, they said, might jeopardise the industrial growth. Any sudden increase of electricity tariff -- and that too to a significant extent -- will affect industrial operations, besides hitting the consumers hard.

Past experiences suggest that when power tariff is raised, prices of essential consumer goods tend to make another jump. These are all inter-related matters. Consequent upon power tariff-hike, the prices of essential items will go up again in local markets, because of its impact on transportation costs, if not anything else. The general consumers and the industries of all sorts have been suffering for long, from load shedding and low voltage. And now the enhanced power tariff will further ignite price pressures at a time when the inflationary rate is already very high.

No one will dispute the fact that tariff hike is, at times, necessary to ensure stable and sustainable supply. And this can be effected to, as and when necessary, provided it is for public welfare. Without improving situation in the power sector, the rationale for making the citizens to pay high for a service that they seldom get, does not remain strong. Paying extra money for saving chronically-ill state-owned entities is no viable answer to the surmounting problem the power sector is confronting now.

Power tariff-hike comes, what's about supply

 

[idune]

Price spike forces poor to cut down on food intake

Khadimul Islam

The exorbitant price hike of essential commodities has forced a large percentage of the country’s low-income families to cut down on their food intake.

A number of people who live hand-to-mouth and low-income servicemen of Dhaka, Rajshahi, Savar, Jamalpur, Mymensingh, Habiganj, Nilphamari, and Chapainawabganj said they had failed to increase their income to match the price spiral of essential commodities and so were forced to cut down on their food intake.

‘The way the prices of essential commodities have gone up in the past one year, there is a possibility of food intake adjustment by the very low-income group people,’ Centre for Policy Dialogue executive director Mustafizur Rahman told New Age on Saturday.

He said the purchasing capacity of the low-income group people had reduced due to the price spiral of essential commodities, which sometimes forced them to cut down on food intake as they spent 60 to 80 per cent of their income on food.

A government survey has revealed that at least 39.80 per cent of the households in the country still live in food insecurity. The survey report also says members of most of those households often go without food or have to borrow to meet their want of food. The Bangladesh Bureau of Statistics conducted the Welfare Monitoring Survey in March 2009, the report of which was released in May last year.

The Consumers Association of Bangladesh in a survey report released in December 2010 said low-income families were forced to reduce food consumption by more than one-fifth.

‘We have no alternative to reducing food intake as we spend only a small and fixed amount of money for clothing and house rent,’ said Abdus Samad, a resident of Balubagaban village in Chapainawabganj town. He has to run a six-member family with a fixed income of Tk 250 a day. He pays a Tk 1,200 house rent a month.

Abdus Samad said the income of his family had increased by only Tk 80 per day over the past three years, while the expenditure had nearly doubled over the same period.

Like Samad, a good number of people who used to be above the poverty line feel the pinch of the price spike of essential commodities.

Dhaka University Institute of Nutrition and Food Science director professor Sagarmay Barua said it was a common coping pattern that people cut down on their food intake when the prices of essentials went up and they failed to increase their income. It creates a serious threat of producing nutrition deficiency, he said.

The prime minister, Sheikh Hasina, on March 9, however, said in the parliament that the people of Bangladesh were eating more food now as their average earning had increased. ‘Those who used to eat once a day are now eating twice and the people who used to eat twice a day are now eating thrice,’ she claimed.

A CAB study reveals that the price of rice has increased by 40 per cent a year. The study also found that, on an average, the prices of major food items had increased by 20.30 per cent in last year.

According to the market monitoring report of Trading Corporation of Bangladesh, as on March 25, the retail price of coarse rice had increased by 30.19 per cent in the past one year, that of flour, the second-most important essential food item, by 46.81 per cent, and the prices of soya bean oil and palm oil by more than 42 per cent and 48 per cent respectively, while the price of spices had risen by more then 20 per cent on an average.

According to a budget implementation report released last week, the overall food inflation soared to a 29-month high at 11.91 per cent in January this year.

The food price hike led food inflation to increase by 0.67 percentage points to 12.43 per cent in rural area and by 1.43 percentage points to 10.47 per cent in urban areas in the month.

Bangladesh Institute of Development Studies research director Zaid Bakht said the cost of living had gone up due to the price spiral of essential commodities and affected the food consumption of the people living around the poverty line.

New Age correspondent in Nilphamari reported that most of the poor families in the district were compelled to change their way of earning and food behaviour. They engaged more members, whether women or children, for making some extra income, took loans from NGOs and local usurers at high interest, sought seasonal work, sold domestic animals and trees to cover food costs.

Tofazzal Hossain, 37, a rickshaw-puller of Singdoi village under Nilphamari Sadar upazila, earns between Tk 180 and Tk 200 a day, which he said was not enough to manage food for his six-member family.

Tofazzal said, three to four years back, he could provide for his family without much hardship. But, now he is at a loss about how to run his family.

He said sometimes he was unable to pull rickshaw and earn money due to illness. In such a situation, he has to either take an instant loan from the local usurer at a high interest or to sell a domestic animal or a tree. In recent years, the sharp price spiral has forced him to take loans from different non-governmental organisations as at present he has nothing left to sell.

He said in a sad voice that, due to the acute price hike, his family had never eaten meat or fish in recent years except during the Eids.

Awal Miah, 54, an agricultural labourer of Danga Para village under the same upazila, said he usually earned Tk 150 when work was available and sometimes less than Tk 80 when there was hardly any work. He remains unemployed in most of the months of the year. So, he tried to earn money by working as a seasonal labourer in other districts and sometimes by selling traditional rice cakes or boiled eggs.

He also engaged his wife and children as domestic workers in others’ homes to earn some extra income.

According to the World Food Programme, 60 million people in Bangladesh still do not have sufficient food to eat.

New Age Correspondent in Habiganj reported that the prices of essential commodities had been increasing by the day at the markets of the district, causing great financial hardships for the people, especially the people of low-income groups and the middle class.

New Age | Newspaper

 

[idune]

National economy in grave jeopardy
Sadeq Khan

The country is fast moving towards a disaster in economic management. After the share market scam that the government has failed to bring under control yet in four months, we are having a lingering liquidity crisis in banks and a dollar crisis in the foreign exchange market this month. The Bangladesh Bank is blithely lending Bangladesh takas to the troubled banks and selling them dollars, which are vanishing from the market by smuggling in packs either stashed in luggage or being thrown across the barbed-wise fences at the border to an accessory or by other means of money-laundering in dubious exports and imports. There are clear signs of a massive flight of capital stealthily going on. Our flippant finance minister or his lackeys in the Bangladesh Bank (BB) do not care.

They are busy colluding and pulling strings to dishonour and frame an honourable man, Nobel Laureate Dr. Muhammad Yunus by some fabrication, and push him out of the Grameen Bank. After turning the nationalised commercial banks into party political institutions for faked credit disbursement to their cadres, they are now intent to on invading the microcredit system also by grabbing Grameen Bank and threatening other non-government institutions to obey party political dictates. The government's own domestic borrowing from banks and public savings is set to exceed the budgetary target of FY 2011. Business is suffering for lack of financing support.

Clear indications are there that the macroeconomic and financial pressure on Bangladesh economy has intensified since December last year. But the problems facing Bangladesh did not emerge suddenly; the setbacks such as high inflation, slow remittance and pressure on subsidy continued for long. The government and the BB did little to address the issues. They sought a billion dollar credit line from the International Monetary Fund (IMF) to cover up plunders by their cronies, and to meet budgetary requirements. In response, the IMF sharply pointed out that Bangladesh Bank's intervention in exchange rate and said the BB had violated an article of the IMF agreement.

The IMF explained that balance of payment (BoP) pressures are becoming very acute owing to rising food, fuel, and cotton prices, slowing remittance growth, and an "accommodating" monetary policy. As a result, the current account balance is expected to go from a surplus of 3.75 percent of GDP in FY2010 to a deficit of 0.75 percent in FY2011, with a further deterioration expected over the medium term, IMF said. It said inflation in January was the highest in the last two years. Bangladesh has been absorbing the pressures by drawing down foreign reserves. The net provision of foreign exchange has been more than $1 billion during the first six months. A wedge has also developed between market and official exchange rates, indicating a possible Multiple Currency Practice (MCP).

The BB's official taka/US dollar rate has deviated significantly from market rates since late 2010, by as much as 3.5 percent. Bangladesh may be deemed as operating an MCP, which is a violation of Article VIII of the IMF's Articles of Agreement.

The national media has exposed how as Chairman of the ECNEC the Finance Minister had authorised licenses for a number of rental power plants, based on imported fuel to cronies. Now the power ministry is stuck up with unsustainably rising of fuel oil, as petroleum prices are soaring in the international market on account of Arab intefada and oil-wars in the Middle East. Domestic situation of power failures and rationed supplies has not improved either. The IMF said if the petroleum prices are not adjusted, the government's subsidy may double to Tk 15,000 crore in the next fiscal year. The government's fiscal policy is coming under increasing strain from rising subsidy costs.

"To limit an intensification of budget pressures and reduce opportunities for cross-border smuggling to India, retail prices of petroleum products require immediate adjustment."

Lack of power and gas, rent-seeking troubles from ruling party bands, bureaucratic blackmails, labour unrest, spiralling criminality and other causes have reportedly almost halved our industrial output. Our expatriate wage-earners are returning home in big numbers, disturbed or jobless in Libya, Bahrain, Japan, Malaysia, Korea and other host countries. Increasing costs of daily necessities are exhausting the common man's purchasing power. Share market debacle has robbed small investors of their life-savings. The economy is in a mess both at macro and micro levels.

But the most ominous cloud hanging over the horizon of the nation-state is that of famine conditions in the offing. Famines happen, it is now universally recognised, not because of food shortage but because of food prices remaining high above the purchasing power of the common man. The market, on the other hand, is guided largely by psychological impacts of trade intelligence about country supplies, government stocks and world market prices. The government is bungling on both counts. As the boro season is approaching the market was bracing for a climb-down of staple food prices. Indeed, rice prices showed a declining trend in two or three weeks as boro harvest was nearing but in the past week, rice prices marked a fresh uptrend.

"As non-boiled rice was sold in the week in some southern districts from OMS outlets, the demand for parboiled coarse rice increased, pushing up its price", according to a bulk trader. This is bad news for low-income group people. Another blow to relaxed market psychology has come from the food minister himself. He has now announced that the promised bulk of rice-supply from India, much trumpeted by India-friendly media and government circle for months, will not materialise after all on account of "legal complications." What a farce!

HOLIDAY > FRONT PAGE

 

[idune]

Another hot air project by awami regime
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Elevated Expressway faces doom as foreign contractor fails to raise fund
Munima Sultana

The capital's first Elevated Expressway faces an uncertain future less than three months after its construction was inaugurated, as its foreign contractor failed to mobilise a "single penny" to build the US$ 1.25 billion road.

Company officials said they have tried "every possible avenue" including development lenders, multinational financial institutions and local banks, but they could not raise any fund for the key highway.

"The investor is yet to manage a single penny till today (Thursday)," said an official, preferring anonymity.

Under the January 19 agreement signed between the Bangladesh Bridge Authority and the Ital-Thai Development Company, the Bangkok-based firm was to complete fund raising by July 01 and start full-scale construction by August.

The Ital-Thai has beaten at least four companies to win the bid to build the 26.5 kilometres long elevated expressway -- the first such road being built in the country. The company has also won multi-billion dollar construction projects in India and Myanmar.

Prime Minister Sheikh Hasina broke ground for the construction of the project on April 30, amid fanfare and festivities. A senior Thai minister flew to the country to join the inaugural ceremony.

But less than three months after the inauguration, questions are being raised whether the company is capable of raising the fund to complete construction before its September 2014 deadline.

"We are facing difficulties as the project's key issue of financing could not be resolved," said a top engineer of the Thai company.

"We have so far tried every possible avenue including Bangladeshi and international sources to raise the fund but there is no good news. We've tried some Indian sources, but to no avail," he told the FE.

The Thai official said despite getting all cooperation from the government, managing fund has become difficult. The financiers hardly show any interest in the highway due to lack of detailed studies, especially the long-term economic return of the project.

Officials said the Ital-Thai has set up its Dhaka office in Gulshan and began a detailed design and alignment study works, funded by 30 per cent promoter's equity.

According to the agreement, officials said the company must manage $600 million fund in local currency and the rest in greenback.

The Ital-Thai has sought $100 million fund from the Bangladesh Bank's $250 million Investment Promotion and Financing Facility (IPFF), a World Bank-funded special fund for foreign investors.

It has tried to get loan from development lenders such as the World Bank and the Asian Development Bank.

Besides, it has signed an agreement with Eastern Bank and IDLC Finance to arrange syndicated loan from the local banks.

However, bankers said most of the local banks and non-banking financial institutions are not interested to finance the giant project. They are also worried over the long-term financial viability of the project.

"Its return is dependent on tolls to be collected in 25 years. There are also questions whether a new government will own this project. A change in government can simply deal a deathblow to the contract," said a senior banker.

The Thai official said no social and environmental impact study has been undertaken about the elevated expressway. Its land acquisition and resettlement plans are also yet to be finalised, adding to the funding woes of the project.

One banker said if Ital-Thai can work out a "structural repayment mechanism" like the private power plants, local banks may come forward to fund the project.

Since the government came to the power, the elevated expressway was listed as a priority project, to be funded partly by the government's public-private-partnership facility.

The government appointed an international consultant to conduct a fast-track study on traffic and route selection and completed bidding in a year.

Elevated Expressway faces doom as foreign contractor fails to raise fund

 

[idune]

Bangladesh demoted in key WB Doing Business gauge

FE Report

Bangladesh has been downgraded by four notches in a key World Bank annual "Doing Business" gauge as acute power crisis has weighed heavily on the country's overall investment and business climate.

The development lender placed Bangladesh at 122 among 183 nations, whose business climate it monitors every year, saying the country showed negative trend in almost all the areas, excepting enforcing contacts.
"Bangladesh made getting electricity more difficult by imposing a moratorium on new electricity connections from April 2010 to March 2011 because of an electricity supply shortage," the report said.

"This moratorium has led to long delays for customers and has increased the time to obtain an electricity connection," it said.

The Washington-based anti-poverty lender and its private sector arm, International Finance Corporation (IFC), launched the ninth edition of the Doing Business report on Thursday.

Singapore topped the ranking in the overall ease of doing business, followed by Hong Kong, China, New Zealand; the United States and Denmark. South Korea was a new entrant to the top 10.

The report said Bangladesh continues to do well in starting a business, with an expedited registration approval process and automation of name clearance, which now takes only one day compared to seven days in previous years.

In the South Asian region, Bangladesh ranks fifth out of the eight countries, but well ahead of India's overall ranking of 132, said a senior official of the WB Bangladesh Office.

'In achieving the 'Digital Bangladesh' vision, the government has introduced online tax filing and electronic bidding in four key government agencies"said Tahseen Sayed, WB's acting country head in Bangladesh.

"When technology is used effectively, it not only increases efficiency but also ensures more transparency."

According to the dossier, entrepreneurs in South Asia face a regulatory environment that is on average less business-friendly than those in OECD high-income economies.

"This means costlier and more bureaucratic procedures to start a business, deal with construction permits, register property, trade across borders, and pay taxes," said a bank statement.

In five of South Asia's economies, traders have access to relevant documentation requirements online or through public notices. Meanwhile, fee schedules for electricity connections are easily accessible in three economies.

Sri Lanka implemented the most business reforms among the eight South Asian economies putting itself in the 89th position in the global ranking.

"Simpler regulations, increased access to information and critical infrastructure are key to an improved operating environment for businesses," said Kyle F Kelhofer, Country Manager, International Finance Corporation (IFC).

"Bangladesh's commitment to reform and the efforts to implement regulatory best practices are visible and appreciated by the government, private sector and civil society," said the official.

"Doing Business" gauge analyzes regulations that apply to an economy's businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and resolving insolvency.

The present report is the ninth in a series of annual reports comparing business regulations in 183 economies. This year's report, Doing Business 2012: Doing Business in a More Transparent World, measures regulations affecting 11 areas of everyday business activity.

They are: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, closing a business and getting electricity.

Bangladesh demoted in key WB Doing Business gauge

 

[mil-avia]

Remittance by expats decreasing alarmingly.

 

[idune]

Staggering 13% depreciation of taka means import cost will further go up and cost of food like rice, wheat, oil, sugar and raw materials for main export garments will go up. People will have less capacity to buy food and Bangladesh export will loose competitiveness.

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Taka depreciates 13pc this year


Siddique Islam

The local currency, taka, has so far depreciated by over 13 per cent against the US dollar this calendar year mainly due to higher demand for the latter for settling the import bills, particularly that of fuel oil.

"The US dollar has gained against the Bangladesh Taka (BDT) continually from September last because of its short supply in the market," a senior treasury official of a foreign commercial bank told the FE Saturday.

The US dollar was quoted at Tk 80.45 -Tk 80.60 in the inter-bank foreign exchange (forex) market on December 15 last against Tk 70.79-Tk 70.92 on January 2 this year.

Talking to the FE, a senior official of the Bangladesh Bank (BB) said the value of the local currency vis-à-vis the greenback is dependent on the demand for settling import payments and the availability of the latter from exports and inward remittances.

"It is apparent that these factors are subject to seasonal fluctuations which causes temporary instability in the forex market from time to time," the BB official said, adding the national economy would come under pressure further if the recent exchange rate fluctuation continues.

Treasury officials said that supply of US dollar has declined due to the widening of the country's overall external trade deficit and slow growth of inward remittances.

The country's overall trade deficit widened by over 70 per cent to US$ 3.103 billion in the first four months of the current fiscal (FY) following higher import of fuel oils, officials said.

The overall trade deficit rose to $3.103 billion in July-October period of the FY 12 from $1.825 billion during the corresponding period in the previous fiscal, according to the central bank statistics.

The country received $4.93 billion as remittances during July-November period of the current fiscal year, registering a 7.56 per cent growth over the corresponding period of the previous fiscal, the BB data showed.

"Lower inflow of foreign assistance has also contributed to the short supply of the greenback in the foreign exchange (forex) market," the treasury official said.

To make the situation worse, the inflow of foreign assistance came down to $330 million during the period under review from $443 million in the same period of FY11.

"The market forces have fixed the exchange rate of US dollar against the BDT considering the demand for, and supply of, US dollar," another BB official told the FE.

He also said the central bank is monitoring the overall foreign exchange market taking into consideration the local, regional and the global forex market situations.

"The BDT has depreciated less against the US dollar than the Indian Rupee," he said, adding that the Indian Rupee has depreciated against the greenback by around 21 per cent.

The average exchange rate of US dollar rose to Tk 80.6102 for bills for collection (BC) on December 15 last year from Tk 71.3244 on January 2 this year, according to the statistics of Bangladesh Foreign Exchange Dealers Association (BAFEDA).

"Such depreciation of the local currency against the US dollar may fuel inflationary pressures on the economy," the treasury official noted.

He termed the depreciation of the BDT against the US dollar after introducing floating exchange rate (FER) in 2003 as unprecedented.

"The country's exporters and wage earners, who are working abroad, are, however, benefited from such depreciation," he added.

Taka depreciates 13pc this year

 

[idune]

Money creation and inflation tax


M. A. Taslim

When the ordinary people of the country are reeling under a relentless yoke of a double digit inflation rate, the Finance Minister has famously said: "I am not worried about inflation at all" (Oct 17, bdnews24.com). This has bewildered a great many people. Such a statement would be regarded risky for a finance minister or a treasurer in many countries where inflation and its twin unemployment are his principal concerns. Obviously not so in Bangladesh!

After failing to avail the opportunities for obtaining substantial assistance at concessional rates from multilateral agencies and

donor countries, the government is now desperate for funds not only for its dream projects but also for mundane expenditures. It is borrowing heavily from the domestic banking system. It is also contemplating floating sovereign bonds overseas, obtaining funds from non-traditional sources and inviting public-private partnerships (PPPs). Inflation is not a prime concern in this situation.

Thoughtless hurry to solve the power crisis in a very short period and the resultant commitments made to private businesses on quick rental power plants have bloated government subsidy requirements for rental plants far beyond what was estimated in the current budget for all subsidies. Indeed, these subsidies will soon 'rubbish' (to borrow an oft-repeated quip of the Minister) the budget. The budget that the nation will end up with will be very different from the budget that the Minister had presented and passed in the Parliament. What is inexplicable though is how the authors of the budget could have missed such a large expense item that was writ so large on the wall.

The Finance Minister now has the difficult task of finding the money to keep the wheels of the government moving. And creating new money or seigniorage provides an excellent means to raise revenue without anyone being aware of it. Indeed it is one of the oldest tricks to raise revenue. As J. H. Haslag of the Federal Reserve Bank of Dallas said, "Money creation is one potential source of revenue for a government. Seigniorage -- government revenue received through creating money -- is a relatively inexpensive means of raising funds." Inexpensive for the government, but could be very expensive for the people if a safe limit is exceeded!

In a modern money economy the central bank is the sole supplier of reserve money or monetary base. The total money supply of the economy is determined by the central bank's monetary policy. Given the monetary policy, an increase in the supply of reserve money eventually raises the total money supply by a multiple amount. The fact that the central bank's credit to the government is a major part of the reserve money provides the link between government borrowing from the central bank and new money creation, commonly referred to as printing money.

An increase in the money supply is absolutely essential in a growing economy. The government through its central bank supplies the additional reserve money to serve the need for transactions of a growing volume of goods, services and assets of a growing economy. This new reserve money is income or revenue accruing to the government. Essentially the government gets access to real resources by simply printing money.

However, the government could get greedy, it could print more money than is required to serve the transaction needs of the growing gross domestic product (GDP). In this case the additional money will generate inflation in the economy. The rate of inflation will be higher the more the government injects new money into the economy. Inflation is a kind of tax on the money holdings of the people. It's a particularly noxious kind of tax, not least because it is entirely non-transparent.

Why should inflation matter at all? Actually there would be little reason to worry at all about inflation if all nominal prices were to increase at the same rate as the inflation rate. Let us illustrate this with a very simple example. A worker gets a wage of Tk100 per day. He purchases four kilograms (kgs) of rice with his wage income. If the economy is suffering from 10 per cent inflation, the price of rice will increase from Tk 25 to Tk 27.50 per kg. If the worker's nominal wage also rises by 10 per cent his new wage is Tk 110 with which he could buy four kgs of rice. He would be in exactly the same situation as before. If his wage were to increase to more than Tk 110, he would be actually better-off despite the inflation.

However, if his wage were to remain unchanged at Tk 100, he would be able to purchase only 3.64 kgs of rice with his wage income in the inflationary situation. His real purchasing power will have declined by about 9.1 per cent. The inflation has taxed away a fraction of his purchasing power.

If the price had remained unchanged, but the government had imposed a tax of 9.1 per cent on the wage, the take-home wage of the worker would be Tk 90.91. With this wage he would be able to purchase 3.64 kgs of rice. Hence, a 10 per cent inflation rate and an income tax of 9.1 per cent on the wage income with zero inflation have exactly the same meaning as far as the worker's purchasing power is concerned. But while the worker is very likely to protest and resist the transfer of part of his income to the government through an increase in the income tax, he is less likely to resist an inflation tax as he may not be fully aware of its incidence. It is also not evident who the real gainers of the lost 0.36 kgs of rice are.

What is true of the individual is in a way also true of the economy as a whole. Inflation is an effective tax on the money holdings of the public through an erosion of its real value. They are forced to give up real resources to the government in order to acquire additional money to replenish their eroded real holdings. Economists have established that the inflation tax component of seigniorage is equal to the inflation rate times the real reserve money stock.

The government's seigniorage revenue during the first five months of this fiscal year (FY), 2011-12, was in excess of that during the entire FY 2010-11. As of December 4, 2011 the total government borrowing from Bangladesh Bank stood at Tk 128.41 billion (12,841 crore) -- equivalent to Tk 120.01 billion or Tk 12,001 crore at 2010-11 prices. To put it in perspective, this seigniorage amount is greater than one-half of the total tax revenue collected by National Board of Revenue (NBR) during July-October 2011. This indicates the importance seigniorage has already assumed in the government budget. The more desperate the government is for funds, the greater is this proportion. The inflation tax component of seigniorage works out to be Tk 20.92 billion (2092 crore). This is what the Finance Minister has collected for the government exchequer exclusively by inflating the economy. The real loss suffered by the people is greater than this amount since inflation imposes various other costs and distortions on the economy.

Hopefully the Minster will not get addicted to seigniorage. Any additional increase in the reserve money will raise the inflation tax component of seigniorage by raising the inflation rate. The higher the inflation, the greater would be the necessity to inflate to collect seigniorage. A high inflationary spiral could take hold that would be difficult to wind down later without draconian measures. A determined fiscal and monetary restraint can avoid the spiral from gaining the upper hand, and spare the economy of unwarranted grief.

(The writer is a Professor of the Department of Economics, University of Dhaka)

Money creation and inflation tax

 

[idune]

Awami looting through fuel import for rental power plant continues. On top of that subsidy provided for these oil import with public money. But Bangladesh industries are suffering from shortage of dollars and consumers are paying inflation tax to fund these Awami League looting.


-----------------------------------------------------------
Dollar shortage hits LC opening

Exchange rate of greenback crosses Tk 82-mark

Staff Correspondent

The exchange rate of dollar in inter bank money market on Wednesday soared up to Tk 82.20 amid severe shortage of the greenbacks forcing many banks to decline opening of letters of credit.

The buying and selling rates of dollar in inter-bank transaction were between Tk 82.20 and Tk 81 on the day, while the dollar rate in kerb market was around Tk 86-88.

A BB senior official told New Age that the dollar crisis in commercial banks had turned into an alarming situation.

‘A number of banks have informed the BB in last few days they were unable to open LCs against import orders because of severe dollar shortage,’ said the official.

He said the shortage of dollar against the demand pushed up the rate of the US currency to Tk 82 against taka from Tk 77 in just one month.

The buying and selling rates of dollar in inter-bank transaction at the beginning of the December were between Tk 76.98 and Tk 77.01.

The average dollar exchange rate, set by BB, was Tk 70.35 on October 18, 2010 and it was Tk 74.23 on June 30 this year.

A top official of a commercial bank, which is facing problem in opening LCs, told New Age on Wednesday that they were unable to collect the greenbacks.

‘The main reason for the dollar shortage is decline in the remittance inflow. We are declining to open large LCs for import while opening only small scale LCs,’ he said.

The managing director of City Bank, K Mahmood Sattar, told New Age that the banking sector was in a tight spot with regards to the dollar supply.

‘We are managing the dollar related issues by selectively opening LCs. The management of dollar now depends how efficiently a bank can handle the LCs,’ he said.

Sattar, who is the immidiate past chairman of the Bankers’ Association of Bangladesh, said that the current shortage of dollar resulted from low growth of remittance and high growth in imports.

‘Besides, the lending agencies’ reluctance in disbursing foreign loans also turned the whole forex market into tatters,’ he said.

Sattar said that the dollar shortage might ease if the International Monetary Fund and other lenders release their committed loans.

A senior official of BB said that the central bank was unable to intervene in the dollar market because of its declining forex reserve. The BB’s forex reserve is now hovering around $9.50 billion, coming down from $11.32 billion in March.

‘Rise in import of fuel oil and other products and the government’s debt servicing and decline in foreign loan disbursement caused the volatility in the dollar exchange rate,’ he said.

He also pointed out that most of the mobile operators, which are foreign companies, had sent a huge amount of dollar abroad as part of their share of profits. ‘These operators pay tax and licence fees to government in local currency but send their share of profits in dollar,’ he said.

The official said that the crisis would persist in the coming months if the remittance growth would not increase.

Bangladesh Bank officials also said that imports were also facing tough time because of the devaluation of taka as the import cost of their products was rising. ‘The devaluation of taka is a severe blow to central bank’s effort to curb inflation,’ said an official.

BB data showed that opening of LCs in the first two weeks of December declined by 39 and 27 per cent respectively from the same period of last year because of soaring price of dollar.

In the first week of December LCs against imports worth $157.98 million were opened against $261 million during the same period last year while LCs worth $449.43 million were opened in the second week of December against $624.14 million during the same period last year.

Foreign exchange dealers said that dollar rate in the kerb market was around Tk 86-88 on Wednesday.

The taka has depreciated by Tk 12 against the US Dollar in the current year. The inter-bank currency exchange rate stood at Tk 70.32 at the beginning of this year.

New Age | Newspaper

 

[ziaulislam]

not surprising PPPP in pakistan is doing the same..

 

[idune]

2011 worst year for DSE since 1997


Babul Barman

Dhaka stocks passed the worst year since 1997 as its benchmark index plunged 37 per cent wiping out Tk891 billions worth of market capitalisation and gutting savings of tens of thousands of investors

When the market's half a decade-long unbroken bull-run ended on December 8, 2010, its three million investors had hoped against hope that the bleeding would stop sometime in 2011.

They waited throughout the year crossing fingers for a turnaround. But barring some spasmodic upswings, the market continued to tumble, sending hapless investors on to the streets for countless occasions.

"It was a year to forget for the market and the investors, many of whom have become penniless due to steep nosedive of stocks," said Salahuddin Ahmed Khan, a professor of finance at Dhaka University.

The Dhaka Stock Exchange general index (DGEN), the main market gauge, ended the "annus horribilis' at 5,257.60 on Thursday shedding around 3,000 points or 37 per cent --- its worst feat since 1997 when it lost 67 per cent.

The year ended with the DSE market capitalization standing at Tk 2,616.73 billion, losing a fourth of its value --- or about US$12 billion --- over the last twelve months.

Last year, the DGEN gained 81 per cent while the broader DSI index and the Blue Chips-30 made similar gains, defying warnings by the Securities and Exchange Commission (SEC) that the market might see major corrections.

Daily average turnover value came down to Tk 6.64 from Tk 16.83 billion, down by almost 60 per cent. PE (Price Earrings) ratio eased to a bargain-hunting 13 from an abnormally high of 30.

While hundreds of investors hit the roads to protest the extended plunge, tens of thousands digested the pain silently at home as they saw most of their lifelong savings disappear into thin air.

The number of Beneficiary Owners (BO) account holders nearly doubled to 3.3 million in 2010, lured by more than 300 percent hike in three years. But more than 0.7 million BO accounts holders did not renew accounts in 2011 due to the slide.

Two people committed suicide, allegedly after losing their entire savings and borrowings in the crash. Growth in the country's booming real estate market almost ground to a halt --- a major fallout of the capital market debacle.

Stocks never recovered from the back-to-back record slide on January 9 and 10 when the DGEN lost over 15 per cent, sending shockwaves across the country. Trading was suspended on January 23-24 to rein the market's abnormal behaviour.

"There is no doubt that the market was abnormally high in 2010. So a plunge is quite expected. But looking back, we can say that the impact of the debacle could have been minimised through prudent policies," said ex-advisor Mirza Azizul Islam.

"Besides, the debacle was partly a result of the policymakers' wrong handlings. There was lack of coordination in the decisions made by the SEC and the central bank," he added.

To make matter worse, central bank tightened money supply by raising policy rates such as repo and reverse repo four times this year. The aim was to curb inflation which hit a record high in September.

The Bangladesh Bank also ordered some of the reckless banks to scale back their exposure to the share market, drying up flow of institutional fund to the stocks when the investors needed most.

The SEC, the BB and the National Board of Revenue unveiled a series of steps to halt the slide intermittently throughout the year. Instead of reviving the market, some of these moves spawned wild rumours, denting investors confidence.

"It is true that BB had no choice but to curb money supply to rein in inflation. But the regulators controlled liquidity at a time when the market needed it most. They also failed to check manipulation," said Khan.

Finding no hopes, small investors became vandalistic, turning the Motijheel commercial area into battlefield between protesters and law-enforcers. Many vented their anger by damaging cars and vehicles.

Probe Committee:

The government formed a four-member committee on January 27 headed by Krishi Bank Chairman and ex-deputy governor of the BB Khondkar Ibrahim Khaled to probe the stock crash.

The probe body made a raft of recommendations including recasting the entire SEC and demutualization of the bourse. It presented 15 case studies as proof of extensive market manipulation by some rogue businessmen.

The government duly obliged, appointing a new chief and four members for the SEC. It also postponed the book building method for initial public offering (IPO) after the pricing method's alleged misuse was blamed for the debacle.

While the newly-cast SEC got a thump of approval from the investors, it failed to inject new momentum in the market owing largely to lack of liquidity, dearth of institutional players, lukewarm confidence and absence of heavyweight listing.

Of the 15 new issues listed at the DSE in 2011, eight were equity securities, six mutual funds and one convertible bond, according to DSE data. Last year 21 new companies floated their shares.

Twenty-one listed companies raised Tk 23.41 billion, including premium, this year from the stock market through rights shares which is 33 per cent higher than last year.

Time to time state-owned Investment Corporation of Bangladesh, the Association of Bankers, Bangladesh (ABB) and Bangladesh Association of Banks (BAB) came up with plans to improve liquidity, but many of their assurances turned out to be mere wish-list.

As the market tumbled below 5,000 threshold after nearly two years, Prime Minister Sheikh Hasina called an emergency meeting in November with the stakeholders to discuss the situation and to devise ways to rejuvenate the bourses.

In line with Hasina's directive, the SEC last month unveiled a 21-point stock market stimulous package, which included a special scheme to bail out the worst affected investors.

The regulator also unveiled short, medium and long-term measures to rescue the market. It also made holding of at least 30 per cent stakes of a listed company by its sponsors-directors mandatory.

Momentarily, the market seemed to have turned around, extending a bull run for two-week --- the year's longest --- at a stretch. But it lost ground as the package failed to ignite the interest of the institutional players.

According to the new SEC rule, each director of a listed company, other than the independent director(s), must hold a minimum of two per cent stake in of the company's total paid-up capital.

As a result, some 1,100 sponsor/directors of 202 listed firms now have to buy shares to fulfill the minimum requirement, according to the DSE figures

Until Thursday, more than 35 sponsor/directors have announced to buy their companies' stakes. The news of their large-scale buy seemed to have boosted confidence of the investors in the year's last few sessions.

From December 4, face-value of all equity shares and mutual fund units were turned into Tk 10 each, according to a new SEC directive that experts say will help scale up supply of shares in the stock market.

Still experts are far from convinced that the SEC's latest package could steer the market out of the doldrums. This time they said the danger mainly comes from the country's stuttering economy.

"If the regulator can implement the package properly, the market may stablise in the coming year. But the market now faces an array of new challenges as overall economy is not in good shape," said Mr Khan.

The government had set a target to attain seven per cent economic growth in the 2011-12 financial year. But the finance minister this week said the goal would be difficult to achieve as the economy faces external and internal strains.

Both professor Khan and Mr. Islam said the best remedy for the moribund market would be to attract more companies to raise fund through Initial Public Offering (IPO).

"The SEC and the government should make the supply side strong to attract fresh investors," said Islam, also an ex-SEC chairman, adding the market could still bounce back in the new-year as it has shown a sign of "nascent recovery" at the fag end of the outgoing year.

Ahmad Rashid Lali, a DSE Director and top trader, is also hopeful about a cheery new year, saying, though, much would depend on sponsor-directors compliance with the regulator's directive to hold minimum share holding.

2011 worst year for DSE since 1997

 

[idune]

Economy: present tense, future indefinite

Shakhawat Hossain

Tumbling forex reserve, a weak local currency, surging import payment, declining inflow of remittance, dwindling foreign loans and ballooning inflation made 2011 a most turbulent year on the economic front.

Experts fear that the new year, also penultimate year of the Awami League-led alliance government’s five-year tenure, could be even grimmer as it is facing daunting challenges to streamline the economic indicators which are under severe strains.


They pointed out that a series of decisions over the last two years by the present government, mainly non-economic in nature, proved to be unfriendly and damaging to the economy.

‘Looming uncertainties on the economic front worries everyone,’ Zaid Bakth, research director of the Bangladesh Institute of

Development Studies, told New Age.

He pointed out that improvement of the situation depended heavily on release of loans by the donor agencies which had suspended disbursement of around $4.5 billion credits for an infrastructure project, and budgetary support in the current fiscal.

Consumer Association of Bangladesh secretary Humayun Kabir said that people had suffered a lot due to ballooning cost of living throughout the year.

Transport fare hike and realisation of higher fares from passengers due to lack of monitoring added to the people’s sufferings. A series of upward adjustment in prices of energy aggravated the situation,’ he said.

Morshed Ali, president of the Bangladesh Krishak Samity, observed that 2011 was the frustrating for the farmers in the last three years of the present government.

Farmers were deprived of fare price of rice, jute and potato last year, he said, adding that the production costs had increased substantially due to price hike of agricultural inputs.

The country’s foreign exchange reserve which was hovering around $11 billion plus in 2011 and proved to be an advantage for the government, slipped to single digit for the first time in three years in last November.

Bangladesh Bank spokesperson Jahangir Alam told New Age that the forex reserve would dip further as the central bank was struggling to contain the surging payment of import bills against the backdrop of lower-than-expected inflow of remittance and foreign loans.

The country’s overall import payments grew by nearly 22.04 per cent between July and November due mainly to a sharp increase in the fuel import costs. It stood at $14.84 billion compared to $12.16 billion in the corresponding period of the last fiscal year.

Import bill of fuel oils alone increased by 82.53 per cent in the first four months of the current fiscal to $1.68 billion from $924.42 million in the same period of the last fiscal to feed the oil-guzzling rental power plants.

The local currency Taka depreciated by Tk 11 against the US Dollar in 2011, the highest in a single year since the country’s independence in 1972.

Bangladesh Federation of Chamber and Commerce Industries president AK Azad said depreciation of the local currency against the greenback had further pushed up import costs.

He pointed out that the government’s borrowing from the banking sources had increased alarmingly and put a negative impact on the private sector.

‘The private sector is already feeling the crowding-out effect after the government exhausted its borrowing target of Tk 190 billion for the current fiscal in the first five months,’ he said.

Finance minister AMA Muhith recently admitted that the government was forced to depend on bank borrowings to meet the subsidies on imported fuel oils and power generation.

According to a finance ministry calculation, the demand for subsidy by ministries and divisions stood around Tk 45 billion although the finance ministry set aside Tk 17.57 billion for the purpose in the current budget.

The finance ministry’s calculation included a three-round price hike of fuel oils and upward adjustment in prices of other subsidised goods.

Muhith said the government had delayed upward adjustment of energy prices and was facing uncertainty due to high inflation which stood at 11.58 per cent in November from 11.42 per cent in October.

He expressed doubt if the projected seven per cent growth of the gross domestic product could be achieved.

Former caretaker government adviser Akbar Ali Khan suggested austerity steps to cut the government spending immediately. He said the government should drop unnecessary projects to save the economy from further danger.

Debapriya Bhattacharya, senior fellow of the Centre for Policy Dialogue, however, said cost cutting measures would not be enough to overcome the problems.

He suggested that the government should speed up negotiation process to secure release of the foreign loans.

The country received only $330 million in aid from different bilateral and multilateral donors in July-October period, while it repaid $321.18 million during the same period.

The net foreign loans stood at just $8.82 million leading to a negative balance of payment.

The country’s exports between July and November grew 17 per cent to $9.7 billion, but 3.5 per cent below the target. For the current fiscal year, Bangladesh is targeting exports of $26.5 billion.

New Age | Newspaper

 

[Roybot]

I think its a bit unfair to blame AL for the slowdown in the export. There is a global slowdown, so it was bound to happen. Good news is that the export still grew, and the growth was only 3.5 percent short of the target.