Only imports under control
Zarif Mahmud: Apart from import control, all instruments to increase foreign exchange reserves of the country are directional or negative. Foreign exchange earnings include exports, remittance flows, foreign investment and foreign grant flows are in the negative trends. The income of other sectors including services from abroad has also decreased. All in all, there has been a negative impact on the inflow of foreign exchange.
On the other hand, despite the severe dollar crisis, it is possible to control the import expenditure, but the expenditure of other sectors, including foreign debt repayment, is not decreasing. As a result, overall expenditure is still higher than foreign exchange earnings. It is not possible to increase the reserve. On the other hand, foreign liabilities have to be met with dollars from reserves. The reserve is gradually decreasing.
Economists said urgent steps should be taken to prevent depletion of reserves. For this reason, money or foreign currency smuggling from the country should be stopped first. Remittance flow should be increased by stopping hundi. Multifaceted steps should be taken to increase export earnings. Steps should be taken to bring export earnings lying abroad and money stuck in pipelines home quickly. If not,
there is a danger that the crisis will increase in the coming days.
According to the report of Bangladesh Bank, the main sector of foreign income of the country is export income. 70 percent of the total foreign exchange comes from the export sector. The second major sector is remittances sent by expatriates. 28 percent comes from this sector. 2 percent comes from foreign investment, credit and other sectors. A negative situation has emerged in all these sectors of foreign exchange earnings.
Export earnings last exceeded $5 billion in June. Since then, it has been decreasing. Tk 459 crore in July, Tk 478 crore in August and Tk 431 crore in September. Exports increased by 13.5 percent in July-September of the last financial year. It has increased by 9.5 percent during the same period of the current financial year. That is, the growth of export income has decreased by 4 percent during the period under discussion.
Import of raw materials for export industry is done through back to back LC. In the last financial year, LC openings in this sector fell by 35 percent and imports by 19 percent. LC and imports decreased by 10 and 30 percent respectively in July-September of the current financial year. That is, the import of raw materials for the export industry in the country has decreased. Import of raw materials of this sector has decreased due to less export orders. It may have a negative impact in the coming days.
Eminent economist and executive director of Policy Research Institute Ahsan H. Mansoor said, one of the causes of the current economic crisis is the dollar crisis. A larger supply of dollars would have made it easier to deal with the crisis. To deal with this crisis, the flow of dollars should be increased. For this, money laundering and hundi should be stopped on an urgent basis. Besides, it is possible to increase remittance flow and export earnings by leaving the price of dollar to the market. These steps should be taken quickly.
Remittance income is also trending. In June, the latest remittance receipts crossed the $2 billion mark to reach $2.2 billion. It has since fallen below $200 million. Tk 197 crores in July, Tk 160 crores in August and Tk 134 crores in September. Remittances have decreased by 13.5 percent in the three months of the current financial year. In the same period of the last financial year, there was an increase of about 5 percent. Remittances fell by 15 percent in FY 2021-22. In contrast to the decline in the last financial year, it has increased by only quarter of 3 percent. Due to the higher dollar value in Hundi and lack of banking services, remittances are coming in more in Hundi. Apart from this, remittances also decreased due to the decline in workers’ income due to the global recession. Although the export of manpower abroad has increased in recent times. However, various measures are being taken by the government and the central bank to increase remittances.
Foreign direct investment (FDI) is slowing down. In 2021-22, FDI came in at $183 crore. $161 million came in the last financial year. Investments decreased by $22 million. In July-August of the current fiscal year, $345 million have come. It was less than $340 million in the same period last fiscal year. Although investment increased slightly during the period under discussion, most of it was invested from the profits earned in the country.
Foreign grants increased by 52 percent in FY 2021-22, down from 12 percent in last FY. Last year July-August decreased by 30.40 percent. It has decreased by 30.47 percent during the same period of this year. External debt has also decreased due to the global recession and rising interest rates in international markets. Dollars are not being added to the country’s reserves due to the decrease in the flow of foreign exchange in these sectors.
Import controls were imposed from April 2021 to reduce the depletion of reserves, which have now been tightened. Imports fell by 15 percent in 2021-22, compared to around 16 percent in the previous fiscal. In July-August this year, it decreased by 22.50 percent. In the same period last year, there was an increase of 17 percent. Expenditure has been reduced by imposing tighter controls on the sector and reducing the flow of dollars. Due to this, it has been possible to control the loss of reserves to some extent. But due to suspension of payment of previous import charges, they have to be paid now. In addition, foreign debt has to be paid. Due to these reasons, the dollar has to be provided from the reserve. It is depleting the reserves.
In August 2021, gross reserves reached a maximum of $4,806 million. Now it has reduced to $2,670 million. In the last two years and three months, the reserve has decreased by $2,136 million. That is, the reserve has almost halved. In November, the Asian Clearing Union (ACU) will have to pay more than $1 billion in debt. Doing so will further reduce the reserve.
Meanwhile, at the end of December, there may be a discount of $1.3 billion due to the loans of IMF and other organizations. Then there can be temporary relief of reserves. The dollar has risen nearly 30 percent in the past two years due to the dollar crisis and dwindling reserves. In July 2021, the price of the dollar was Tk 84.80. Now it has increased to Tk 110.50.
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