Mahfuz Emran: A major foreign exchange crunch has emerged in the country, including non-expected product exports, reduced remittance flows and pressure to repay foreign loans.By this, the US currency dollar is continuously strengthening.On the contrary, the value of local currency is weakening.
The taka has depreciated by more than 16 percent against the dollar in the past year.And in the span of two years it has decreased by about 30 percent. A year ago, it cost Tk 95-100 taka to buy 1 dollar, Tk 84-86 2 years ago.And now it costs Tk110-116 to buy 1 dollar.2 years ago, I had to spend Tk8500 to buy $100.Now it costs about Tk11,600 in the open market to buy $100.As a result, the taka has fallen by about 30 percent against the dollar in 2 years. Then we suffer from complacency.I didn’t use it correctly.Artificially maintained the value of the dollar.which is suffering us now.An overvalued dollar has fueled our inflation.
The value of money is continuously depreciating.They are now identified as a blight on the economy.If this problem is not solved, the country’s economy will face big challenges in the future. It is known that in the years before the corona epidemic, the interest rate of loans in the world market was very low.At that time the flow of foreign credit to the private sector in Bangladesh was also quite good.
At the same time there was positive growth in remittances and exports.Due to these reasons, the country’s foreign exchange reserves had increased to $48 billion in August 2021.
As a result, the government suffered from complacency.A loan of $200 million was given to Sri Lanka from the reserve.A loan to Maldives was also discussed.Apart from this, loans are taken from the reserves to government institutions and investments are made in development projects.But after Corona, the economy has increased demand towards the end of 2021.Then the demand for imports increases.On the other hand, remittances decrease.This affects the reserves.
Meanwhile, the Russia-Ukraine war began.This created a new crisis in the economy.The government had to take a loan from the IMF under difficult conditions to overcome the crisis. Apart from this, the central bank has taken various initiatives including imposing various conditions on imports to keep the dollar market stable.
As a part of this, dollars are regularly withdrawn from foreign exchange reserves.But none of the steps are working. Meanwhile, the central bank artificially kept the dollar rate between Tk84 and Tk86 for a long time.Currently it has increased to Tk110.50.According to Central Bank data, two years ago in September 2021, the price of the dollar rose to a maximum of Tk85.50.At the beginning of September 2022, the price of the dollar stood at Tk95.At the end of September this year, the price went down to Tk110.50.That is, the price of the dollar has increased by Tk 15.50 or 16.31 percent within a year.And increased by Tk 25 or 29.41 percent in two years.Commercial banks are now selling at Tk 112.50 to Tk114 per dollar and open market is selling at Tk116 to Tk118.
Professor Wahiduddin Mahmud, former caretaker government’s finance adviser, said, “When our economy was doing well, reserves were increasing regularly, some wrong decisions were taken.Apart from this, we have suffered from complacency due to the large increase in reserves.
He said unplanned expenditure has been made from the reserve in the development sector.That didn’t fix it.Because no matter how much reserves keep increasing, it is not for development expenditure.It is the strength of a country.Through this, foreign investment is attracted.
Policy Research Institute Executive Director Ahsan H. Mansoor said, when it was necessary to take initiative, it was not taken.This problem has been created for a long time, which has no chance of immediate solution.There is no capacity to increase reserves.Now the reserves will continue to decrease;But as much as can be saved must be done.
He said, first inflation should be reduced.If it can be reduced, the dollar market will stabilize.Initiatives should be taken to increase remittances and exports.Then as part of the long-term plan, interest rates should be increased step by step to 5-6 percent.Which is not possible now.These steps should be taken after the election.
According to the data of Bangladesh Bank, the reserve has been decreasing since last year.It was increasing continuously before.10 years ago, at the end of June 2013, foreign exchange reserves were only $15.32 billion.In 2018, it increased to $33.68 billion.From there it further increased to $40 billion on October 8, 2020.It then rose to $48.06 billion for the first time in August 2021.
This number of reserves was the highest in the history of the country.After that, Bangladesh Bank could not hold the reserve anymore. After the start of the Russia-Ukraine war with the negative impact on post-pandemic global trade, the rise in energy and commodity prices, the country experienced a severe dollar crisis.
The central bank sells dollars from the reserves to the banks to deal with the crisis.As a result, foreign exchange reserves are continuously decreasing. The central bank is continuously selling dollars from the country’s foreign currency savings or reserves to reduce the dollar crisis in the market.In the first two months of the current fiscal year, sales exceeded $2 billion.In the financial year 2022-23, the central bank sold $13.58 billion to various banks.And in the previous financial year (2021-22), it sold $7.62 billion.
According to the latest data, Bangladesh Bank sold $2.24 billion to various banks from the beginning of the current financial year to August 31. As a result of this continuous sale of dollars, the accumulated reserves of more than $48 billion have now come down to $21 billion.
Mainly, the foreign exchange reserves are increased by the dollars received from remittances, export earnings, foreign investments, loans of various countries and international organizations. Again, the foreign currency goes through the expenditure incurred in various sectors including import expenditure, payment of loan interest or installments, salary and allowances of foreign workers, going abroad as a tourist or education of students. In this way, the dollar remaining after income and expenditure is added to the reserve of Bangladesh Bank. Overspending reduces reserves.
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