Recent data released by Bangladesh Bank (BB) suggest that the pressure on the balance of payments (BoP) has subsided somewhat. The stock of international reserves that had dipped below $9.0 billion a few weeks ago recovered and temporarily crossed the 10 billion dollar mark.

This improvement has halted the slide in the dollar value of taka. The Tk/$ exchange rate had depreciated sharply to nearly TK 85/US$, but the replenished stock of international reserves has pushed it up to about TK 82/US$.

Although it is too early to be confident that the improvement will last long, the monetary authorities must have felt relieved at this turn of events after several months of unfavourable developments. Indeed they might interpret this, with some justification, as the outcome of the monetary policy.

There are at least three factors behind this improvement in the balance of payments. First, export earnings during the first six months of this fiscal year (July-Dec 2011) rose by 14.7 per cent.

Although this is much less than the very robust growth of 40.9 per cent during the corresponding period last year, it may be regarded as a good performance given the recessive international economic environment. The export sector has again proved its resilience and competitive strength.

Second, remittances from workers overseas have also grown well (9.3 per cent during July-Dec 2011) after recording the lowest growth rate of this millennium during the last fiscal year (6.0 per cent).

The recovery in remittances occurred despite there being little progress in reopening some of the major labour markets in Muslim countries. It has been attributed to a substantial increase in the number of workers going to other destinations and the depreciation of taka.

Third, import growth decelerated to 16.9 per cent during the July-December 2011 period compared to 36.6 per cent growth during the corresponding period of the previous year. The large depreciation of the exchange value of taka is believed to have played a role in this deceleration.

The value of exports goods and services and remittances during the first half of fiscal year (FY) 2011-12 exceeded that of imports such that the current account was in surplus during the July-December 2011 period after temporarily moving into a deficit in November 2011.

A reduction in the import demand is widely regarded as a good thing for the economy, especially among policymakers. It was explicitly stated to be an important objective of the current monetary policy. A slower import growth is usually interpreted as a switch to domestic goods and hence a boost to domestic production. However, this is not the full story.

A very robust empirical finding of macroeconomics is the positive relationship between import and income; many macroeconomic theories are based in an essential way on such a relationship. A substantial slowdown in import may then be indicative of a slowdown in income growth rather than being a boost to domestic output. This is especially relevant in the case of Bangladesh.

Table 1 below, drawn up from recent data provided by Bangladesh Bank, shows the structure of imports of the country. A striking feature of this structure is the unimportance of consumer products, which account for only about a ninth of the total import payments.

Furthermore, most of the products in this category comprise food items such as cereals, sugar and edible oil. When the domestic production of cereals is adequate, the import of cereals declines such that the total import of consumer goods may also decline, and conversely. Good harvests of rice crops during the last year have permitted a very substantial reduction of cereal imports (61.8 per cent) during July-December 2011.

These numbers together with the large reduction in the import of capital machinery and industrial raw materials and the increase in the loan rate would be indicative of a slump in investment relative to last year and a slowing economy. Much of the industrial growth is contributed by the export sector, but this sector has also decelerated. Its contribution to gross domestic product (GDP) growth will be less than what it was last year. A slowdown in industrial production is also suggested by a large reduction in the growth of value added tax (VAT) collection which declined from over 27 per cent last year to only 9 percent this year (domestic VAT declined from 31 to 13 per cent).

It has just been reported in the media that the aman output of this fiscal year was virtually unchanged from that of the last year. The US Department of Agriculture has predicted a slight fall in this year's boro output. Such a reduction in grain output is not altogether unexpected. Poor harvest prices and large increases in the prices of inputs such as fertilisers and diesel have greatly reduced the profitability of production. Since aman and boro crops are the mainstay of agriculture, it would seem that this year we cannot expect a high growth of total agricultural output. With stagnant grain output, import requirements could rise again in the future months. 

The performance of the economy during the first half of the current fiscal year does not suggest a robust growth. The economy seems to have lost the momentum gained during the previous two years. While the current international economic environment might have played a part, the main problem has been inappropriate domestic policies.

It will be difficult to achieve even a 6.0 per cent growth rate unless there is a turnaround. The government needs to take a hard look at its options. (The writer is Professor, Department of Economics, University of Dhaka.

Financial Express/Bangladesh/ 7th March 2012

Bangladesh Bank (BB) will release new notes of Tk 10, Tk 20 and Tk 50 imprinted with the portrait of the father of the nation Bangabandhu Sheikh Mujibur Rahman on Wednesday.

BB Governor Dr Atiur Rahman will inaugurate the new notes during a ceremony at the conference room of BB head office.

The new notes will be issued from the main counters at the BB headquarters after formal launching. Later, the new currency notes will be available at all the branches of BB and other commercial banks across the country.

Other bank notes, both metallic coins and paper notes, running currently, will also exist in the market.

The front side of the new notes will carry the portrait of Bangabandhu while there will be the picture of the national monument imprinted with light color.

Initially, a total of 3 million pieces of notes will be released in the market after the launching.

AFM Asadujjaman, General Manager of the Governor’s Secretariat, told daily sun that March 7 has been fixed for releasing the new notes considering the immense historical value of the day.

The Daily Sun/Bangladesh/ 7th March 2012

Bangladesh 2 taka note was ranked 1st among the most beautiful bank notes worldwide, according to a poll at Russian online entertainment outlet.

São Tome and Principe’s 50 thous. dobra note became the runner-up followed by 1 Bahamian dollar and 5 Bahraini dinars.

Georgia’s 10 lari note was voted 5th, with 10 Hong Kong dollars, 10 Cook Islands dollars, 50 Israeli shekels, 20 thous. Island krona note, 50 Faeroe Islands kronurs positioned 6-10th resp.

New Zealand, Romania, Maldives, Singapore, Comoros, French Polynesia, Switzerland, Sweden, Jamaica and Japan were voted 11-20th.

News: www.panarmenian.net

The government’s bank borrowing last week came down significantly from its peak as a big amount of fund was added to the national exchequer from the telecom sector.

Public borrowing from banks, especially from the central bank, declined to nearly Tk 168.48 billion on Monday, from its peak of Tk 198.05 billion at the end of November this year, a recent BB data showed.

The telecom sector added Tk 32 billion to the state coffer on December 8, from which public expenditure and bank dues repayments were made.

The situation may improve further when some donor-pledged funds, including that of the World Bank, are disbursed, officials say.

In the first five months of the current fiscal year, the government surpassed its yearly borrowing target of Tk 189.57 billion because of a major mismatch between its income and huge expenditure.

The huge public borrowing left the banking sector in a huge liquidity crunch, also shooting up inter-bank call money rate.

In the same period a year earlier, the government borrowed Tk 21.72 billion only.

Public expenditure skyrocketed in the recent months because of increased import of capital machinery and fuel oil for supplying to rental power plants. The government’s revenue decreased due to sluggish remittance inflow, delay in fund disbursement from donors and lower sale of saving certificates, officials said.

However, in the first week of this month, the government did not borrow any money from banks.

Earlier, economic analysts feared that the government might not be able to keep its bank borrowing limit within the 5 percent of GDP as projected in this year’s budget. They also warned of an inflationary pressure due to heavy bank borrowing.

Source: The Daily Sun/ Bangladesh/ 15th Dec 2011

TOKYO: Asian shares rallied to two-week highs on Thursday, building on strong global gains after the world's six major central banks moved to tame a liquidity crunch for European banks by providing cheaper dollar funding.

Financial spreadbetters expect the leading European benchmark indexes to rise on Thursday, extending a sharp four-session rally on increased risk appetite following the central bank joint action.

The U.S. Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland said on Wednesday they would lower the cost of existing dollar swap lines by 50 basis points from December 5, and arrange bilateral swaps to provide liquidity for other currencies.

MSCI's broadest index of Asia Pacific shares outside Japan jumped 4.4 percent to its highest since mid-November, rising above a 25-day moving average, after U.S. stocks soared 4 percent on Wednesday.

Japan's Nikkei also surged well above its 25-day moving average, closing up 1.9 percent.

Chinese shares outperformed, with the Hang Seng Index surging close to 6 percent after Beijing cut the reserve requirement ratio for commercial lenders on Wednesday for the first time in three years, signaling a policy shift as global weakness weighs on China's economy.

"It's clearly a risk-on day given everything that happened overnight," said Su-Lin Ong, senior economist at RBC Capital Markets.

Industrial metals such as copper, zinc and aluminum jumped as funding strains eased, while the policy step by China, a huge commodity importer, lifted commodity currencies. The Australian dollar stood at $1.0255, off an earlier high of $1.0280, having jumped 3 percent on Wednesday.

The euro changed hands at $1.3455 after jumping to a one-week high of $1.3531 on Wednesday while the dollar index slumped to a two-week trough at 77.923. The index stood at 78.35 on Thursday.

"The moves were cheered by markets, as it shows central banks are willing to work together to ease Europe's sovereign debt crisis," said Stan Shamu, strategist at IG Markets.

But some analysts were more cautious, saying the central banks' moves just bought more time for Europe as it battles to contain its worsening debt crisis.

"This just means they expanded emergency measures. The more important point is whether Europe is going to have a bigger bailout fund and that's still up in the air," said Soichiro Monji, chief strategist at Daiwa SB Investments, in Tokyo.

Source: The Daily Sun/ Bangladesh/ 2nd Dec 2011