Decreasing trend in
inflation of Bangladesh
Balance of Payment
Monetary Update
Fiscal Update
Importance of Bilateral
bank linkages
ECRL Monthly Economic and Business Update
September 2016 Volume: 03
Emerging Credit Rating Limited Research Department
September 2016
Emerging Credit Rating Limited |Research Department 1
angladesh is witnessing a lower trend in inflation. Point to point inflation is recorded
5.40 percent for August 2016. This inflation rate is the lowest inflation for more than
10 years in Bangladesh. Last couple of month Bangladesh is facing a lower trend in
food inflation which maybe a reason for the lowest inflation rate in more than 10
years.
The twelve-month average inflation
moderated to 5.83 percent in July 2016
from 5.91 percent in June 2016 due to
decrease in food inflation from 4.90 percent
in June to 4.76 percent in July 2016. The
point-to-point general inflation is stable at
5.40 percent for June and July 2016. Point
to point inflation increased to 4.35 in July
2016 from 4.23 in June 2016. This food
inflation is compensated by non food
inflation. By contrast of food inflation, non
food inflation decreased to 6.98 percent in
June 2016 from 7.50 percent in July 2016.
B
Decreasing
trend in
inflation in
Bangladesh
September 2016
Emerging Credit Rating Limited |Research Department 2
Table 1 Bangladesh CPI inflation
Bangladesh CPI Inflation(Point to Point), National (2005/06=100)
Period General Food Non-food
Of which
beverage
Clothing
Gross rent
Furniture Medic
al Transpor
t Recreation Misc.
&
tobacco & fuel & furnishing
care and
and Enter- goods
&
footwear lighting household equipmen
ts and operation
s
health communication
tainment, Education & Cultural Services
services
Weights 100 58.84 41.16 6.85 16.87 2.67 2.48 4.17 4.13 3.63
Jul'16 6.36 6.07 6.80 9.29 3.00 6.44 16.50 11.41 2.26 6.09
Aug'16 6.17 6.06 6.35 9.12 2.37 6.23 16.55 10.32 2.26 5.40
Sep'16 6.24 5.92 6.73 12.26 2.85 5.97 15.69 9.03 1.79 5.11
Oct'16 6.19 5.89 6.67 11.89 2.76 5.69 13.32 11.42 1.64 4.31
Nov'16 6.05 5.72 6.56 11.82 2.87 6.00 10.73 11.60 1.71 4.24
Dec'16 6.10 5.48 7.05 12.91 3.69 7.01 11.37 11.58 1.38 3.04
Jan'16 6.07 4.33 8.74 12.38 10.19 7.04 8.27 11.40 1.83 2.63
Feb'16 5.62 3.77 8.46 11.82 10.09 6.48 7.28 11.19 1.82 2.89
Mar'16 5.65 3.89 8.36 11.78 10.06 6.00 7.23 11.08 1.80 2.86
Apr'16 5.61 3.84 8.34 11.82 10.03 5.92 7.20 11.06 1.82 2.83
May'16 5.45 3.81 7.92 11.80 9.20 5.39 7.11 10.59 1.68 2.67
Jun'16 5.40 4.23 7.50 10.94 9.06 5.11 6.89 10.11 1.33 1.74
Jul'17 5.40 4.35 6.98 8.04 9.49 5.00 6.35 8.71 1.63 2.44
Source: Bangladesh Bureau of Statistics
September 2016
Emerging Credit Rating Limited |Research Department 3
angladesh has been recording continued trade deficits since independence due to the
higher level of imports. Mainly Bangladesh imports petroleum, edible oil, food items
and textile and the major export item is readymade garments, which is contributing
more than 80% of exports revenue. According to the Bangladesh Bank data, Bangladesh
recorded a trade deficit of USD9 million in Jun FY16 compared to the deficit of USD426 million
in Jun FY15 due to the less import cost in major items.
Though, the current account surplus
recorded USD772 million in Jun FY16 which
was higher at the same period in Jun FY15.
But the cumulative surplus was USD 3706
million up to Jun FY16 compare to the
surplus of USD2875 million during the same
period of FY15 because of higher export
earnings and an improvement in primary
income and income from services.
However, at the end of the Jun FY16,
Overall Balance of Payment (BOP) surplus
was USD5036 million compared to the
surplus of USD4373 million at the same
B
Balance of Payment
(BOP)
September 2016
Emerging Credit Rating Limited |Research Department 4
period. But the BOP balance in Jun FY16
was USD915 million which was higher than
the Jun FY15. The BOP surplus was
continuously increasing because of sluggish
growth of import compared to exports in
FY16. At that time, less spending on
petroleum and reduced trade credit for
imports mainly support to the growth of
BOP.
So, the cost of petroleum imports dropped
around 30 percent. On the other hand, BOP
surplus increased during that time because
of manufacturing sector slowdown which
carries out the lower imports of
manufacturing raw materials. In addition,
the BOP surplus increased due to the net
foreign direct investment increased
significantly during that time.
-1,500
-1,000
-500
0
500
1,000
1,500
Mill
ion
USD
Figure 1: CAB, TB & Overall Balance
OVERALL BALANCECURRENT ACCOUNT BALANCE Trade balanceSource: Bangladesh Bank
September 2016
Emerging Credit Rating Limited |Research Department 5
he new Governor of Bangladesh Bank (BB)
has just announced that the available data
(mostly up to May 2016) indicate the
attainment of almost all key objectives of
the monetary program and policies for FY16
in the July-December 2016 Monetary Policy
Statement (MPS). The program growth
rates of credit are given a push upward to
accommodate the unexpected increase in
private credit remaining the policy rates
unchanged.
The principal objective of the central banks
around the world is to maintain the stability
of the currency that includes keeping the
inflation rate low and stable, although most
central banks do wish to have reasonable
economic growth.
The quarterly data of FY15 suggests that
there was a decreasing pattern in NFA (Net
Foreign Assets) from Q1 to Q4. However,
during the first quarter, NFA started to
increase but was lower than the first
quarter of FY15. Apart from this, NDA was
stable in both FY15 and FY16. From the
component of NDA, credit to other public
sector has declined sharply at 8.25 in FY16
compare to the preceding year FY15 was
38.14.
T
Monetary Update
September 2016
Emerging Credit Rating Limited |Research Department 6
Table 2: Movements in Broad Money
Particulars FY 15 FY 16
Q1 Q2 Q3 Q4 Q1 Q2 Q3
1. Net Foreign Assets 35.02 24.56 20.71 18.22 23.43 25.12 24.14
2. Net Domestic Assets 10.99 10.45 10.19 10.70 10.32 9.56 10.28
Domestic Credit 12.27 11.18 10.19 9.97 9.94 9.93 11.42
a. Credit to public sector 12.73 2.46 -2.95 -2.56 -1.37 -7.82 -5.28
b. Credit to government (net) 10.30 -2.40 -7.36 -6.19 -2.53 -7.67 -5.56
c. Credit to other public sector 38.14 47.58 34.84 30.88 8.25 -8.70 -3.63
d. Credit to private sector 12.15 13.50 13.63 13.19 12.88 14.19 15.16
3. Narrow Money 21.33 15.08 9.97 13.53 15.29 13.70 16.81
4. Time Deposit 14.30 12.92 13.17 12.13 12.79 12.94 12.76
5. Broad Money 15.68 13.35 12.53 12.42 13.31 13.07 13.55
Source: Bangladesh Bank
In the case of time deposit, broad money, there was stable throughout the quarter of both
FY15 and FY16. Whereas there was declining growth rate throughout the first two-quarter in
FY15 but it started to increase at the beginning of FY16 and continued to grow till the third
quarter.
September 2016
Emerging Credit Rating Limited |Research Department 7
BR is implementing a tax administration reforming program to boost the collection.
Revenue collection has surpassed the target of the first month of the current fiscal year
2016-17 (FY17) as the National Board of Revenue (NBR) collected Tk 9,597 crores in
July, up by Tk 88 crores from the target of Tk 9,509 crores.
N
Fiscal
Update
September 2016
Emerging Credit Rating Limited |Research Department 8
NBR Tax Revenue collection stood at Taka
155518.72 crores during FY2015-16 which
was 14.60 percent higher than the
collection of Taka 135700.70 crores during
FY2014-15. Actual tax revenue (NBR
portion) collection exceeded the target of
FY 2015-16 by 3.68 percent.
During FY’16 revenue collection from
income tax, Import based value added tax
(VAT), Domestic based VAT, Custom duties
& supplementary duties increased by 9.5
percent, 16.3 percent, 7.5 percent, 17.9
percent,24.7 percent & 24.5 percent
respectively.
-15.0
5.0
25.0
45.0
65.0
-15
5
25
45
65
Jul'15
Aug
Sep
Oct
Nov
Dec Jan
Feb
Mar
Apr
May
Jun
Jul'16
Aug
Sep
Oct
Nov
Dec Jan
Feb
Mar
Apr
May
Jun
Figue 2: NBR Revenue Growth, July 2015 - June 2016( Month on Month Percent Change)
NBR Growth 6mma (Month -on-Month percent change)
Source: National Board of Revenue (NBR)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
NBR Income tax
VAT.Imp VAT. Dom Customs Duty
Supp. Imp Supp.Dom
Figure 3: NBR Revenue Growth
FY'14
FY'15
FY '16
Source: National Board of Revenue (NBR)
September 2016
Emerging Credit Rating Limited |Research Department 9
nternational trade is related to international finance in the form of bank linkages. Bank
linkages are measured for each pair of countries in a year as international transaction.
Using the gravity model of trade, many scholars proved the relationship of international
trade depends upon bank linkages.
Julian Caballero, Christopher Candelaria and
Galina Hale in their working paper “Bank
Linkages and International Trade”
represents that smooth trade relationship
depends on banking system between two
countries. Bilateral trade imposes some
export risk arose from diplomatic
relationship and political situation between
two countries. Smooth bank linkage
between countries can alleviate the export
risk. This working paper also shows that
higher risk of importer country (lower ICRG
I
Importance of
Bilateral bank
linkages
September 2016
Emerging Credit Rating Limited |Research Department 10
index or higher S&P risk measure) needs
smoother bank linkage than a lower risk of
an importer country. Figure 1 shows the
volatility of total export growth represents
the volatility of RMG export growth. This
representation is a clear indication of export
dependency on RMG export. Bangladesh
has more than 90 percent export
concentration on RMG export. Figure 2
shows the market concentration of RMG
export. The figure shows the export
concentration is at Europe and USA. More
than 85 percent of RMG export is
concentrated in that area.
Relating to the point of bank linkage,
political situation of the exporting area are
more stable. Their stable situation is helping
Bangladesh to concentrate on international
bank linkages. Our RMG export depend
RMG accessories import. If our import falls,
export will fall in the next year. So to
maintain smooth export growth,
international bank linkages are very much
important.
-10
-5
0
5
10
15
20
Figure 4: Export growth, Bangladesh
RMG Total Export
0 5 10 15 20
GERMANY
UNITED KINGDOM
UNITED STATES
FRANCE
SPAIN
ITALY
DENMARK
CANADA
BELGIUM
NETHERLANDS
Figure 5: RMG Market oncerntration of top countries
Share'09
Share'14
September 2016
Emerging Credit Rating Limited |Research Department 11
Arifur Rahman
FCCA
Chief Rating Officer
E-mail: [email protected]
Research Team
Al Mamun
Senior Research Associate
E-mail:[email protected]
Subrata Howlader
Research Associate
E-mail: [email protected]
Hafsa Binth Yeahyea
Junior Research Associate
E-mail: [email protected]
Mohammad Riad Uddin Junior
Research Associate
E-mail:[email protected]
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Overview
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September 2016
Emerging Credit Rating Limited |Research Department 12
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