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Price Surge on Select Products Following Budget Changes

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Finance Minister AH Mahmood Ali presented the national budget for the fiscal year 2024-25, amounting to Tk 797,000 crore, in the Jatiya Sangsad today. The presentation took place under the chairmanship of Speaker Dr. Shirin Sharmin Chaudhury and in the presence of Prime Minister Sheikh Hasina.

This marks the 53rd budget of independent Bangladesh, the first for the current government’s fourth consecutive term, the 16th continuous budget, and the 21st under the Awami League-led administration. Notably, this is the inaugural budget presented by Finance Minister AH Mahmood Ali.

The proposed budget includes increased taxes and duties on various products, leading to higher prices for items such as cigarettes, water filters, cashews, refrigerators, air conditioners, ice cream, beverages, bricks, LED bulbs, tobacco products, unrefined edible oil, tube lubricating gel, synthetic corundum, aluminum oxide, fluorescent lamp parts, glass, plastic, medical equipment, capital machinery, construction materials, SIM cards, auctioneers, security services, and lottery tickets. Consequently, household expenses and travel costs are expected to rise.

Increased Costs Due to Tax Changes:

  • Cigarettes: The budget proposes increasing the supplementary duty on all types of cigarettes, with a suggested 65.5% supplementary duty on three tiers of cigarettes, raising their prices. The maximum retail price for 10 grams of jorda is set at Tk 48, and for guli, Tk 25.
  • Water Filters: Import duty on water filters, now produced domestically, is raised from 10% to 15%.
  • LED Bulbs: Import duties on LED and energy-saving bulb components are increased by 10%, likely raising their prices.
  • Cashews: Import duty on shelled cashews is raised from 5% to 10% to protect domestic cultivation.
  • Refrigerators and Air Conditioners: VAT and duties on components used in the production of refrigerators and air conditioners are increased, leading to higher prices.
  • Construction Costs: Import duties on LRPC wire are increased, impacting construction expenses.
  • Vehicle Conversion Kits: Import duties on CNG-LPG conversion kits and related components are raised from 3% to 5%, increasing conversion costs.
  • Generators: A 1% import duty is introduced on components used in assembling and producing generators, affecting prices.
  • Imported Mackerel: VAT and advance income tax on imported mackerel are set at 15% and 5%, respectively, increasing their cost.
  • Industrial Raw Materials: A 1% import duty is imposed on 33 types of raw materials used in industries, such as unrefined edible oil, aluminum ingots, and components for
  • LED bulbs and fluorescent lamps.
  • Economic Zones: Concessions on capital machinery and construction materials for industrial establishments in economic zones and high-tech parks are withdrawn, introducing a 1% import duty.

Sectoral and Service Tax Changes:

  • Tour Operators: The existing VAT exemption for tour operator services is withdrawn.
  • Entertainment: VAT for amusement parks and theme parks is increased from 7.5% to 15%, affecting leisure costs.
  • Auction Houses and Security Services: VAT is raised from 10% to 15% on auction houses, security services, and lottery tickets.
  • Bricks: Specific taxes on bricks are proposed to increase from 10% to 20%, impacting construction costs.
  • Ice Cream and Beverages: VAT increases on ice cream and carbonated beverages are proposed, raising their prices.
  • SIM Cards: Supplementary duty on mobile phone SIM usage is raised from 5% to 20%, increasing the cost of mobile communication and internet usage. VAT on e-SIM provision is increased from Tk 200 to Tk 300.

The proposed budget’s theme is “Commitment to Building a Happy, Prosperous, Developed, and Smart Bangladesh.” The overall budget size is set at Tk 797,000 crore, a 4.60% increase from the current budget of Tk 761,785 crore. The Annual Development Programme (ADP) is fixed at Tk 265,000 crore, up from Tk 263,000 crore in the previous fiscal year. The total deficit is projected at Tk 256,000 crore, down from Tk 283,785 crore in the revised budget for the current fiscal year.

Revenue targets are set at Tk 545,400 crore, compared to Tk 500,000 crore in the previous year. GDP growth is targeted at 6.75%, with inflation expected to be 6.5%.

To cover the budget deficit, loans of approximately Tk 300,000 crore are anticipated from domestic and foreign sources. The budget also includes allocations to prepare the youth for a “Smart Bangladesh” and measures to enhance social safety programs to mitigate inflation’s impact. Climate change’s effects on the economy are also analyzed in this budget, and efforts to broaden the tax base will include introducing taxes in new areas.

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PM Sheikh Hasina: Plant Trees to Create a Greener Bangladesh

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Prime Minister and Awami League (AL) President Sheikh Hasina urged the nation to create a “Green Bangladesh” through extensive tree planting during an event on June 15.

“We must plant as many trees as possible across the country to make a ‘Green Bangladesh,'” she stated at the launch of the three-month-long tree plantation program by Bangladesh Krishak League (BKL) at her official residence, Ganabhaban.

At the event, the Prime Minister honored several BKL leaders for their efforts in promoting the Awami League’s nationwide tree plantation campaign and distributed saplings among them.

She called on leaders and activists to play a crucial role in transforming the country into a “Green Bangladesh.” Hasina urged BKL leaders to plant saplings along river embankments, coastal belts, roadsides, rooftops, and houses to advance the ‘Green Movement.’

The Prime Minister planted three saplings at Ganabhaban to mark the occasion. “Since assuming office, I have planted over 2,000 trees in Ganabhaban,” she said.

She emphasized that Bangladesh is an agriculture-based country and its economy relies heavily on agriculture. “We will pursue industrialization after strengthening the agriculture sector. We will not bypass agriculture for industrialization,” she added.

However, she warned against the destruction of arable lands in the process of industrial development. “Croplands must not be destroyed in the name of industrialization,” she cautioned.

With significant developments and urbanization taking place across the country, she urged vigilance to prevent damage to arable lands.

BKL President Samir Chanda and Acting General Secretary Bishwanath Sarker Bitu also spoke at the event, which was moderated by BKL Joint General Secretary Shamima Shahriar.

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Smart move. Bangladesh turns to loans in yen to ease repayment pressure

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Bangladesh yen dollar

In a move to manage risks associated with rising interest rates and a volatile US dollar, the government has decided to take some loans from the development partners in Japanese yen instead of dollars.

The yen loans are being taken particularly for scale-up window loans from the World Bank at market-based interest rates, according to officials at the Economic Relations Division (ERD).

Budget support of $300 million and an amount equivalent to $400 million for a project are being taken from the World Bank in the Japanese currency, they said.

After disbursement, the Japanese currency will be used to buy dollars, said the officials. Despite some temporary losses, this will reduce the pressure of interest and principal repayment on implementation loans, they said. The ERD, the Finance Division, and the Bangladesh Bank jointly made the decision.

The ERD officials said if loans are taken in yen instead of dollars, the overall interest rate would be much lower.

This will provide some relief from the current pressure the government faces in paying interest, they said. Besides, since the Japanese currency experiences less fluctuation compared to the dollar, there will be reduced risk in repaying the principal amount of the loan in the future, they said.

Zahid Hossain, a former lead economist of the World Bank office in Dhaka, told the news reporter, “The interest rate on the yen-denominated loan is likely to be lower since it is based on the Tokyo Overnight Average Rate (TONA) which tends to be significantly lower than SOFR (Secured Overnight Financing Rate) or LIBOR (London Interbank Offer Rate). The risk of valuation loss due to exchange rate fluctuations is not that different from borrowing in SDR (Special Drawing Rights) or USD.”

He went on to say, “Using the scale-up window allows Bangladesh to top up the core IDA (International Development Association) financing. Of course, the money from the SUW (scale-up window) is more expensive. But if we fully use up the core IDA, this is the next best option.”

The ERD officials said a proposal for a $500-million budget support loan will be presented at a World Bank’s board meeting to be held on 21 June. Of the amount, an amount equivalent to $300 million will be taken in yen, they said.

The interest rate for this loan will be TONA plus a variable spread, which is determined by the World Bank every three months, said the officials. The repayment period will be 35 years, including a 4-year grace period, and a front-end fee of 0.25% will be charged, they said. Additionally, a commitment fee of 0.25% will be applied to undisbursed funds, said the officials.

According to the ERD officials, the government is taking the remaining $200 million loan from the World Bank’s scale-up window-shorter maturity. The repayment period for the loan will be 12 years, including a 6-year grace period.

Interest on yen loan way cheaper

The ERD officials said if loans are taken in dollars, the overall interest rate would be approximately 7%. On the other hand, loans taken in Japanese currency would require Bangladesh to pay a much lower interest rate (around 2%), they said.

If $300 million is taken in dollars, it will be based on the SOFR. Variable spread will be added to this.

Since the Ukraine-Russia war, the SOFR has increased significantly. Even two years ago, the SOFR was less than 1%. Due to the rise in the SOFR, Bangladesh is facing pressure to repay its debts.

Data released by the Economic Relations Division shows that the government spent nearly $1.15 billion (equivalent to Tk12,626 crore) on interest payments in the first 10 months up to April of the current year, surpassing the annual allocation of Tk12,376 crore. The allocation was increased to Tk15,800 in the revised budget later.

According to the budget document released by the Ministry of Finance, it has been allocated Tk20,500 crore for the repayment of foreign loans in the upcoming fiscal year. The increase in interest payments is mainly due to the rise in the SORF rate in the international market, putting pressure on interest payments.

During his recent budget speech, Finance Minister Abul Hassan Mahmood Ali said, “Secured Overnight Financing Rate (SOFR) which is used as one of the reference rates around the world was only 0.5% in January 2022. To manage the inflationary situation arising from the Ukraine-Russia war, most of the developed countries including the USA increased their interest rates. As a result, the 6-month average of SOFR increased and stood at 5.4% in May 2024. For the same reason, the other developed nations including those in Europe enhanced the interest rate which affected the reference rate of EURIBOR, TONA, etc.”

Project loans to be received in yen

According to the ERD officials, the World Bank has recently increased the amount of loan for the construction of the container terminal in Chittagong. The World Bank announced that it will provide a loan of $650 million for the project, whereas previously it was planned to provide a loan of $350 million.

Out of the $650 million loan, the government has decided to borrow an equivalent of $400 million in Japanese currency. The interest rate for the loan will be based on the Tokyo overnight average rate plus a variable rate.

Besides, a loan equivalent to $150 million will be obtained in SDR, for which no interest will be charged. Furthermore, a loan equivalent to $100 million will be taken in SDR as well, and the interest rate for the loan will be 0.75%.

The decision was made during a high-level meeting at the ministry on 29 May regarding the container terminal project.

According to the minutes of the meeting, a representative from the Bangladesh Bank informed the discussants that they analysed one loan from the Asian Infrastructure Investment Bank (AIIB), where they found that the loan in the yen is more concessional than any other currency right now.

“Now the TONA reference rate is 0.077% and the variable spread is 0.73%. Considering the other options and current situation this blending is a good option,” she said.

AIIB loans in yen too

Apart from the World Bank, the government is also considering borrowing in other currencies instead of dollars for projects financed by the Asian Infrastructure Investment Bank (AIIB), said the ERD officials.

Due to the higher market-based interest rates, the government is not planning to take any loans from the AIIB for any project in the current fiscal year, they said. However, the officials said, they are considering taking a $400 million budget support loan from the lender.

The said borrowing in currencies other than dollars for development projects as well is under consideration.

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Tesla shareholders voting yes for Musk’s $56 bln pay package, CEO says on X

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Tesla shareholders are voting to approve a $56 billion pay package for Elon Musk and to move the electric vehicle maker’s legal home to Texas, Musk said on social media platform X on Wednesday, adding that passage was by wide margins.

Shareholders of the electric-car maker are voting on a proposal to ratify CEO Musk’s 2018 incentive package, valued at up to $56 billion at the time and the largest in US corporate history, after a Delaware judge voided the plan approved by its board “beholden” to Musk.

The result will be announced at a meeting on Thursday.

A person familiar with the preliminary tally confirmed Musk’s post, and said that a combination of big institutional investors and retail investor got the ‘yes’ result over the line.

Shareholders, however, are allowed to change their vote up to the start of the annual meeting.

Tesla shareholders also cast ballots on other proposals including the move of Tesla’s legal headquarters from Delaware to Texas, as well as the re-election of two board members: Musk’s brother Kimbal Musk and James Murdoch.

Musk referred to the resolutions on his pay package and the move in his tweet, thanking shareholders for their support.

Some investors viewed the vote on Musk’s pay as a test of confidence in his leadership. While he is undoubtedly Tesla’s driving force, and is credited with much of its success, the company has recently seen slowing sales and profits.

The board said the world’s richest person deserves the package, because he hit all the ambitious targets on market value, revenue and profitability.

The pay package is also needed to keep Musk devoted to Tesla, the board said, even though the Delaware judge said the 2018 pay plan failed to make sure that Musk committed a substantial amount of time to Tesla.

Musk has threatened to build AI and robotics products outside Tesla, if he fails to gain enough voting control, which requires the 2018 pay package to be approved.

Some large shareholders including Norway’s sovereign wealth fund and California’s two largest pension funds have said they will vote against the compensation, saying the pay is excessive.

Tesla has been drumming up support for Musk’s pay package, especially from retail investors, who make up an unusually high percentage of its ownership base but who often do not vote.

Company executives have posted messages on X, saying Musk is critical to Tesla’s success. Tesla has run social media ads, and Musk has promised a personal tour of Tesla’s factory in Texas to some shareholders who cast votes.

COURT BATTLE

The same package was previously rejected by a Delaware judge who invalidated it as an “unfathomable sum” granted by a conflicted board with close personal and financial ties to its top executive.

The board held the shareholder vote as a way to bolster its appeal of the ruling, in which the judge cited the board’s failure to fully inform shareholders before approving the pay package in 2018.

Musk has to wait months or years to get his pay package restored as appeals wind their way up to Delaware’s Supreme Court.

Tesla could also face more litigation from some shareholders. One of them this month filed a lawsuit challenging the upcoming shareholder vote on Musk’s pay package and the change of domicile.

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