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: arahman@emergingrating.com

Research Team

Al Mamun

Senior Research Associate

E-mail:mamun_nt987@yahoo.com

Subrata Howlader

Research Associate

E-mail: subrata.acca@gmail.com

Hafsa Binth Yeahyea

Junior Research Associate

E-mail: 123hafsabinth@gmail.com

Mohammad Riad Uddin Junior

Research Associate

E-mail:riad497@gmail.com

About ECRL

Emerging Credit Rating Limited (hereinafter referred to as ECRL) began its journey in the year

2009 with the motive to deliver credible superior & quality credit rating opinion in various

industry segments around Bangladesh. ECRL obtained credit rating license from Bangladesh

Securities and Exchange Commission (BSEC) in June 2010 as per Credit Rating Companies

Rules 1996 and also received Bangladesh Bank Recognition as an External Credit Rating

Institution (ECAI) in October 2010.

Emerging Credit Rating Limited’s team is oriented towards the continuous improvement of

processes, striving for an important role in the leadership of the business world. Every

individual in ECRL is committed to provide top most ingenious Credit Rating Services and

Comprehensive Research Services in Bangladesh. ECRL’s ratings services and solutions reflects

independency, professional, transparency and impartial opinions, which assist businesses

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smaller known companies approach the money and capital markets. The Credit Rating process

is an informed, well-researched and intended opinion of rating agencies on the creditworthiness

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obligations in timely manner. Issuers, lenders, fixed-income investors use these risk

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evaluating the risk of default of an organization’s financial obligations in terms of loan or debt.

Editorial

Overview

ECRL Research provides

insights, opinions and

analysis on Bangladesh and

International Economies.

ECRL Research conducts

surveys and produces

working papers and reports

on Bangladesh's different

socio-economic issues,

industries, and capital

market. It also provides

training programs to

professionals from financial

and economic sectors on a

wide array of technical

issues.

September 2016

Emerging Credit Rating Limited |Research Department 12

Near Publications:

Monthly Economic and Business Update

Emerging Quarterly Economic Review

Secondary Data Update ( Monetary, External, Fiscal & Real Sector)

Primary Data (Manufacturing & Retail Wholesale Survey Data)

Leather Industry Report Working Paper