Corona Budget: the Long View

Posted in economics, macro by jrahman on July 14, 2020

The public discourse around the budget in Bangladesh is limited to a few days in the middle of June when news outlets parrot the government talking points, and a handful of critics recycle the same arguments — that the budget is unrealistic (if not based on false data) and not pro-poor enough (if not actually enabling the rich to become richer through massive public corruption).  Remarkably, hardly anyone ever mentions the medium term macroeconomic policy statement (MTMPS) — the most important document released by the government every June.

I wrote very similar words a decade ago, in the Daily Star Forum.  Along with fellow Drishtipat writer Syeed Ahamed who used to pen a piece titled Budget: the good, the bad, and the uncertain, the July issue of the Forum would print the Long View where I would analyse the MTMPS (yes, an ugly acronym if there ever was one — must have been an econocrat who came up with it!).

Much water has flown through our delta over the years since both Drishtipat and the Forum ceased to exist.  But a few things remain unchanged: the government still publishes the MTMPS in the Ministry of Finance website; hardly anyone talks about it; and the budget discourse is still same as it was then, albeit done more in Facebook than anywhere else.

The Statement typically begins with a summary of the key budget announcements, before providing a detailed analysis of the macroeconomic projections — how fast the economy is expected to grow, driven by which sectors, and what that means for external balances or inflation, and ending with a fiscal analysis — expenditures, revenues, deficit and its financing, and the dynamics of public debt.  Interesting side note: the current Secretary of Finance, Abdur Rouf Taluqder, led the team that put together the country’s first MTMPS in the mid-2000s.

Published in the midst of the most severe economic crisis in over four decades, the importance of this year’s MTMPS is self-evident.  The document is internally consistent — that is, the fiscal outlook is consistent with the macroeconomic narrative.  Of course, it would be an understatement to say that there is considerable uncertainty around the macroeconomic outlook.  The truth is, no one know when and how the world will recover — when and how the pandemic will end, what and how the society will adjust to, and therefore how fast the world economy will grow by when: no one has any answer to these questions.

As such, any quibbling over the numbers in MTMPS is completely besides the point.  Much more important is that the Statement has no scenario analysis — what if the world does not evolve the way Mr Taluqder’s talented team expects it to?

This is not a rhetorical question.  The Statement is based on the IMF’s World Economic Outlook from April 2020, which projected the world economy to contract by 3% in 2020 on the assumption that the pandemic would end in the first half of the year.  Judging that this assumption was no longer tenable, the Fund updated its forecasts in June — the world economy was now projected to contract by 4.9% in 2020.  Emerging and Developing Asia, of which Bangladesh is a part, was now expected to contract by 0.8% in 2020, compared with a 1% growth forecast in April, with the downward revision reflecting a worsening pandemic.

The IMF revisions alone might render the MTMPS less-than-credible!

It is regrettable that risks and uncertainties aren’t explored at all in the Statement, as some back of the envelop calculations show that the government could well face some difficult choices in the coming years.


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The real record — inflation (continued)

Posted in economics, macro, political economy, Uncategorized by jrahman on December 24, 2013

For those coming in late, even though inflation has risen under the current government (Chart 1), real GDP per capita has grown by around 4½ per cent a year under successive governments over the past decade.

c1 (2)

Over the last couple of weeks, I have had a bit of correspondence about inflation. This post answers some of the questions.


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The real record — inflation

Posted in economics, macro by jrahman on November 8, 2013

In the previous post in this series comparing various governments’ economic and development records, we saw that when it comes to growth in average income, there hasn’t been much difference between the three latest governments. The increase in average income in that post is real, that is, after allowing for inflation. However, inflation is an important economic indicator in its own right.

In fact, as far as average person is concerned, real GDP per capita is an abstract construct, whereas prices of everyday commodities is, for the lack of a better word, much more real! Arguably, more than the war crimes trial or Digital Bangladesh, it was the promise in the video below that brought Awami League its 2008 landslide. And arguably, more than India or Islam factors, it’s the failure to meet this promise that’s behind AL’s sagging popularity.

Politics in Bangladesh, as the saying goes, is price of rice.

This post looks at the recent governments’ record when it comes to inflation.  However, we need to begin with a bit of wonkery because when evaluating different governments on inflation, we need to keep some basic economics in mind, some of which may be counter intuitive

Once we go beyond the wonkery, three charts will show that the current government performs poorly compared with the last BNP government as far as inflation is concerned.


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Time for Atiur Rahman to deliver

Posted in economics, elections, macro, political economy, politics by jrahman on February 7, 2013

As far as I know, this blog is the only place that publicly criticised the appointment of Dr Atiur Rahman as the Governor of Bangladesh.  How has he performed in the last few years as the central banker?  Given the share market bubble and crash and several controversial developments — scams, ‘political’ banks, l’affaire Yunus — in the banking sector, it’s reasonably straighforward that he has failed in his task of maintaining financial stability.  On the other hand, Bangladeshi economy has shown remarkable resilience — growth has been steady around the 6% mark despite shocks such as the share market crash or the fiscal strains related to the rental power plants.  Inflation has been much higher than the Bank’s target picked up during most of the governor’s term, but has subsided recently to be within the Bank’s target (see the chart of inflation through the year, actual vs Bangladesh Bank target — source: CEIC Asia and BB). 


So, on balance, a mixed record for the Governor so far.  And over the next few months, his record can swing either way.  Unfortunately, the latest monetary policy statement suggests that there is a high risk that my fears about him will yet come true. 


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The fifth anniversary post — food price edition

Posted in economics, macro by jrahman on October 20, 2012

Zombie ideas are those that refuse to die, no matter how strongly you debunk them.  I suspect they exist in every discipline, but they’re particularly prevalent in economics.  Tax cuts will solve every economic problem, or globalisation is bad for the  so-called 99%, these are good examples in the western context.  Syndicates of corrupt businessmen and politicians — Tarique Rahman and his Hawa Bhaban cronies, or the army, or Mujib Coat wearing men –are behind high and rising food prices — that’s the zombie idea in Bangladesh.  For the past five years, I’ve been trying to slay this zombie idea, without much success.

In one of my first Forum pieces, I linked food price rises to the taka-rupee exchange rate — the basic idea is that rice market in Bangladesh is closely linked with that from India, and as taka depreciated against the rupee, domestic rice prices rose.  Of course, by early, food prices were rising globally, thanks to American biofuels subsidies — I wrote about it here.  By the end of 2008, with commodity prices tumbling world wide and taka appreciating against the rupee, I predicted that the incoming government would have a respite on the prices front.

And lo and behold, that’s exactly what happened.

This chart shows the three month moving average of retail price of a kg of coarse rice in Dhaka market.  In the three months to June 1996, when the first Hasina Wajed government assumed power, rice price averaged 14.60 taka/kg.  When she left office in July 2001, it was 13.36 taka/kg.  In the countryside, prices were even lower.  This was the origin of ’10 taka/kg rice’ boast.  When BNP was toppled from power in January 2007, average rice price in Dhaka was 19.22 taka/kg.  It rose to about 35 taka in mid-2008, before easing to 30.67 taka when Hasina Wajed returned to power.  And then it fell even further, to reach 23.52 taka/kg in September 2009.



Seven trashes collected by the senses.


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Everyone misses inflation

Posted in economics, macro by jrahman on June 19, 2012


Yeah right! If only!

Okay, okay, that’s a slightly misleading title. What I meant to say was that inflation forecasts of the government, the Bangladesh Bank and the ADB are all way off. As the chart shows, except for a few months in 2008 and 2009, when the world looked to be imploding, inflation in recent years have been stronger than everyone’s prediction.

In more recent times, ADB has raised its inflation forecasts.  As with economic growth, ADB has a more pessimistic outlook (8.5%) for inflation in 2012-13 than the government (7.5%).

Who’ll be right?

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Who’s the best?

Posted in AL, army, BNP, development, economics, history, macro by jrahman on March 11, 2012

Notice (12 March, 0610 BDT): charts have gone funny, and will be updated in the next 48 hours.

Updated (13 March, 1001 BDT): charts have been fixed.

With yet another confrontation looming between Bangladesh’s two major political parties, I thought it would be interesting to see how they compare against each other.  There are, of course, many ways of doing this.  I am going to do this by looking at four indicators: GDP per capita growth, manufacturing output growth, inflation, and foreign aid-to-GDP ratio.

Why these indicators?  Simply because I have good data handy for these metrics.  But they still tell us a good deal.  Growth in GDP per capita is a standard measure of welfare.  Manufacturing growth is associated with strong employment in the ‘modern’ sectors of the economy – by and large a good thing.  Inflation is self-evidently important.  Reliance on foreign aid is clearly something we can do without.  And improvements in these economic indicators, over time and across countries, are highly correlated with decline in poverty and rise in living standards.

Nonetheless, they miss out a lot.  For example, I don’t have up-to-date data on inequality.  Further, these economic indicators don’t tell us anything about governance or civil liberties.  A government might preside over fast growth and rapid fall in infant mortality, but could also gag the media, and be extremely corrupt.  Nor do I have any time series on crime statistics – arguably, maintaining law and order is a government’s first priority.  And I am not even sure how one could quantify foreign policy success or failure.

Therefore, the rankings presented below should be taken with a grain of salt.

I am also going to ignore the governments of the first decade.  While a good old fashioned Mujib-Zia food fight is enjoyed by all, given the impacts of the Liberation War, I don’t think the 1970s is comparable with the subsequent decades.

So the comparison is between six governments – Ershad, first Khaleda, first Hasina, second Khaleda, 1/11 regime, and second Hasina – over the four categories.  In each category, the best performing government gets five points, while the worst one gets zero.  Add all up, and we get the final tally.

The worst government of the past three decades turns out to be, with zero points, the Ershad regime.  This shouldn’t come as surprise to anyone who knows anything about economic history of Bangladesh.  But evidently, few people know anything about economic history, because if I had a cent for everytime I hear ‘things were great under Ershad’, I’d be in the 1%.

And the winners?  Read on.