BD going to face more economic pressures

Zarif Mahmud: By correcting the data, Bangladesh Bank removed $14.20 billion from the country’s export income figures last month. In this, the export sector, which is in the trend of growth, has suddenly gone into the negative trend. The situation of foreign investment and loans or assistance in the country is also not satisfactory. Only remittances sent by expatriates were in positive trend. It is also going to suffer a big blow in the prevailing unstable situation. This puts the country’s dwindling reserves at risk of becoming more fragile.
Economists say the dollar has stabilized somewhat after more than two years of volatility. There was some stability in foreign trade as well. But the situation has completely changed due to the conflict and loss of life caused by the quota reform movement. The situation of Bangladesh is being highlighted for a week in all influential media of the world. Discussions and criticisms are being made in the international arena, including the disconnection of the Internet. It will take a long time to overcome the perception of Bangladesh in the outside world. If the situation is not normalized soon, there is a danger of money laundering from the country.

The former chief economist of the World Bank’s Dhaka office Zahid Hossain said, “One of the fundamental issues that have been predicted in the latest publications of the World Bank and the IMF regarding the various indicators of Bangladesh’s economy is political stability, so that no major disruption occurs here.” But the country’s economy has gone through a sort of lockdown for the past two weeks. A virtual lockdown is still going on. Even if you can’t go out during covid, you can do a lot of things digitally at home. But in recent times, traders could not even send an e-mail to foreign buyers. Many small startups and freelancers whose dependence on IT were completely isolated. No internet has affected all sectors. In order to forecast the economy in such a situation, you first need to confirm when normalcy will return. By normal situation we mean that there will be no curfew, there will be police on the streets but no army. Even if the educational institutions are closed, then normal situation cannot be said to be returning. At the moment, the main challenge is to bring back the normal situation. Financial sector woes, shortage of foreign exchange, high inflation have been major poisons in our economy for the last two-three years. But the recent clashes and loss of life are like bloodshed. How do you treat a boil without stopping the bleeding?’
Economic relations with the outside world mainly refer to a country’s imports, exports, remittances, foreign loans, investments and aid. By reviewing the data of Bangladesh Bank, it can be seen that currently all sectors are in negative trend except remittance. In the last financial year (2023-24), imports have decreased by about 13 percent. In the fiscal year 2022-23, the import of the country decreased by 15.76 percent. Bangladesh Bank has been controlling imports for two fiscal years to overcome the dollar crisis. Various conditions were imposed on the opening of Import Letters of Credit (LC). Due to the dollar crisis, the country’s banks also refrained from opening import LCs.
The Export Promotion Bureau (EPB) and Bangladesh Bank have been claiming for the last two financial years that despite the decrease in imports, the country’s exports were increasing. In this case, the export growth in the fiscal year 2022-23 was shown to be 6.67 percent. And in the first 11 months (July-May) of the fiscal year 2023-24, the export growth is shown to be more than 2 percent. But in the last month of the last financial year, Bangladesh Bank corrected the export data. This excludes about $24 billion from the data of export earnings in the last two fiscal years.
Earlier, Bangladesh Bank said, in the first 11 months of the fiscal year 2022-23, the country exported goods worth $50.52 billion. But according to the revised data, at that time mainly $39.68 billion worth of goods were exported. According to that, in 11 months of the last financial year, the export of goods was shown to be increased by $10.84 billion. The same situation happened in the last financial year’s export earnings. As of last May, Bangladesh Bank had said that in the first 11 months of the fiscal year 2023-24, goods worth $51.54 billion were exported. But in June, it was said that in those 11 months, only $37.34 billion worth of products were exported.
Center for Policy Dialogue (CPD) Senior Research Fellow Taufiqul Islam Khan told, “Many of our projections are no longer relevant due to changes in export statistics.” They have to be redone. The exchange rate of foreign currency is not fully market based yet. It should be left to the market. Our reserves have increased due to receiving some money from abroad. But it will not come consistently. If informal controls on imports cannot be removed, the economy will suffer. If this continues in the long run, there is a fear that importers will create a tendency to pay through hundi by showing LCs of low value. Export volume will not increase if we do not create confidence of buyers in export. Now it is said to be the full season of export of ready-made garments. Purchase orders will now come in ahead of Christmas. But during this time, we were completely out of touch for a week. This may cause foreign buyers to think that they need to create alternative sources of procurement. This may become a big issue in the coming days. In the case of remittances, if the hundi cannot be closed, the money will not come through formal channels. If the project can be implemented, foreign aid will be available. If the project can’t be implemented if the status quo continues, aid will not come. Investment within the country is already difficult. FDI is definitely difficult. The current situation will intensify it. The reputation of our country is at risk due to the prevailing unstable situation. In order to mitigate this problem, necessary steps must be taken in terms of macroeconomic policy. Besides, we have to work on improving good governance, political stability and reputation.
The dollar exchange rate has been unstable for two fiscal years due to the economic crisis. At the beginning of 2022, the country’s exchange rate per dollar was Tk 84. But currently, every dollar is being traded at Tk 118 in the bank sector. According to that at that time the depreciation of money has been more than 40 percent. Bangladesh Bank has adopted the ‘crawling peg’ policy to keep the exchange rate stable. Since the beginning of this year, the dollar exchange rate in the country has stabilized somewhat as remittances have been on the rise. But coming this month, the remittance flow is going to get a big shock. In the context of internet shutdowns and nationwide clashes and curfews, remittances are feared to fall. As of July 24, remittances have reached only 1.5 billion dollars. Of this, about $98 million came in the first 13 days. And in 10 days from July 14 to 24, remittances came in about $53 million. While last month (June) expatriate Bangladeshis sent $254.16 million remittance to the country.
Those concerned say that there has been anger among expatriates around the world due to violence, deaths and internet shutdowns in the country. Some of them are campaigning about not sending remittances through banking channels in the country. In this situation, there is a great danger that the remittance flow will decrease further in the last week of July. In that case, the remittance coming in July may be the lowest this year. If the situation does not improve, the decline in remittances may continue in the coming months.
Arshad Jamal (Dipu), Vice-President of Garment Manufacturers and Exporters’ Association (BGMEA), told, “Currently, ships have to go around a lot due to the Red Sea crisis. We already had port restrictions at the inland level. When we were turning around in such a situation, the crisis occurred. The reality is that our exports have decreased. A reflection of global market demand and inflation, the purchase order demand fell. All in all, we were already in the challenge. Due to reduced imports, there is a container crisis at the port. There are also various internal challenges-such as the lack of consistency in our policies. All in all, there must have been a risk. I am also worried about the problem of our image abroad. Foreign investment will also be hampered in the existing situation.
In the last few years, the amount of net foreign aid coming to the country is gradually decreasing. In the fiscal year 2021-22, the country received $8.48 billion in net foreign aid, most of which was loans. In the fiscal year 2022-23, it decreased to $7.51 billion. During July-May of the recently concluded fiscal year 2023-24, the net foreign aid received by the country was $5.17 billion. Net foreign aid came in at $5.39 billion in the same period of the previous fiscal year. In this case, the net foreign aid decreased by 4.04 percent.
Net foreign direct investment (FDI) flows, like aid, are now on the decline. In the financial year 2021-22, the net FDI inflow into the country was $1.83 billion. In the next financial year 2022-23, it decreased to $1.65. In the first 10 months (July-April) of the latest fiscal year 2023-24, net FDI of $1.36 billion has arrived. In the same period of the previous financial year, the amount of net FDI was $1.35 billion.
The members of Foreign Investors Chamber of Commerce and Industry (FICCI) held a meeting yesterday. The impact of the existing situation was discussed in the meeting. Bangladesh Investment Development Authority (BIDA) will hold discussions with the leaders of all trade organizations in the country today. It will be presided over by Prime Minister’s Advisor on Private Industries and Investment Salman F Rahman.
President of Foreign Investors Chamber of Commerce and Industry (FICCI) Javed Akhtar told, “The situation is very difficult for business and trade. The overall economy has taken a major hit over the past week. Then there is the multiplier effect. It doesn’t automatically turn on when the economy shuts down. In such a situation, the confidence of the existing investors must be restored first. After that, the focus should be on attracting new foreign investors. If the confidence of existing investors is not restored, others will not come either.
Foreign exchange reserves have been declining for nearly three years as the country’s expenditure outpaced its income. The country’s gross reserves rose to $48 billion in August 2021 based on remittances sent by expatriates. Since then, the reserve has been depleting. Bangladesh Bank has been selling dollars from reserves for the last two fiscal years to meet the government’s foreign debt and import liabilities. According to international standards (BPM6) last June 30, the country’s reserves were $21.78 billion. However, on the same day, net reserves were at $16.77 billion. The government approached the International Monetary Fund (IMF) to overcome the dollar crisis. Bangladesh is taking loan assistance of $4.7 billion from the donor organization.