The Business Standard recently reported that import costs which had been USD 86.40 billion in the 2021-22 fiscal have fallen by USD 21.11 billion and now stand at USD 65.29 billion. That means a 24.43 cut in import expenditure. From the angle of economics, this is good news in one sense, but bad news in the long run.
Let's look into the positive aspect at first. According to Bangladesh Bank's records, the foreign exchange reserves of the country in August 2021 stood at USD 48.06 billion.
IMF did not deem this figure of Bangladesh Bank as accurate. According to their system of calculation BPM6, the USD 7.5 billion given to the export development fund has to be subtracted from the total reserves. They also put forward to the condition to subtract from the total reserve calculation the loan provided to purchase aircraft for Bangladesh Biman, the loan provided to Sri Lanka and loan for dredging the entrance route to Payra port taken from the reserves.
Bangladesh at the time did not agree to these IMF conditionalities. But after taking a USD 4.70 billion loan from IMF in 2022, Bangladesh Bank accepted the conditionalities and was obliged in 2023 to follow the BPM6 calculations. However, in the meantime the country's gross reserve of foreign exchange in 2023 had dwindled alarmingly to USD 19.13 billion, according to BPM6, the net reserve falling to below USD 16 billion.
With around USD 690 million received in December last year as the second tranche of the IMF loan, a loan of USD 400 million from Asian Development Bank, and Bangladesh Bank purchasing large sums of dollars from various banks, the reserves went up above USD 21.50 billion again.
However, after paying the USD 1.08 billion debt to the Asian Clearing Union in January 2024, the reserves dropped to USD 20.19 billion again. In March 2024 the gross reserve went up slightly to USD 20.57 billion and net reserve to USD 17.20 billion.
With the decrease in import expenditure, there perhaps will be no apprehension of a current account deficit emerging in the balance of payments, and so the foreign exchange reserves won't see a rapid fall. In fact, the reserves may see an upward climb, albeit slow. That is the positive aspect of controlling imports.
Bangladesh Bank could not stop the fall in reserves despite the stern control on exports. After all, the thriving hundi business prevented the government from increasing remittance through formal channels
However, of the USD 21 billion fall in imports, USD 12 billion is a fall in imports of industrial raw material and capital machinery. The falling opening of LCs for these good will have a negative impact on industrial production and also production of export goods. As a result, there is apprehension that the GDP growth of the current 2023-24 may fall below 6 per cent. That is the inevitable long-term negative fallout that results from slashing imports.
Another instance of bad news is that, as a result of controlling imports, a shortfall of various imported goods has been created in the country's local market, lending more clout to the powerful syndicates that control the market. One of the main reasons that the government could not bring inflation under control for two years is the dominance of the syndicates or oligopoly.
Despite being aware of the negative impact of long-term curbing of imports on the economy, the government had no alternative but to control imports. There is all reason to suspect that the inflation of import expenditure, particularly in the 2021-22 financial year, was not only because of the increase in imports.
It is assumed by those in the know that there was over-invoicing of imports behind the scenes of import expenditure, in a flurry to siphon capital out of the country. If over-invoicing was not strictly clamped down upon, it would not have been possible to prevent the drain of reserves.
So, as a result of the USD 12 billion fall in the import of industrial raw material and capital machinery, if the capital flight is somewhat curbed, then that can also be considered as good news for the economy.
However, the fact remains that because our economy and our export sector is extensively import-dependent, if there is strong long-term control on imports, the negative impact on the economy will gradually take on alarming proportions. So we have no alternative but to once again relax control on imports, in a planned manner.
Another bit of good news is that for the past five months remittance from expatriate Bangladeshis has been on a rise. This remittance had dropped from USD 24.77 billion in 2020-21 fiscal to USD 21.61 billion in 2022-23. The main reason behind this was that remittance by the informal 'hundi' channel had once again increased after the Covid pandemic abated.
The government had been unable to curb the boost in hundi which led to the fast fall in foreign exchange reserves, sending our economy reeling. In August 2021 the dollar exchange rate was Tk 87 per dollar. But in two and a half years the taka devaluated by at least 28 per cent.
Bangladesh Bank could not stop the fall in reserves despite the stern control on exports. After all, the thriving hundi business prevented the government from increasing remittance through formal channels.
October 2023 finally brought in good tidings with the influx of remittance through formal channels higher than that in the corresponding period of the previous year.
The latest records show nearly USD 2.17 billion in remittance came through formal channels in February 2024, which was around 39 per cent more that the approximate USD 1.56 billion that came in February 2023. The taka rate against the dollar being more or less stable for the past six months, has had a positive impact on remittance through formal channels, experts say.
If this positive trend in remittance through formal channels continues for the coming months, then the deficit in the balance of payments may turn into surplus again, stemming the fall and reviving the growth in reserves. This will undoubtedly brighten the prospects of Bangladesh managing to avoid an economic crisis.
The government must immediately move aware from the wrong stand it had taken regarding the default bank loans, money laundering, remittance through hundi, anti-corruption measures, and unessential mega projects
It must be pointed out that the problems in the economy are not without solutions. But the inefficiency and inaction of the former finance minister transformed many of the problems into long lasting crises. We hope that the country will gradually be able to overcome these problems under the leadership of the new finance minister. But this will first require a change of direction in the government policies.
The government must immediately move aware from the wrong stand it had taken regarding the default bank loans, money laundering, remittance through hundi, anti-corruption measures, and unessential mega projects.
The authorities must come down hard on hundi if the dollar market is to be stabilised. This will create an environment conducive to overcoming the dollar availability crisis. Bangladesh bank will then be able to move away from its stern import control.
As a result, the government will be able to come up with appropriate economic policies to ensure that the country's GDP rate will go back up to 7 per cent in the 2024-25 fiscal. I therefore make an appeal that importance be given to changing the import policy in time so that the economy is saved from the long term negative impacts of the control on imports.
*Moinul Islam is an economist and former professor at the economics department of Chittagong University.
* This column appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir