Bangladesh forex reserves sink below $36 billion despite spending restrictions

[mb444]

There is a lot of doom and gloom in the forum and there is a group who is eternally optimistic without any understanding of basic economics. The reality is somewhere in the middle.

First about reserves, they will fall further before stabilising and rising. BD economy is strong enough.

You have people who thinks reserves means saving that can be used in rainy day. That is not what it means.

Every country maintains certain quantity of money in circulation. For a country like BD whose currency is not convertible we also need to hold money in foreign currency to enable trade. This is the foreign currency reserves, it is part of BD basic money circulation held in a foreign currency. Each dollar that comes in BB removes from general circulation Taka to maintain the overall equilibrium of money.

BD 36 billion is more than enough to carry on for more than a year or more of trade. The reason is as follows, BD is getting inward remittances of about $4b in per month through expats and trade and is releasing about $5.5b in to the open market at this moment. The deficit is falling month on month and BB is doing a good job.

The ratio that comes up in news article do not explain this. IMF ratio is a simple KPI of how much reserves do you have vs how much you need for exports. It does not consider inward flow of foreign currency.

So the situation is not that bad at all given that BD had to withstand the privation of the pandemic. Additionally some 35% of our imports consists of cotton and other inputs for our industry. There is a lead time but these in turn will materialise as export. Other green shoots are high number of workers who are going abroad. Typically it takes them six months before they are able to start sending money home. In time we will see increase in remittances, the key here is to bring these in via official channels.

Oil and other energy imports makes up another 30-35%. These guarantee economic activity and whilst wont assist directly in reducing the reserve crunch will keep the economic growth alive and help in tax generation.

The remaining third is import of food and other stuff. Again these keep the economy growing.

Having stated the positives there are also negatives in the horizon. World will experience a recession and exports may take a hit. We will suffer but give the type of product we sell with low price elasticity I think we will be able to absorb it with some belt tightening.

Now to the most serious issue we face.... the very low income generation via tax revenues. This absolutely needs to be addressed. If we can not increase income tax GB needs to increase indirect tax via Vat and property tax and put up import duties for all non necessary items.

The situation is simple. GB does not have enough funds to hand. Other than raising revenue it can only borrow internally or externally like from IMF or print money.

The last is never an option unless you want to tank the economy. Reason is simple any unbalanced and unfunded expenditure by the government has two major impact in the economy. First in one stroke you devalue the balance sheet of all your banks (the money they hold in taka) and secondly you reduce the value of their loan portfolio (all the loans they have given in taka). This leave the banks with only option that is to raise their interest. Impact the economy comes to a grinding halt.

BB must never do this whatever happens. Keynesian economics of paying your way out of trouble only works in specific instances and BD scenario is not that.

Anyhow in conclusion there are challenges ahead. Impact of the pandemic can not be avoided, the russia scenario has just made it worse. BB is managing the situation in my opinion competently and I applaud their management of the reserve crunch. I know that wont be a popular position but it is my opinion.

BD economy now has resilence. In about a month and a half post flood we will have a bumper harvest. There will be no famine.

GCC armed with massive increase in revenue is on a spending spree and I said before our workers are going there in record number.

BD real inflation is certainly double digit and common people are certaintly hurting but it will come down. The removal of fuel subsidy had to go sometimes and that action has been taken. Food subsidy need to continue for the foreseeable future but BD does need to offload loss making public enterprises. Sell these off to private enterprises and let them restructure.

There is always a silver lining to any crisis. BD should see this as an opportunity to take some hard political decisions that would not have been possible under normal circumstances.

Things will get worse in the next 6 months and the people will suffer but i believe BD will come out stronger.

 

[mb444]

There are so many underwears you can export to exploit your cheap labor and not import basics that these workers, who are bringing in the foreign exchange, need to improve their quality of their life. BD is a clear example of a country that has institutionalized slave labor, to show higher reserves and for the benefit for some, it is the Indian model and both will fail.

Economic development is much more balanced and income disparity is much lower in BD than india.

BD can not generate the number of jobs it requires so manpower export is necessary. It has also concentrated on low skill but high labour volume sector to address this.

I have some sympathy with your claim of institutionalised slave labor. BD labor unions are discouraged and on the whole inoperational to the detriment of the people.

All i say in mitigation of this is that even institutionalised slave labor is better than majority of the people languishing under a subsistence economy.

BD has come a long way since independence. Post partition BD was left without a functioning economy without the industrial base that remained in west bengal. A new economy and logistics mechanism takes time to materialise and BD took a second hit in 1971.

The millions of RMG workers may be are institutionalised slaves, but their kids are going to school and their future will be better than their parents. The demographic dividend that BD experiencing has lead to the development of one of the largest pool of IT freelancers who are servicing the world.

BD population is on course to decline, its populations general education is rising, new opportunities are opening up in country and aboard that are being exploited.

BD model is not the indian model. It has many issues and in its future it will stumble many times but through all that incremental broad-based progress is a reality. The glass is half full and the future is not all negative.

 

[EasyNow]

Development ar churi duitai ekshathey hoisey - alada korey to dekha jabena.

Bhai Churi korsey dekhei to ei obostha. Churi kortey kortey pagol hoye gesey, shesh porjonto reserve e haat disey. Lootpater shesh nai.

Vote pawar jonno onek project korsey jeguli nijerao porey baad disey. Jemon Payra ke deep sea port banano.

Dhaka-Chittagong Bullet train er shudhu feasibility'r jonno 100 crore khoroch korsey, that money will never see the light of day again.

Reserve thekey besh valo amount (9-10 Billion) niye loan hishabey crony der disey, oi taka ar ferot pawa jabena.

@Nergal bhai ami bhool bolsi kona bolen.....

Bro this is a very simplistic picture of the situation. All development is not corruption and a lot what you are saying is pure speculation.

If things were like you are painting, we would have vanity projects and 600ft statues to maximise theft - no payra project would be abandoned. Instead we have feasibility studies, bridges, ports, roads, energy and transport works. Mostly essential investments that have proven themselves.

On one hand people say it's a dictatorship, then you say vote pawar jonno payra port announce korse. It makes no sense.

All major analysts accept that BD has been conservative when it comes to debt and development. The debt to GDP ratio is still very reasonable.

Objectively, that tells you there is prudence - its clearly not all loot and you shouldn't tarnish all development as corruption.

Yes there is graft - but that is a problem of our 3rd world society not just govt. At every stage there are people trying to cut corners or make commission - in govt and in the private sector. So in a way, it's a miracle that any these projects have materialised.

I have seen BD in front of my eyes for successive regimes. Everyone has stolen, but none other has achieved any development to speak of whatsoever.

The worldwide recession on the other hand is anything but speculation. Have you seen inflation in USA and UK? How on earth does anyone expect BD to fare better?

There is a lot of doom and gloom in the forum and there is a group who is eternally optimistic without any understanding of basic economics. The reality is somewhere in the middle.

First about reserves, they will fall further before stabilising and rising. BD economy is strong enough.

You have people who thinks reserves means saving that can be used in rainy day. That is not what it means.

Every country maintains certain quantity of money in circulation. For a country like BD whose currency is not convertible we also need to hold money in foreign currency to enable trade. This is the foreign currency reserves, it is part of BD basic money circulation held in a foreign currency. Each dollar that comes in BB removes from general circulation Taka to maintain the overall equilibrium of money.

BD 36 billion is more than enough to carry on for more than a year or more of trade. The reason is as follows, BD is getting inward remittances of about $4b in per month through expats and trade and is releasing about $5.5b in to the open market at this moment. The deficit is falling month on month and BB is doing a good job.

The ratio that comes up in news article do not explain this. IMF ratio is a simple KPI of how much reserves do you have vs how much you need for exports. It does not consider inward flow of foreign currency.

So the situation is not that bad at all given that BD had to withstand the privation of the pandemic. Additionally some 35% of our imports consists of cotton and other inputs for our industry. There is a lead time but these in turn will materialise as export. Other green shoots are high number of workers who are going abroad. Typically it takes them six months before they are able to start sending money home. In time we will see increase in remittances, the key here is to bring these in via official channels.

Oil and other energy imports makes up another 30-35%. These guarantee economic activity and whilst wont assist directly in reducing the reserve crunch will keep the economic growth alive and help in tax generation.

The remaining third is import of food and other stuff. Again these keep the economy growing.

Having stated the positives there are also negatives in the horizon. World will experience a recession and exports may take a hit. We will suffer but give the type of product we sell with low price elasticity I think we will be able to absorb it with some belt tightening.

Now to the most serious issue we face.... the very low income generation via tax revenues. This absolutely needs to be addressed. If we can not increase income tax GB needs to increase indirect tax via Vat and property tax and put up import duties for all non necessary items.

The situation is simple. GB does not have enough funds to hand. Other than raising revenue it can only borrow internally or externally like from IMF or print money.

The last is never an option unless you want to tank the economy. Reason is simple any unbalanced and unfunded expenditure by the government has two major impact in the economy. First in one stroke you devalue the balance sheet of all your banks (the money they hold in taka) and secondly you reduce the value of their loan portfolio (all the loans they have given in taka). This leave the banks with only option that is to raise their interest. Impact the economy comes to a grinding halt.

BB must never do this whatever happens. Keynesian economics of paying your way out of trouble only works in specific instances and BD scenario is not that.

Anyhow in conclusion there are challenges ahead. Impact of the pandemic can not be avoided, the russia scenario has just made it worse. BB is managing the situation in my opinion competently and I applaud their management of the reserve crunch. I know that wont be a popular position but it is my opinion.

BD economy now has resilence. In about a month and a half post flood we will have a bumper harvest. There will be no famine.

GCC armed with massive increase in revenue is on a spending spree and I said before our workers are going there in record number.

BD real inflation is certainly double digit and common people are certaintly hurting but it will come down. The removal of fuel subsidy had to go sometimes and that action has been taken. Food subsidy need to continue for the foreseeable future but BD does need to offload loss making public enterprises. Sell these off to private enterprises and let them restructure.

There is always a silver lining to any crisis. BD should see this as an opportunity to take some hard political decisions that would not have been possible under normal circumstances.

Things will get worse in the next 6 months and the people will suffer but i believe BD will come out stronger.

Buddy there is no eternal optimism. Every Bangladeshi on earth knows that BD is a 3rd world country with deep seated structural problems in its economy and widespread corruption.

What you are seeing as optimism is just an appreciation that things are much better than they used to be - and this country which none had much hope for, is doing ok

 

[Bilal9]

There is a lot of doom and gloom in the forum and there is a group who is eternally optimistic without any understanding of basic economics. The reality is somewhere in the middle.

First about reserves, they will fall further before stabilising and rising. BD economy is strong enough.

You have people who thinks reserves means saving that can be used in rainy day. That is not what it means.

Every country maintains certain quantity of money in circulation. For a country like BD whose currency is not convertible we also need to hold money in foreign currency to enable trade. This is the foreign currency reserves, it is part of BD basic money circulation held in a foreign currency. Each dollar that comes in BB removes from general circulation Taka to maintain the overall equilibrium of money.

BD 36 billion is more than enough to carry on for more than a year or more of trade. The reason is as follows, BD is getting inward remittances of about $4b in per month through expats and trade and is releasing about $5.5b in to the open market at this moment. The deficit is falling month on month and BB is doing a good job.

The ratio that comes up in news article do not explain this. IMF ratio is a simple KPI of how much reserves do you have vs how much you need for exports. It does not consider inward flow of foreign currency.

So the situation is not that bad at all given that BD had to withstand the privation of the pandemic. Additionally some 35% of our imports consists of cotton and other inputs for our industry. There is a lead time but these in turn will materialise as export. Other green shoots are high number of workers who are going abroad. Typically it takes them six months before they are able to start sending money home. In time we will see increase in remittances, the key here is to bring these in via official channels.

Oil and other energy imports makes up another 30-35%. These guarantee economic activity and whilst wont assist directly in reducing the reserve crunch will keep the economic growth alive and help in tax generation.

The remaining third is import of food and other stuff. Again these keep the economy growing.

Having stated the positives there are also negatives in the horizon. World will experience a recession and exports may take a hit. We will suffer but give the type of product we sell with low price elasticity I think we will be able to absorb it with some belt tightening.

Now to the most serious issue we face.... the very low income generation via tax revenues. This absolutely needs to be addressed. If we can not increase income tax GB needs to increase indirect tax via Vat and property tax and put up import duties for all non necessary items.

The situation is simple. GB does not have enough funds to hand. Other than raising revenue it can only borrow internally or externally like from IMF or print money.

The last is never an option unless you want to tank the economy. Reason is simple any unbalanced and unfunded expenditure by the government has two major impact in the economy. First in one stroke you devalue the balance sheet of all your banks (the money they hold in taka) and secondly you reduce the value of their loan portfolio (all the loans they have given in taka). This leave the banks with only option that is to raise their interest. Impact the economy comes to a grinding halt.

BB must never do this whatever happens. Keynesian economics of paying your way out of trouble only works in specific instances and BD scenario is not that.

Anyhow in conclusion there are challenges ahead. Impact of the pandemic can not be avoided, the russia scenario has just made it worse. BB is managing the situation in my opinion competently and I applaud their management of the reserve crunch. I know that wont be a popular position but it is my opinion.

BD economy now has resilence. In about a month and a half post flood we will have a bumper harvest. There will be no famine.

GCC armed with massive increase in revenue is on a spending spree and I said before our workers are going there in record number.

BD real inflation is certainly double digit and common people are certaintly hurting but it will come down. The removal of fuel subsidy had to go sometimes and that action has been taken. Food subsidy need to continue for the foreseeable future but BD does need to offload loss making public enterprises. Sell these off to private enterprises and let them restructure.

There is always a silver lining to any crisis. BD should see this as an opportunity to take some hard political decisions that would not have been possible under normal circumstances.

Things will get worse in the next 6 months and the people will suffer but i believe BD will come out stronger.

Thanks for this really detailed and informative post @mb444 bhai.

There will be some foreseeable pain before any gain, we all realize this.

 

[Bilal9]

Bro this is a very simplistic picture of the situation. All development is not corruption and a lot what you are saying is pure speculation.

If things were like you are painting, we would have vanity projects and 600ft statues to maximise theft - no payra project would be abandoned. Instead we have feasibility studies, bridges, ports, roads, energy and transport works. Mostly essential investments that have proven themselves.

On one hand people say it's a dictatorship, then you say vote pawar jonno payra port announce korse. It makes no sense.

All major analysts accept that BD has been conservative when it comes to debt and development. The debt to GDP ratio is still very reasonable.

Objectively, that tells you there is prudence - its clearly not all loot and you shouldn't tarnish all development as corruption.

Yes there is graft - but that is a problem of our 3rd world society not just govt. At every stage there are people trying to cut corners or make commission - in govt and in the private sector. So in a way, it's a miracle that any these projects have materialised.

I have seen BD in front of my eyes for successive regimes. Everyone has stolen, but none other has achieved any development to speak of whatsoever.

The worldwide recession on the other hand is anything but speculation. Have you seen inflation in USA and UK? How on earth does anyone expect BD to fare better?



Buddy there is no eternal optimism. Every Bangladeshi on earth knows that BD is a 3rd world country with deep seated structural problems in its economy and widespread corruption.

What you are seeing as optimism is just an appreciation that things are much better than they used to be - and this country which none had much hope for, is doing ok

All good points but let's wait for the next hack of Panama Papers and we shall all see how much AL leaders have looted and stashed in S'pore and Zurich banks.

I have it on very credible personal account that top AL functionaries move around with briefcases filled with crores of Takas just in case they have to leave Bangladesh at a moment's notice. If we don't believe this - then we are all Naïve.

 

[mb444]

Bro this is a very simplistic picture of the situation. All development is not corruption and a lot what you are saying is pure speculation.

If things were like you are painting, we would have vanity projects and 600ft statues to maximise theft - no payra project would be abandoned. Instead we have feasibility studies, bridges, ports, roads, energy and transport works. Mostly essential investments that have proven themselves.

On one hand people say it's a dictatorship, then you say vote pawar jonno payra port announce korse. It makes no sense.

All major analysts accept that BD has been conservative when it comes to debt and development. The debt to GDP ratio is still very reasonable.

Objectively, that tells you there is prudence - its clearly not all loot and you shouldn't tarnish all development as corruption.

Yes there is graft - but that is a problem of our 3rd world society not just govt. At every stage there are people trying to cut corners or make commission - in govt and in the private sector. So in a way, it's a miracle that any these projects have materialised.

I have seen BD in front of my eyes for successive regimes. Everyone has stolen, but none other has achieved any development to speak of whatsoever.

The worldwide recession on the other hand is anything but speculation. Have you seen inflation in USA and UK? How on earth does anyone expect BD to fare better?



Buddy there is no eternal optimism. Every Bangladeshi on earth knows that BD is a 3rd world country with deep seated structural problems in its economy and widespread corruption.

What you are seeing as optimism is just an appreciation that things are much better than they used to be - and this country which none had much hope for, is doing ok

I am also part of the optimistic bandwagon. BD economy has reached a position where it has great depth of resilience.

But having said that I also urge realism erring on the side of logic. I have great pride in BDs achievement but polemic chest thumping without any basis in economic consideration of cause and effect damages and belittles BDs cause.

 

[Bossman]

Indians should not come to Bangladesh forum to create trouble and do name-calling. Please return to your Mahabharat Forum.

No one from BD participates in your forum where you keep on stating how brilliant were Indian scientists that they sent Moon missions five thousand years ago.

I am not Indian, this is a Pakistani defense forum and I can go anywhere I want. I mess with the Indians much more. As I said I like the Bangla Bhais.