Has the economy turned the corner?

Posted in economics, macro by jrahman on December 2, 2012

After the Padma Bridge issue broke, a large number of pundits ranging from Abdul Ghaffar Chowdhury to Anu Muhammad argued that the World Bank is an imperialist organisation working to make Bangladesh a basket case again.  Well, someone must have forgotten to tell the Bank economists who work on Bangladesh — they have just published a 300 page book that, I suspect, will become a must read on Bangladesh economy. 

I’ll read it thoroughly over the holiday season, but at first glance, the report is quite positive and optimistic on Bangladesh.  Also optimistic is the Bank’s assessment of the economic conditions and near term economic outlook.  Although there are risks and patchy spots, according to the Bank, the economy appears to be a more stable and resilient trajectory compared with early 2012.  And the Bank may well be right.


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.


Bubble trouble

Posted in economics by jrahman on December 21, 2010

Stock market in Bangladesh is clearly showing sharp gyrations.  The question is probably no longer ‘is there a bubble’, rather it’s likely to be ‘how will it burst’?  It’s not just the stock market.  Anecdotally, land prices are also going through the roof. 

And it’s tough for the policymakers, as Ifty Islam, a Dhaka-based investment banker, told the Financial Times’ Amy Kazmin:

It’s a difficult time for the Securities and Exchange Commission.  It’s not just a financial phenomenon, to some extent it’s a political phenomenon.  Many of those stock market investors are first time investors – very new in the market, often buying without much fundamental knowledge, or analysis of what they are buying. They are buying because its going up. But if many of these investors take to the streets, it creates major challenges for the regulators.

So what should the authorities (have) do(ne)? 

The regular reader would note that I’ve been saying for a while that the monetary policy setting is too expansionary, particularly the peg with the dollar is fuelling inflationary pressure.  Ahsan Mansur of Policy Research Institute echoed this in August.*  But he also went futher, suggesting some specific actions.  His recommendations are reproduced over the fold.  They all appear sensible.  I hope the Bangladesh Bank (and other authorities) are listening.