Coping with the twin shocks of inflation and depleting forex reserves

[Imran Khan]

Coping with the twin shocks of inflation and depleting forex reserves​

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Selim Raihan

Sun Dec 4, 2022 12:34 AM Last update on: Sun Dec 4, 2022 12:38 AM


Photo: Rajib Raihan

Will a sizeable section of the population be facing food insecurity due to high inflationary pressures? And will the sharp depletion of foreign exchange reserves lead to macroeconomic instability? These are two major concerns that the country must now deal with as it struggles to come out of the current economic crisis.
Inflation has been hovering at between 6 and 9.5 percent since February 2021, and there are concerns that the actual inflation rate might be higher. Official rates of inflation may be underestimated since the Bangladesh Bureau of Statistics (BBS) still uses the 2004-2005 data to calculate the consumer price index.
There are four reasons for the soaring inflation of recent months – escalated prices of food, fuel, and other commodities in the global market; domestic production shortage; imperfections and anomalies in the local markets and supply-side disruptions; and currency depreciation. As always, low income groups are the worst sufferers. They are being forced to switch to cheaper food options, and cut down on costs of education, healthcare and entertainment, leading to deteriorating living standards that will result in negative intergenerational impacts.

A rising tide can sink all boats too​

Read more
Repeated surveys by Sanem among 1,300 garment workers in five cities in the last several months found that the food security indices of the workers and their families continued to decline. A delayed intervention will not work with the risk of food insecurity persisting for long. Though there is little scope for famine in Bangladesh, the risk of food shortage for marginalised communities and groups living in remote areas remains. The next two to three months are crucial for taking steps to deal with this.
In addition to boosting agricultural production, facilitating imports, and addressing market imperfections and manipulation through monitoring, the government should expand social protection programmes immediately to support the people reeling from escalated food prices.
However, institutional and corruption-related challenges need to be addressed, too. There are always targeting errors in these programmes – those who are not supposed to receive assistance are getting it whereas those who need it the most are left out. The amount of support is small, and the coverage is low as well.

Regarding food security, we can use scientific methods to estimate food availability and actual demand, in order to find out production and import requirements, since incorrect supply and demand assessments lead to wrong policy choices. This can then create panic and allow vested quarters to spread misinformation about food shortage, and use the situation to make abnormally high profits from food prices.
In the last 11 months, on average, the foreign exchange reserve dropped by more than USD 1 billion each month. This sharp depletion of reserves has put macroeconomic stability in danger. Though Bangladesh is not in a precarious situation yet, there is a danger if the rate of depletion does not slow down. Policies and strategies need to be put in place to boost reserves in order to meet import liabilities for 8-10 months.
The taka has also lost its value sharply against the US dollar amid a shortage of the latter and a surge in import bills. Although the taka depreciated by more than 50 percent between 2010 and 2022, the sharpest depreciation happened only over the past few months since, before that, the taka was kept artificially appreciated. In contrast, India, Vietnam, and Indonesia allowed a gradual depreciation of their currencies to avoid sudden shocks.

Financial sector reforms necessary to get rid of default loans​

Read more
The exchange rate regime in Bangladesh still remains highly distorted, as there are separate exchange rates for importers, exporters, remitters, and in curb markets. There must be a proper convergence of these multiple rates if we are to avoid further macroeconomic instability.
The trends in exports and remittances over the past few months haven't been encouraging, either. In a bid to contain imports, the opening of letters of credit (LCs) to import capital machinery declined drastically during July to September. Similarly, the opening of LCs for importing intermediate goods and industrial raw materials fell by more than 14.5 percent during the same period, which could cause economic growth and employment generation to decelerate in the current financial year. Micro, small and medium enterprises (MSMEs), which are most likely to be affected by this, will need special policy interventions to cope.
The looming global recession is not good news for our exports and remittances. We must prioritise diversification of our export basket and address supply-side constraints, including the high cost of doing business. The hundi business, an illegal cross-border money transfer system, needs to be restricted to augment the flow of remittances through legal channels. It should be kept in mind that the hundi business is not only used by expatriates to send money home through informal channels, but also by people inside the country to illicitly transfer their wealth abroad. Unless these transfer routes from Bangladesh are restricted, there will always be demand for hundi.
Dr Selim Raihan is a professor at the Department of Economics of the University of Dhaka, and executive director at the South Asian Network on Economic Modeling (Sanem).

Coping with the twin shocks of inflation and depleting forex reserves

Dealing with these two major challenges is essential for macroeconomic stability

www.thedailystar.net

 

[SoulSpokesman]

@Imran Khan

IK sb,

Sadly this is not the story of the entire third world, not just BD.

Regards

 

[Imran Khan]

@Imran Khan

IK sb,

Sadly this is not the story of the entire third world, not just BD.

Regards

you have not read it carefully sir

Official rates of inflation may be underestimated since the Bangladesh Bureau of Statistics (BBS) still uses the 2004-2005 data to calculate the consumer price index.

The government recently finalized 2015-16 as the new base year to calculate (GDP).

so they were calculating inflation as per 2004-5 price index
while gdp calculation was 2015-16 base year

 

[BananaRepublicUK]

Coping with the twin shocks of inflation and depleting forex reserves​

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Selim Raihan

Sun Dec 4, 2022 12:34 AM Last update on: Sun Dec 4, 2022 12:38 AM


Photo: Rajib Raihan

Will a sizeable section of the population be facing food insecurity due to high inflationary pressures? And will the sharp depletion of foreign exchange reserves lead to macroeconomic instability? These are two major concerns that the country must now deal with as it struggles to come out of the current economic crisis.
Inflation has been hovering at between 6 and 9.5 percent since February 2021, and there are concerns that the actual inflation rate might be higher. Official rates of inflation may be underestimated since the Bangladesh Bureau of Statistics (BBS) still uses the 2004-2005 data to calculate the consumer price index.
There are four reasons for the soaring inflation of recent months – escalated prices of food, fuel, and other commodities in the global market; domestic production shortage; imperfections and anomalies in the local markets and supply-side disruptions; and currency depreciation. As always, low income groups are the worst sufferers. They are being forced to switch to cheaper food options, and cut down on costs of education, healthcare and entertainment, leading to deteriorating living standards that will result in negative intergenerational impacts.

A rising tide can sink all boats too​

Read more
Repeated surveys by Sanem among 1,300 garment workers in five cities in the last several months found that the food security indices of the workers and their families continued to decline. A delayed intervention will not work with the risk of food insecurity persisting for long. Though there is little scope for famine in Bangladesh, the risk of food shortage for marginalised communities and groups living in remote areas remains. The next two to three months are crucial for taking steps to deal with this.
In addition to boosting agricultural production, facilitating imports, and addressing market imperfections and manipulation through monitoring, the government should expand social protection programmes immediately to support the people reeling from escalated food prices.
However, institutional and corruption-related challenges need to be addressed, too. There are always targeting errors in these programmes – those who are not supposed to receive assistance are getting it whereas those who need it the most are left out. The amount of support is small, and the coverage is low as well.

Regarding food security, we can use scientific methods to estimate food availability and actual demand, in order to find out production and import requirements, since incorrect supply and demand assessments lead to wrong policy choices. This can then create panic and allow vested quarters to spread misinformation about food shortage, and use the situation to make abnormally high profits from food prices.
In the last 11 months, on average, the foreign exchange reserve dropped by more than USD 1 billion each month. This sharp depletion of reserves has put macroeconomic stability in danger. Though Bangladesh is not in a precarious situation yet, there is a danger if the rate of depletion does not slow down. Policies and strategies need to be put in place to boost reserves in order to meet import liabilities for 8-10 months.
The taka has also lost its value sharply against the US dollar amid a shortage of the latter and a surge in import bills. Although the taka depreciated by more than 50 percent between 2010 and 2022, the sharpest depreciation happened only over the past few months since, before that, the taka was kept artificially appreciated. In contrast, India, Vietnam, and Indonesia allowed a gradual depreciation of their currencies to avoid sudden shocks.

Financial sector reforms necessary to get rid of default loans​

Read more
The exchange rate regime in Bangladesh still remains highly distorted, as there are separate exchange rates for importers, exporters, remitters, and in curb markets. There must be a proper convergence of these multiple rates if we are to avoid further macroeconomic instability.
The trends in exports and remittances over the past few months haven't been encouraging, either. In a bid to contain imports, the opening of letters of credit (LCs) to import capital machinery declined drastically during July to September. Similarly, the opening of LCs for importing intermediate goods and industrial raw materials fell by more than 14.5 percent during the same period, which could cause economic growth and employment generation to decelerate in the current financial year. Micro, small and medium enterprises (MSMEs), which are most likely to be affected by this, will need special policy interventions to cope.
The looming global recession is not good news for our exports and remittances. We must prioritise diversification of our export basket and address supply-side constraints, including the high cost of doing business. The hundi business, an illegal cross-border money transfer system, needs to be restricted to augment the flow of remittances through legal channels. It should be kept in mind that the hundi business is not only used by expatriates to send money home through informal channels, but also by people inside the country to illicitly transfer their wealth abroad. Unless these transfer routes from Bangladesh are restricted, there will always be demand for hundi.
Dr Selim Raihan is a professor at the Department of Economics of the University of Dhaka, and executive director at the South Asian Network on Economic Modeling (Sanem).

Coping with the twin shocks of inflation and depleting forex reserves

Dealing with these two major challenges is essential for macroeconomic stability

www.thedailystar.net

Another Dhakaya idiot talking through his backside.

He wants his “kerb market” goons to get better rates

Bangladesh must not standardise exchange rates.

Importers and exporters must get better rates than “kerb market” that is used by crooks and luxury goods importers.

 

[EasyNow]

you have not read it carefully sir

Official rates of inflation may be underestimated since the Bangladesh Bureau of Statistics (BBS) still uses the 2004-2005 data to calculate the consumer price index.

The government recently finalized 2015-16 as the new base year to calculate (GDP).

so they were calculating inflation as per 2004-5 price index
while gdp calculation was 2015-16 base year

What's going on Khansaab - you are normally a very wise person.

You are surely aware that Pakistan itself is going through a forex reserve crisis, an inflation crisis and currency depreciation through the floor. Most likely Pakistan will default if not go bankrupt in 2023.

I'm not sure why you have become so embroiled in the BD economy of late - you will find no comfort in BD problems.

Unfortunately for Pakistan, your internal problems have happened exactly at the wrong time. If you had been more organised and disciplined you may have seen off a global recession. That is exactly what BD is trying to do - so you should be applauding it really.

 

[BananaRepublicUK]

What's going on Khansaab - you are normally a very wise person.

You are surely aware that Pakistan itself is going through a forex reserve crisis, an inflation crisis and currency depreciation through the floor. Most likely Pakistan will default if not go bankrupt in 2023.

I'm not sure why you have become so embroiled in the BD economy of late - you will find no comfort in BD problems.

Unfortunately for Pakistan, your internal problems have happened exactly at the wrong time. If you had been more organised and disciplined you may have seen off a global recession. That is exactly what BD is trying to do - so you should be applauding it really.

Pakistan is getting lonely in the bankruptcy league. He wants Bangladesh to join them

We broke away from Pakistan because we didn’t want to go bankrupt

 

[bluesky]

@Imran Khan

IK sb,

Sadly this is not the story of the entire third world, not just BD.

Regards

And, this 3rd world story was not written by @Imran Khan. But, why do you call out the 3rd world factor instead of seeing things in BD from their proper perspectives?

By the way, our BAL brats already singing a 2nd world Bangladesh with so many flaws in the economic indicators. And, you are here tagging BD as a 3rd world country!! But, you are also the one who systematically supports our Chetona lopsided thinking all the time.

 

[SoulSpokesman]

@bluesky

our BAL brats already singing a 2nd world Bangladesh

Can you point out a single post/thread where my "BAL brat friends" have described BD as a second world nation?

Regards

 

[bluesky]

@bluesky

our BAL brats already singing a 2nd world Bangladesh

Can you point out a single post/thread where my "BAL brat friends" have described BD as a second world nation?

Regards

Read all your posts. I repeat, read all your bloody nasty posts. All are equally stupid and are out of touch with the reality of Bangladesh.

If you are Indian, better write things in their proper perspectives when it is BD. But, you write to please BAL cronies in the forum denying the BD reality.

Are you not from BD with false Indian flags when you keep on singing BAL songs?

 

[SoulSpokesman]

@bluesky

All are equally stupid and are out of touch with the reality of Bangladesh.

I dont know whether my posts are stupid or not; but I cant deny the fact that I don't know the reality as well as any of the BD posters here. But when they make claims. either in favour of or against BD, naturally I seek evidence and go by the publicly available data.

Regards

PS: Btw, who is this Chetona babe that you are referring to in your earlier post. I dont know any Chetona, either in India or BD

 

[Abu Shaleh Rumi]

you have not read it carefully sir

Official rates of inflation may be underestimated since the Bangladesh Bureau of Statistics (BBS) still uses the 2004-2005 data to calculate the consumer price index.

The government recently finalized 2015-16 as the new base year to calculate (GDP).

so they were calculating inflation as per 2004-5 price index
while gdp calculation was 2015-16 base year

My personal input from experience:

Food prices has almost doubled compared to 2019. Prices of construction materials has doubled, fittings prices has almost tripled.

In 2019 I bought per bag portland cement for 300 taka now I have to buy it for 540 taka. Even this price might jump to 600 next week. Lots of construction projects has been abandoned because of this price hike. This isn't a good news for our economy especially day laborers...

 

[bluesky]

@Imran Khan

IK sb,

Sadly this is not the story of the entire third world, not just BD.

Regards

Bro Indian Hanuman, why are you to make lame excuses for the BAL party? Do not you have other things to do except counting the number of waves?

Why do not you get the hell out of our forum? Go back to your own Mahabharata Fotun?”

 

[bluesky]

My personal input from experience:

Food prices has almost doubled compared to 2019. Prices of construction materials has doubled, fittings prices has almost tripled.

In 2019 I bought per bag portland cement for 300 taka now I have to buy it for 540 taka. Even this price might jump to 600 next week. Lots of construction projects has been abandoned because of this price hike. This isn't a good news for our economy especially day laborers...

Who told you food prices doubled in BD. Only few days ago our great economist @UKBengali opened a thread that says the inflation is somewhere near 7%.

We must believe what theseChetonabadis say. Who are you to say the reality in BD?

 

[BananaRepublicUK]

My personal input from experience:

Food prices has almost doubled compared to 2019. Prices of construction materials has doubled, fittings prices has almost tripled.

In 2019 I bought per bag portland cement for 300 taka now I have to buy it for 540 taka. Even this price might jump to 600 next week. Lots of construction projects has been abandoned because of this price hike. This isn't a good news for our economy especially day laborers...

Cost of construction materials has gone up by 60% in the U.K. Food prices up 60% since 2019.

Do you think Bangladesh lives in a bubble?

 

[Abu Shaleh Rumi]

Cost of construction materials has gone up by 60% in the U.K. Food prices up 60% since 2019.

Do you think Bangladesh lives in a bubble?

Do you think Bangladesh is UK? UKs economy is robust and Bangladeshs economy is fragile. Prices hike cuts very deep here...