Bangladesh Government Faces Challenge in Controlling Prices of Commodities

The Bangladeshis are bearing the brunt of rise in the prices of essential commodities in the international market. The poor people of the country are passing their days in hardship in spite of various social safety net programs of the government. A consumer at this moment has to spent taka 110 (Tk) for commodities which he could purchase with Tk 100 in 2010 because of rise in inflation. Under this ground reality, Finance Minister Abul Maal Abdul Muhith is going to announce the budget of the coming fiscal year (2012-13).
Economists and market analysts are saying that controlling prices of the commodities will be the main challenge in the coming budget. The prices of essential commodities made a further high jump because of a recent rise in the prices of fuel oils and CNG, and an enhancement of transport fares as a sequel to this.

Tackling Inflation
The finance minister will announce budget in parliament on June. This will be the third budget of the present government. Debates have already begun on what good news a hopeful Abul Maal Abdul Muhith will give in the new budget or whether there will be any surprise there. All are in unison that inflation is a big enemy of the economy at this moment. The finance minister himself has admitted that inflation is the main problem. Economists have suggested the government to ensure social security, including enhancement of food supply, to gear up rural economy, increase investment, and reduce the impact of inflation.
It was reported that the finance minister will undertake efforts in gearing up social safety net programs in the new budget for controlling the inflation. All existing allowances, including elderly and widow grants, will be continued in the new budget. But proposals will be made to expand the areas of allowances instead of enhancing the amounts.
Honorarium of the freedom fighters will also be increased. A special emphasis will be given to keep the food supply normal. For this reason, plans have been undertaken to build an adequate stock of foods. A proposal will be made to construct new warehouses to increase the capacity of food stocking.
An announcement of recruiting 100,000 new employees in the public sector will also be made in the new budget. A proposal for making the highest allocation in the education will also be made in the budget. The new budget will continue all existing stipend programs for the students. Like in the past, the energy and power sector will be given the highest priority in the fiscal plan.
In fact, tackling the inflation will be the main challenge of the government in the coming budget. He thinks that the government has no adequate mechanism in its hands to contain the price hiking. The government can keep the food supply normal and gear up the social safety net programs.
Maintaining the growth and controlling the inflation will be the main challenge of the government in the next budget. Adopting a monetary policy with more contractions for controlling the inflation. But the principle objective of the next budget would be to increase investment and employment by keeping the inflation under control.
The areas of Value-Added Tax (VAT) and tax would be expanded in the coming budget to increase revenue from internal sources. But no big change will be made in the tax structure. Additional 500,000 taxpayers will be identified for the expansion of area of income tax. The people will be given some sorts of relief from tax burden. In this regard, a proposal will be made to fix the tax-free income at Tk 180,000 for individual by rebating Tk 15,000. But minimum income tax rate at Tk 2,000 will remain intact in the budget.
For discouraging smoking, prices of cigarettes will be increased. A proposal will be made in the budget to restructure duties in car import to stop tax evasion. Facilities of tax rebate will be reduced to increase collection. There will be a proposal for expanding the tax net up to the upazila (subdistrict)-level. An announcement will be made in the new budget for paying VAT rate equally by all small and big traders for abolishing rebate facilities against value addition tax of VAT goods and service sector.
The highest 25 percent tax will be maintained for protecting the interest of the local industries, whereas a proposal will be made for continuing one more year the regulatory duties on all imported finished goods. An announcement will be made in the budget to increase the tenure of bond license from the existing one year to two years for the convenience of the entrepreneurs. A provision will be made for duty-free import of necessary equipment for building solar power plants for generating alternative energy to face electricity crisis. An announcement will be made for enhancing more two years the preshipment inspection system. The interest on savings certificate will be increased.
The new budget will make a set of reform proposals in the income tax sector. A proposal has been made in the next budget to realize an additional tax of Tk 55billion through increasing the tax net and taking various reforms and administrative measures. An announcement will be made to set up 100 taxpayer centers across the country to reach the income tax service at the doorsteps of the common man. Provisions will be made so that the taxpayers can submit their return online.
At present, Tk 0.40 (0.4 percent) is realized as source tax on the export earning of the garment sector. In the coming budget the source tax might be imposed on all the export oriented sectors other than garments. At present the eligible persons have been brought under the income tax net only in the urban areas. A proposal will be made to expand the tax net up to the upazila-level. The new budget will made an announcement on introducing Alternative Dispute Resolution (ADR) to settle litigations quickly for increasing revenue earning. Massive reform programs will be undertaken to make the National Board of Revenue (NBR) a powerful organization. The laws will be announced to make the VAT rules more simplified.
Prices of Essential Commodities

The inflation in March was at 10.49 percent on a point-to-point basis. This rate of the inflation is the highest after 2008. The people of fixed income group suffer the maximum because of any rise in the inflation. The negative impact of the inflation is that it does not increase the income at a rate the commodity prices make the jump. And as a result, the poor people lose their purchasing capacity.
The cause of concern at the high trend of inflation is that most of the people in our country live below the poverty level. This creates some sorts of unrest in the economy. At present the rate of inflation surpassed the double-digit mark. It has become a very difficult task for the common people to meet the cost of living amid the continuous rise in the inflation.
ADP: A proposal for a huge Annual Development Program (ADP) will be made in the coming budget for increasing investment in the public sector. The possible size of the ADP might between Tk 465 billion and Tk 470 billion. The resources committee has recommended for an ADP of Tk 460 billion. Prior to her foreign visits, the prime minister issued instructions to allocate more fund for the ADP. The Planning Commission has finalized the draft of the new ADP. The National Economic Council (NEC) will approve the ADP at the end of May following return of the prime minister from abroad.
A proposal has been made for allocating Tk 273.170 billion for the new ADP from internal resources increasing the domestic share in the program. The rest of the ADP fund will come from foreign assistance. There will be 1,013 projects in the proposed ADP. Of those, the number of new projects will be over 200. Most of these projects are under the ministries of local government and communications. Many people believe that these projects are worthless and those being taken in political consideration.
The Planning Commission said that a demand for Tk 620 billion has come from different ministries in the new ADP. It has been learnt that the proposal for maximum allocation in the newly proposed ADP is made for the electricity sector. The proposed allocation for the power sector in the new ADP is about taka 72 billion, which is 44 percent higher than that of the current fiscal year (2011-12). The allocation for the power sector in the current fiscal is Tk 50.170 billion. A proposal has been made for allocating Tk 11.140 billion for the energy sector which was Tk 10 billion in the current fiscal.
The Local Government Division has made a proposal for allocating Tk 95.550 billion in the new ADP for the development of rural infrastructures. In addition, proposals for allocating Tk 35.120 billion for primary mass education and Tk 21.430 billion for education ministry have been made in the new ADP. The implementation rate of the ADP still April was 60 percent.
Subsidy: Subsidies will be continued in the coming budget. A proposal has been made to allocate Tk 250 billion for the purpose. The maximum of the subsidy is given to the power and energy sectors. A sum of Tk 120 billion will be allocated for the power and energy sector. The rest of the subsidy money will go to agriculture, food, and social safety net programs and export sector. A big chunk of the budget money is spent for subsidy. At present the allocation in the subsidy sector is about 9 percent of the total budget. In the current fiscal year, Tk 170 billion was allocated as subsidies for different sectors. The amount in the revised budget increased to Tk 200 billion. Most of the subsidy money was spent in the energy sector as the prices of fuel oil increased in the international market. In this regard, economist and researcher Dr Hasan Mansur said that budget deficit would increase if the amount of subsidies rises. And this would leave a negative impact on the inflation, he added.
Size of Budget: The government is going to announce a big-volume budget in the coming fiscal year to boost investment. The outlay of the new budget could be at Tk 1,630 billion. Of this, revenue budget is Tk 117 0billion and development budget Tk 470 billion. The Gross Domestic Product (GDP) target in the new budget might be fixed at 6.9 percent or 7 percent. The budget deficit has been fixed at 5 percent.

Bangladesh Economy Faces Uncertainty: Taka Becoming Weaker Against US Dollar

When the value of US dollar is declining across the world, the reverse is happening in Bangladesh. Bangladesh taka is becoming weaker against the greenback. The main reason behind this depreciation of taka is that the foreign capital investment is coming in a very small-scale. The import cost cannot be tackled with export earnings and remittance. And as a result, the central bank thinks that the current financial year (2010-11) will be ended with a deficit in the balance of payment.
The International Monetary Fund (IMF) has warned the government saying that Bangladesh's foreign currency reserve will decline by $4 billion to $5 billion within the next one year to one-and-a-half years.
Except inflation, Finance Minister Abul Maal Abdul Muhith will have to spend most of his time in anxiety in the next financial year (2011-2012) in dealing with this imbalance in the balance of payment. The country's macro economy has long been in a stable condition. This is the first time that the stability has come under threat. The external sector has been gripped with a tremendous pressure due to a rise in the import cost, a nominal growth in remittance, the lowest overseas loan and investment. The finance minister is going to announce the new budget with the overall economy remaining under pressure. Implementation of the major fiscal plans will mostly depend on coming out of that pressure.
Advice to Exercise Caution
The country's position in the balance of payment was almost sound. The foreign currency reserve was at a satisfactory level. But the situation has changed very fast. The export earning this year made a record increase, but the import cost surpassed the rise. The economy has been failing to rein in the pressure coming from a 41 percent rise in the import cost. This situation is virtually created due to a huge rise in the price of food and fuel oil in the international market and also a rise in import cost of cotton, an export supportive import item. There are also pressures for importing various equipment for the power sector.
The remittance inflow in the last few years has been protecting the sound position of the foreign currency reserve. But this time the reserve is dwindling. This is leaving its impact on the exchange range between taka (Tk) and US dollar. Simultaneously this has been creating pressure on the balance of payment.
Renowned economist Prof Wahiduddin Mahmood advised the government to proceed with caution in maintaining macro economic stability. He told the Prothom Alo that the government could undertake in its hands the projects of private sector partners in the infrastructure development sector. Ensuring adequate foreign assistance and private sector foreign investment are urgent for the implementation of those. Otherwise these projects might stop in the half way. In addition, a crisis may be crated in the balance of payment while funding those from internal sources.
Prof Mahmood suggested giving due importance to the balance of payment while preparing project plans and said the big projects have economic necessity. He said that such projects had also political demands. But at the end the projects have to be finalized considering the supply of fund. Funding risks, analyzing profit, and loss and the priority issues involved the projects are also very urgent matters. Drawing an example, he said that some investment in the development of the Hazrat Shahjalal International Airport could alleviate its standard up to the mark. But in spite of doing this preparations are afoot to construct another big international airport.
State of Balance of Payment
The latest current account of balance of payment prepared by the Bangladesh Bank is for the period of July-March (2010-11). According to it, the country has a current account surplus of $689 million. If the monthly average for first nine months and the trend are taken into consider and equated with 12 months the country will face a deficit at the end of the year.
It has been observed that there has been a nominal capital income until March. The foreign direct investment was also very insignificant at $574 million. There is also a very minor mid and long-term investment at $863 million. A huge deficit has been created in the financial sector because of payment of huge loan and interest against short-term loan and halt in channeling huge export earning. And as a result, the overall deficit until March stood at $529 million.
The US-based international credit standard determining organizations -- Modish Investor Services and Standard and Poor -- publishes its report on Bangladesh's annual rating evaluation in March. These two organizations reminded about future pressure on the balance of payment.
Apprehension about export: In a news conference, the organization of readymade garment producers, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), has expressed the apprehension that the growth in the country's garment sector might sufferer slump in the coming days. The garment factories are not receiving huge delivery order like in the past. Many buying orders are going to China, India and Pakistan. The backward linkage industries, including cotton production, have achieved tremendous progress in the said countries.
According to statistics of the Bangladesh Bank, the import cost against exported garment items has almost increased by twice. Two reasons are responsible for this. The price of cotton in the international market has been doubled. Nearly a doubled quantity of cotton and yarn is being imported to the contrary this year for export in comparison with that of 2010. The owners of the garment industry have doubled the import of cotton and fabrics this year as the EU has relaxed its priority in export-the rules of origin of general system of preference (GSP).
According to the date available with National Board of Revenue (NBR), the import of woven fabrics during the period January-March 2010 was at 41808 tons. The import in the current year stood at 78,741 tons. That means the import has risen by 88 percent in the first three months of the same period of the previous year. However, in the first three months of the previous year the net fabric import was at 1,710 tons. This has stood at 2,263 tons in the current year. That means the import has been increased by 32 percent.
The growth in the garment export during the same period was 42 percent. It is being told that for introduction of the new rules of origin the owners of the garment industry have stooped purchasing local yarn and are brining in cloth from Europe before exporting the same after sewing. A big pressure has been created on the balance of payment as the use of locally made yarn and cloth have reduced significantly.
Bangladesh Textiles Mills Association President Jahangir Al Amin said that approximately 200,000 tons of yarn had already piled up in 250 spinning mills of the country.
IMF Puts Conditions Again
One year ago the government refused to take assistance from the IMF for maintaining the 'balance of payment' because of political outlook. But at present and under a fragile condition, it has to sit for dialog for taking recourse to the IMF. An IMF delegation will visit Bangladesh in the first week of June before placing the national budget.
It has been learnt that Anup Shing, director of the IMF for Asia-Pacific division, sent a letter to the finance minister in April 2010. In the letter, he said that the government and Bangladesh Bank would have to make clear commitments for getting loan from them. The rate of foreign exchange will have to be relaxed. At the same time, the IMF set a condition for launching contractionary monetary policy. The organization said that the credit flow would have to be reduced further. The pressure that has been created on the revenue expenditure centering the coming budget would have to be removed.
Multifaceted Moves
Bangladesh Bank Governor Atiur Rahman in a recent letter to the top executives of the scheduled banks reminding them of bringing in foreign capital and fixed loans. The letter said that Bangladesh had been successful to infuse dynamism into investment and foreign trade overcoming the global economic meltdown, but it could not do the same in the field of foreign investment. Despite being surplus in the current account of the balance of payment this weakness in the inter-flow of the capital sector has been exerting pressure on the exchange rate of taka.
Moreover, the Bangladeshi Bank on 11 May had asked the chief executives of the commercial banks to bring home quickly the income of the export items. It was told at that time there was gap of $2billion between export price and realization of export earning. The set deadline of bringing in export earning is four months. The central bank believes a quick channeling of this income will increase the loan distribution and LC opening ability of the banks.

Bangladesh-Sri Lanka Cooperation: Scopes and Prospects

Bangladesh and Sri Lanka have signed five Memorandums of Understanding (MoUs) during Sri Lankan President Mahinda Rajapaksa's three-day visit to Dhaka, recently. The implementation of the MoUs could create a relationship of immense cooperation in different fields between the two countries.
MoUs Signed
Bangladesh and Sri Lanka have signed MoUs on technical education, nurses training, culture, exchange in education and science, agriculture research, research of fisheries and livestock, and export promotion.
In addition, during the official meeting between President Rajapaksa and Prime Minister Sheikh Hasina, the two leaders discussed cooperation in food security, shipping and curbing terrorism. In the exclusive talks, they stressed the need for working together in the regional and international forums. Sri Lanka has assured of extending support to Bangladesh vying for nonpermanent membership in the United Nations Security Council (UNSC).
Over all, the Sri Lankan president's Bangladesh visit can be termed a great scope for developing Dhaka-Colombo bilateral relations. Both countries are still lagging far behind in optimum utilization of the scopes and prospects in the fields on which the MoUs have been signed.
Trade Development
In the fiscal year 2009-10, Bangladesh exported goods worth $23.7 million to Sri Lanka. Sri Lanka at the same time exported goods worth $22.6 million to Bangladesh. In the first six months of the current fiscal, Bangladesh's exports were at $13.8 million, whereas Sri Lanka's exports stood at $12.8 million. Finance Minister Abul Maal Abdul Muhith has said the volume of bilateral trade between Dhaka and Colombo is not satisfactory. The Sri Lankan finance minister has said that the trade volume was not mentionable.
But there have been immense prospects. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) presented those prospects before the Sri Lankan president during the luncheon arranged in his honor on 19 April. The FBCCI has urged the Sri Lankan entrepreneurs to invest in the infrastructure, agro-industry, power and energy sectors of Bangladesh. FBCCI President A.K. Azad has placed proposals for joint venture investment in coconut oil industry, textiles, hide, shoe making, engineering, and food processing industries. The organization also has called for forming a joint economic council to enhance bilateral trade and investment. It may be mentioned here that Sri Lanka invested $70 million in Bangladesh from 1971 to 2010.
The dim picture of trading between the two countries could be brightened with a successful implementation of the proposals adopted during the visit of Sri Lankan president. The two countries have agreed to undertake various measures in this regard, including removing nontariff barriers and brining diversity in export items.
Cooperation in Other Sectors
In addition, the peoples of both countries could reap immense benefits by utilizing the huge scopes and prospects in cooperation in the fields of technical education, nurses training, culture, exchange in education and science, agriculture research and research on fisheries and livestock. There should not have any dearth in active initiatives from our side in this regard.