Devaluation of Taka should be gradual, says Mostafa Kamal

Over the years I have been saying that Pakistan suffers from cost pushed inflation. The depreciation or devaluation of currency does not provide a sustainable solution to boost export or accelerate GDP growth rate. Today I am presenting the interview of Mostafa Kamal, a leading businessman of Bangladesh in support of my narrative.

The central bank should depreciate the taka against the US dollar gradually, if necessary, in order to avoid hurting the economic recovery and stocking inflationary pressures as Bangladesh is an import-dependent country, said Mostafa Kamal, chairman and managing director of Meghna Group of Industries.

“If the depreciation is not gradual, it will have a huge impact on every sphere of the economy and life,” he told The Daily Star in an interview.

Lately, the Bangladesh central bank brought about a major depreciation of the local currency to tackle pressure stemming from surging import payments and encourage remitters.

The interbank exchange rate hit Tk 86 per US$ for the first time in history, up from US$85.80 on Thursday, showed data from the central bank.

Kamal says the current interbank exchange rate is much lower than in the rate in the kerb market, where it stands at around Tk 90 per US$.

Importers used to buy US dollars for Tk 85 two months ago but it has gone past Tk 87 per US$.

Currency devaluation is preferred by exporters, but Kamal says depreciation is not a continuous solution.

“As Bangladesh is an import-based country, we have to strike a balance between the interests of importers and exporters.”

According to the noted businessman, any major devaluation of the taka will raise the prices of all goods. “It has a bigger effect on food and diesel prices and transport fare.”

“Policy-makers would have to find out whether the depreciation would be fast or gradual.”

Kamal says that most businessmen are importers. This is also true in the garment industry.

“We have been able to manufacture some accessories, but a majority of them are still imported.”

Speaking about the increased of commodity prices, he says the price of crude degummed soybean oil, or palm oil, has risen.

It used to cost US$500 to US$800 per ton in the past. Now it costs US$1,400. The duty has also increased.

“If the price increases by Tk 0.5 because of the currency devaluation, the price of the final goods will go up as well because import duties and other costs are added,” said Kamal.

He thinks it will not be a good idea to recommend curbing imports for the sake of keeping the foreign currency reserves stable as the move will rein in the growth of the economy.

Remittance flow to Bangladesh has slowed to some extent in recent months. But exports are performing well compared to the previous year.

A higher growth in the import of machinery means the economic stagnation has been over. It will generate jobs and accelerate economic activity.

“Imports have surged. Machinery imports have gone up after a lull for two years. There is no need to panic about rising machinery imports. Rather, it should be encouraged. People are returning to activities strongly.

“It is a good sign for the economy,” said Kamal.

He calls for looking at Turkey’s situation. The country’s currency, lira, has lost at least 35% of its value against US$. Inflation has touched a two-decade high. As a result, there is a crisis in the country.

“As we are import-dependent country, any major hike in the interbank rate will stoke inflationary pressure. The effects will be felt across the country,” Kamal said.

According to the entrepreneur, the economy has just started to return to normalcy from the coronavirus pandemic. “We, the businessmen, are optimistic.”

“Businessmen could not do well in 2020 and 2021. Now, they are more serious. Their business volume is growing. Businessmen hope that there will be a boom in the economy.”

Although the prices of imported goods and materials have gone up, the prices can’t be passed onto customers automatically, he said.

“Sometimes, we are compelled to raise prices. Sometimes, we keep the cost in the off-balance sheet. We will adjust the balance sheet when we make profit,” Kamal added.

 

Bangladesh oceangoing ships now at record high

According to a report by The Daily Star, Bangladesh now has a fleet of 80 oceangoing vessels, a record high since the country’s independence. 

Till October 2019, there were only 43 Bangladeshi flagged oceangoing vessels and it almost doubled in the last two years at a time when most business sectors were badly hit by the pandemic.

Some policy support from the government as well as a global price fall of second-hand ships in the early stages of the pandemic encouraged local entrepreneurs to make investments and seize the opportunity.

Several leading industrialists and commodity importers went on to buy their own ships to reduce transport costs. A total of 37 vessels got permanent or provisional registration in the last two years till November this year which is the highest in the span of such periods, according to Mercantile Marine Department (MMD).

In 2020, a total of 14 vessels got permanent registration whereas a total of 18 vessels got permanent and provisional registration till date this year, according to data from the MMD.

The National Board of Revenue (NBR) has eased age rules for ships to make it easy to qualify for VAT exemptions during imports and also cut advance income tax. The NBR brought down the advance income tax (AIT) on vessel imports to one percent for fiscal 2021-22 from 2 percent in fiscal 2020-21. It also relaxed restrictions, allowing sale of vessels of over 5,000 deadweight tonnage (DWT) after three years. Previously they had to be kept for five years.

Chittagong Chamber of Commerce and Industry President Mahbubul Alam said it was really a positive sign for the country’s economy. The country’s imports and exports are mostly depended on foreign vessels and the local businesses have to spend huge foreign exchange annually as freight charges for foreign trade, he said. If the number of Bangladeshi flagged vessel increases, the local vessel owners can tap into a good amount of the foreign trade, he added.

Bangladesh Ocean Going Ship Owners’ Association President Azam Chowdhury said the growing number of registrations was for some local industrialists and commodity importers purchasing vessels to reduce cargo transport costs. Besides, government policy supports like the VAT and AIT exemptions also encouraged entrepreneurs to go for making investments in the sector, he said.

Echoing the same, Meherul Karim, Chief Executive Officer (CEO) of the country’s largest ocean-going vessel owning company, SR Shipping, said many companies wanted to take opportunity of the price drop of second-hand, medium sized Supramax vessels in the wake of the pandemic last year.

Most of the Bangladeshi-flagged bulk carriers, which have all been bought, are Supramax vessels of 50,000 DWT to 60,000 DWT and these are 15 years to 20 years old, he said.

Previously price of such vessels ranged between US$10 million and US$12 million, which came down to US$6 million to US$7 million last year, said Karim, adding that his company bought two ships in 2020. SR Shipping currently own 23 oceangoing vessels.

Overall, the 80 oceangoing vessels are owned by 15 Bangladeshi companies. Most are bulk carriers, while there are oil tankers and six container vessels.

Karnaphuli Limited, country’s lone container vessel owning company, purchased six container vessels since June last year. The group last month also placed an order with a Chinese shipbuilder to construct four new container vessels.

Karnaphuli Limited Director Hamdan Hossain Chowdhury told The Daily Star that the government has created the right enabling environment and this has facilitated unprecedented expansion of the country’s merchant fleet. “We are a maritime nation and this sector has good potential,” he said.

Currently 3,000 Bangladeshi mariners are employed in these 80 Bangladeshi-flagged vessels. MMD Principal Officer Captain Giashuddin Ahamd said they brought ease to their services such as that on issuance of registration certificates and also directly sat with vessel owners to provide encouragement.

Apprehensions of Bangladesh Media

Reportedly, leading newspapers in Bangladesh have expressed frustration over a media environment in which a major investigative report leveling allegations against senior leaders and key institutions in the country had been met with “silence” in the domestic press. 

Editorials in The Daily Star and The Dhaka Tribune noted that media outlets had widely reported on the government response to an Al Jazeera report published on Monday, without describing allegations it contained.

“We are facing the absurd situation of publishing the government response without publishing what the government is responding to. So far, we have neither carried what the Al Jazeera reported nor any synopsis of it,” The Daily Star wrote in its Wednesday editorial.

The Tribune’s editorial, meanwhile, said the nation’s Digital Security Act “has had a chilling effect on Bangladeshi media.”

“The silence of the Bangladeshi media in this instance has been all-encompassing and deafening,” the Tribune wrote.

“The reason for our silence is simple: The current state of media and defamation law in Bangladesh, and how it is interpreted by the judiciary, makes it unwise for any Bangladeshi media house to venture into any kind of meaningful comment on the controversy.”

The nation’s Digital Security Act “contains language proscribing reporting that is so broad in its scope and threatens such draconian consequences that no responsible editor can take the chance of publishing reports that might even conceivably fall into its purview.”

A BenarNews review of at least 10 prominent Bengali- and English-language news portals on Wednesday found that they all based their reports on news releases from the Foreign Ministry and the army, while none of them included Al Jazeera allegations.

The 1st February report by Qatari-based television network Al Jazeera alleged that Bangladesh Army Chief Gen. Aziz Ahmed kept close links with his two foreign-based brothers who are on the run from justice after being convicted of the 1996 murder of a rival political leader.

The Al Jazeera documentary linked Aziz to corrupt deals with at least one of his brothers, who the report said had been able to travel to Bangladesh to meet with the army chief despite being a fugitive.

The report said that Prime Minister Sheikh Hasina had previously hired Aziz’s brothers Haris and Anis Ahmed as bodyguards when she was opposition leader. It alleged that the Ahmed clan’s fortunes “have been long intertwined with that” of Hasina.

It claimed that the military had secretly purchased surveillance equipment manufactured by an Israeli company, even though Bangladesh does not recognize Israel and forbids nationals from traveling there or engaging in commerce with Israelis.

The Bangladesh foreign ministry and army dismissed the allegations contained in the documentary and accompanying stories.

The Bangladesh foreign ministry in a statement on Tuesday described the report as “false and defamatory” and “anti-Bangladesh propaganda.”

It however, did not specifically address any of the charges leveled against Aziz Ahmed in the report.

“The report is nothing more than a misleading series of innuendos and insinuations in what is apparently a politically motivated ‘smear campaign’ by notorious individuals,” it said, linking them to the “extremist group” Jamaat-e-Islami, one of the largest Islamic parties in Bangladesh.

The Bangladesh Army said the surveillance equipment had been procured from Hungary for an army contingent deployed in a U.N peacekeeping mission, and that the Al Jazeera allegation was based on “false information.”

The Daily Star editorial praised the government for its “mature decision” not to block Al Jazeera’s report or “its spread on social media.”

It also expressed frustration over the lack of reporting in the domestic media on allegations that it said raised questions about the security of the country and the integrity of its institutions.

“There are people who served the PM at various times, especially during her days of struggle, who are now taking full advantage of her sense of gratitude and indulging in influence-peddling for payment in some of our highly sensitive areas,” The Daily Star said.

“There is reference to our purchase of sensitive listening devices from Israel, a country that we do not recognize. There are also the issues of false passports, NID cards and bank documents that should be looked into, especially as they involve institutions on whose integrity and honesty our security depends.”

Considered by many the leading English-language newspaper in Bangladesh, The Daily Star has a circulation of 44,000 and an editor who faces dozens of criminal charges over its journalism.

Mahfuz Anam faces 81 criminal charges filed since 2016, one of his lawyers told BenarNews.

“All of the cases were criminal in nature such as defamation and others. Currently, the courts have issued stay orders on the cases,” Chaitanya Chandra Halder said.

Mahfuz Anam turned down a request to be interviewed for this article.

Passed in 2018, the Digital Security Act empowers police to make arrests on suspicion and without a warrant. Fourteen of its 20 provisions do not allow for bail, so that whenever an accused is brought before a magistrate, he or she is almost automatically sent to jail.

A media advocacy group, the Committee to Protect Journalists (CPJ), said that the Bangladesh media’s decision to self censor was not surprising, while the draconian law requiring it reflected the government’s fear of a free press.

“By and large we are seeing how much of a chilling effect the Digital Security Act has had in Bangladesh,” Aliya Iftikhar, senior CPJ Asia researcher, told BenarNews.

“In the past year, we have seen dozens of frivolous DSA cases filed against journalists, and many of them have been detained for months at a time under the draconian law, for no reason other than they dared to publish critical reports. So it is not surprising that after seeing numerous colleagues in jail, the media in Bangladesh is choosing to self-censor,” Iftikhar said.

“The Bangladesh government is showing its weakness with its constant fear of a free press.”