IMF team to visit Bangladesh this week to discuss USD 4.5b loan request

[Destranator]

Once the forex is deposited into BB.

A fair chunk of it ends up in the government’s coffers. More than enough to service debt.

Depends on where the money comes from. Export earnings and remittances, the two main sources of forex inflow, do not fill "government's coffers" - Bangladesh Bank "holds on" to the forex received and disburses Taka to the recipients through the banking channel.

However, what you say is applicable to foreign loans and grants received by the government.

 

[UKBengali]

Thanks for the explanation.

Too many YouTube scholars here

My example was a little simple but there is no way to escape inflation in this period by outsourcing imports of things like garments.

There are only so many countries you can import the quality and quantity from at short notice and anyway countries like China cannot compete with BD anymore as their wages are too high.

Most of the loans that BD has obtained will be paid back less in real terms as US inflation is higher than the interest rate on the dollar loan.

 

[BananaRepublicUK]

Depends on where the money comes from. Export earnings and remittances, the two main sources of forex inflow, do not fill "government's coffers" - Bangladesh Bank "holds on" to the forex received and disburses Taka to the recipients through the banking channel.

However, what you say is applicable to foreign loans and grants received by the government.

Every single penny of remittances ends up in government coffers eventually.

Because BB gives taka in exchange to the relatives of the expatriates.

E.g. Every penny of my zakat ends up in BD government coffers because I take taka in exchange.

My example was a little simple but there is no way to escape inflation in this period by outsourcing imports of things like garments.

There are only so many countries you can import the quality and quantity from at short notice and anyway countries like China cannot compete with BD anymore as their wages are too high.

Most of the loans that BD has obtained will be paid back less in real terms as US inflation is higher than the interest rate on the dollar loan.

Anyone who thinks 2% interest is a real term return given dollar inflation - IS A CERTIFIED NUTTER.

 

[mb444]

You forget that as inflation takes hold in US, then the dollar itself will buy less both in the US and in international markets.

So what? Does that mean BD has to pay back less dollars or more dollars if USD appreciates? No it pays back the same. US inflation has no implication for a loan from IMF to BD.

Real value of a currency can only be exploited via the the monetary policies of the country that prints it. There is zero implication, you dont need to believe me, go ask any economist.

This means that BD exporters can ask for more dollars for the same amount of goods over time.

So what. What has that got to do with the IMF loan to BD. The GoB has to pay that.

Why would high inflation in US allow BD exporters to demand higher price? Are BD exporters based in US and manufacturing in US? Hilarious nonsense.
You dont seem to understand that BD exporters trade in Taka. It is simply BB settles the deals in USD. Your hypothesis is embarrassingly inaccurate.

Going by your example we will import US inflation into BD. Again economics 101.....USD is the trading currency of the world. The Federal Reserve is not an arm of US government. Fed prints USD for global trade as well as internal US needs.

Anyhow coming back to your point that price can increase over time. Lets say that happens, how does that assist GoB to pay an IMF debt. Exporters money not the governments.

Say inflation is 4% in US and then the same amount of goods that BD sold to US initially at 100 US dollars would fetch 104 dollars. Now if the interest rate of a dollar loan that BD obtained was 2% then that means that it would pay back less in real terms as its dollar reserves would grow faster than the principle + interest on its dollar loans.

Have you smoked something. If BD sold goods for $100 they will be paid $100. Logically following your nonsense of international inflationary impact if US is suffering inflation the $100 that BD would be paid would be worth less than $100. You got your calculation wrong.

As to the rest of your gibberish ..... simple answer is no thats not how things work. BD exporter would be paid at the agreed rate of $100. Again I repeat your understanding of inflation is inaccurate when it comes to International trade.

$100 does not magically become $104 just because you think it does. I repeat again BD can not take advantage of overseas inflation in any way because we can not print USD nor are there any arbitor in existance that can do that.

Please go and do a google search on why economist never use comparative international inflation without great deal of care when building economic models.

 

[mb444]

BD is earning dollars via remittance and exports. And pays interests from that. The higher the dollar inflation the higher the income will be. Because the goods and services it exports will fetch more.

No high USD inflation will have no impact on export or remittances. Neither of these USD are BD government funds to use as it wants without raising BD inflation skywards.

Also if USD dollar is falling in value each USD will buy less amounts of goods and services.

You implicitly understand that falling USD value means overseas workers will get more USD when they covert from lets say Saudi R. This helps their family in BD because US inflation does not directly impact BD.

Understanding that why would you think USD inflation helps when paying an IMF debt?

 

[mb444]

Depends on where the money comes from. Export earnings and remittances, the two main sources of forex inflow, do not fill "government's coffers" - Bangladesh Bank "holds on" to the forex received and disburses Taka to the recipients through the banking channel.

However, what you say is applicable to foreign loans and grants received by the government.

These guys do not understand basics of economics.

When USD comes in BB holds it. If on the basis the USD it releases more taka into the economy it will cause inflation in BD.

USD in our reserves are not used nor usable as these guys thinks. Just random chest thumping nonsense making BDs in general a laughing stock to anyone reading this thread.

 

[BananaRepublicUK]

No high USD inflation will have no impact on export or remittances. Neither of these USD are BD government funds to use as it wants without raising BD inflation skywards.

Also if USD dollar is falling in value each USD will buy less amounts of goods and services.

You implicitly understand that falling USD value means overseas workers will get more USD when they covert from lets say Saudi R. This helps their family in BD because US inflation does not directly impact BD.

Understanding that why would you think USD inflation helps when paying an IMF debt?

Because doesn’t matter where you live - a dollar will buy lot less in ten years than it does today.

And even a banana republic will earn more dollars (via exports and remittance) than it does today.

In essence that’s inflation and purchasing power

Put it another way, if I gave you 100 dollars today and you only gave me 102 dollars next year - I will be a massive loser.

With 100 dollars today I can buy a lot more than I can buy with 102 dollars next year.

Btw, I don’t have to reside in the US to be a victim of dollar inflation

Virtually everything is priced in dollars. Ahem! Oil!

 

[mb444]

Because doesn’t matter where you live - a dollar will buy lot less in ten years than it does today.

And even a banana republic will earn more dollars (via exports and remittance) than it does today.

In essence that’s inflation and purchasing power

Put it another way, if I gave you 100 dollars today and you only gave me 102 dollars next year - I will be a massive loser.

With 100 dollars today I can buy a lot more than I can buy with 102 dollars next year.

Btw, I don’t have to reside in the US to be a victim of dollar inflation

Virtually everything is priced in dollars. Ahem! Oil!

Sure but if we are talking about IMF loans we are talking about a short term one from everything that has been stated.

Until the loan conditions are fully known it is premature to draw conclusion.

Additionally taka may also move up or down which will impact the true cost of the loan. If taka devalues that 2% will hurt as BD will be converting taka to USD to service the debt.

As i keep saying reserves are part of BD money supply. You can not just use it without impacting the economic equilibrium.

 

[UKBengali]

@mb444

I think you need to take a step back and learn to respond in a less confrontational fashion.

It does not make you any more credible and makes your arguments weaker by dismissing others points with words such as "gibberish".

Not many here agree with what you say and you just need to accept it and not try to too hard to prove you are correct. This is forum and no need to take it too personally.

 

[BananaRepublicUK]

These guys do not understand basics of economics.

When USD comes in BB holds it. If on the basis the USD it releases more taka into the economy it will cause inflation in BD.

USD in our reserves are not used nor usable as these guys thinks. Just random chest thumping nonsense making BDs in general a laughing stock to anyone reading this thread.

If the dollar reserve is not for spending - then what’s the point of the reserve

BD government owns the reserve and decides how and who will spend it.

Anem!

Like it is doing now by deciding who gets how much.

Sure but if we are talking about IMF loans we are talking about a short term one from everything that has been stated.

Until the loan conditions are fully known it is premature to draw conclusion.

All lenders set conditions.

When I borrow from a bank the bank dictates how it is to be spent.

If I default - bank can garnish my wages.

A country is no different.

Bonds are relatively less onerous but always have highest interest due to the risk.

It is a simple trade off…

Higher interest or stricter terms.

Pick your poison.

There are no free lunches.

For BD IMF is much better than bond market.

 

[mb444]

@mb444

I think you need to take a step back and learn to respond in a less confrontational fashion.

It does not make you any more credible and makes your arguments weaker by dismissing others points with words such as "gibberish".

Not many here agree with what you say and you just need to accept it and not try to too hard to prove you are correct. This is forum and no need to take it too personally.

I am not seeking validation from anyone. Your position is not borne by economic theory.

I do not take anything here personally. You are spouting a position that defies logic. You are doing harm in seeking to stick up for BD.

Your intention is good but your logic is false.

 

[UKBengali]

If the dollar reserve is not for spending - then what’s the point of the reserve

BD government owns the reserve and decides how and who will spend it.

Anem!

Like it is doing now by deciding who gets how much.

Problem with mb444 is that he is responding with theoretical economics without taking the practicalities into account.

His posts can be somewhat taken out of a textbook but he has not adjusted to the situation that BD is facing in the current world.

There is no more easy pickings of lowering inflation by finding more and more 3rd world countries to produce cheaper and cheaper goods. That time has well and truly passed.

The global manufacturing and supply chains are now well established and so countries like BD can absolutely ask for more dollars for their goods such as garments to counter-act the reduced value of the dollar due to US inflation.

A 2% interest rate on 4% US inflation will mean that countries such as BD will pay back less in real terms.

Fundamentally the US must pay more for goods whether it buys domestically or internationally as its currency devalues due to inflation.

 

[mb444]

If the dollar reserve is not for spending - then what’s the point of the reserve

BD government owns the reserve and decides how and who will spend it.

Anem!

Like it is doing now by deciding who gets how much.



All lenders set conditions.

When I borrow from a bank the bank dictates how it is to be spent.

If I default - bank can garnish my wages.

A country is no different.

Bonds are relatively less onerous but always have highest interest due to the risk.

It is a simple trade off…

Higher interest or stricter terms.

Pick your poison.

There are no free lunches.

For BD IMF is much better than bond market.

Off course IMF is better than open market borrowing, no one is arguing against that. BD bond market is closed at any rate.

But no reserves are not for spending the way you think without runway inflation. It exists only to facilitate trade. Read up what M0 is in terms of money supply in economic theory and what happens when you expand it without countervailing measures.

Kwerteng just tried it in UK and tanked the economy.

 

[BananaRepublicUK]

Off course IMF is better than open market borrowing, no one is arguing against that. BD bond market is closed at any rate.

But no reserves are not for spending the way you think without runway inflation. It exists only to facilitate trade. Read up what M0 is in terms of money supply in economic theory and what happens when you expand it without countervailing measures.

Reserve is there for a rainy day. It is now monsoon!

Taka based bond market is only good for domestic spending e.g. buying rice from BD farmers.

To facilitate imports you need dollars. Hence the need for IMF. As long as the IMF loan is used to fund short term dollar shortage - it is fine. I would be violently against the borrowing if it was used for current bau spending.

Rocketing oil price has created a temporary shortage of dollars…hence need for the IMF.

In their fantasy world, everything BD exports is inflation proof. Whereas everything BD imports is not.

In the real world, I am spending more buying clothes for my kids this year than I did last year. School uniforms definitely cost much more this year.

We buy lot of stuff from H&M - guess where they source their stuff from

 

[UKBengali]

In their fantasy world, everything BD exports is inflation proof. Whereas everything BD imports is not.

In the real world, I am spending more buying clothes for my kids this year than I did last year. School uniforms definitely cost much more this year.

We buy lot of stuff from H&M - guess where they source their stuff from

This is the point I am trying to make but some do not seem to understand this simple point.

High inflation means you pay more both for domestic and foreign goods.

Ultimately a currency only has value in the basket of goods and services you can buy with it and this makes no difference to paying foreigners as well as your own people.