Bangladesh also feels the inflationary pressure, but export earnings remain a source of relief. Currently, the biggest problem lies with imports as the traders are counting extra money to import products due to high prices in the international market.

The amount of import payments surpassed import volume.

The country’s export earnings also grew sharply, but the import spending was much higher, which eventually led to a sharp increase in trade deficit.

On the other hand, Bangladesh witnessed steady growth in remittance inflow during the pandemic. But it has been on a downward trend since the beginning of the current fiscal year.

All the facts show that Bangladesh’s overall overseas income declined when spending increased. This led to a huge imbalance in the current-account and overall transaction.

Import spending

The Bangladesh Bank has so far revealed import payment data for the first seven months of the fiscal year 2021-22.

The import spending soared 46.23 per cent to $5,044 crore in July-January period of FY22, comparing to the corresponding period of the previous fiscal when the country registered the highest ever import spending.

In the fiscal year 2020-21, the annual import payment of Bangladesh stood at $6,559 crore. If the current trend continues, the cost of imports is estimated to stand at $9,000 or $10,000 crore at the end of the current fiscal year.

It is feared that Bangladesh would not have enough foreign exchange to meet these import costs.

Dollar crisis

The rise in import costs led to a dollar crisis in Bangladesh and depreciation of taka against the greenback.

Bangladesh Bank always tries to keep the exchange rate stable through indirect interference and pumping additional dollars in the market. It has so far sold $374 crore in the current fiscal year, which is the highest recorded figure to be sold by the bank.

The central bank is now in a fix over setting exchange rate for taka. The exporters will benefit if the local currency is depreciated, but it will push up the import cost sharply.

As the import costs have already been on a dangerous rise, the central bank adopted a careful stance overlooking exporters’ demand to depreciate taka.

It is learnt that most of the banks are failing to retain enough dollars due to mounting demand in the exchange market. Some of them are attracting remittance at high cost in order to strengthen their forex reserve.

Later, these dollars are being sold at higher price to the consumer product importers and small traders, which is scaling up the consumer product prices and eventually contributing to the already worsening inflation.

At present, the exchange rate for dollar set by the central bank is Tk 86.20. But businessmen have to buy these at a price of more than Tk 89. The price is much higher in the open market.

Trade deficit soars

The country’s trade deficit widened to $1,561.60 crore in the first nine months of FY22, which was $687.30 crore in the same period a year ago.

Bangladesh registered a 33.41 per cent rise in export earnings in July-March period of FY22. On the other hand, the import payments rose 46.21% in July-January period. It is quite evident that the country is awaiting a fresh record of trade deficit.

Waning remittance inflow

The inward remittance grew 36.10 per cent in the previous fiscal year. But the scenario is in stark contrast in the current fiscal as Bangladesh is yet to see any growth in overseas income.

The growth rate has so far declined 17.74 per cent, comparing to the previous year’s same period.

As a result, the forex reserve of Bangladesh is not increasing the way it increased in the previous year. Rather, the sharp rise in import payments is downsizing the reserve.

Bangladesh’s foreign currency reserve, which was $4,639.15 crore on 30 June 2021, has now decreased to $4,343.53 crore.

The current reserve is no longer equal to seven months’ import costs. So, there are all elements to worry about.

Imbalance in current account

The most worrying issue for Bangladesh is imbalance in current account. Although there has always been a trade deficit in the country, the growth in remittances has kept the current account in balance most of the time.

But the current situation is completely different. According to the latest data of Bangladesh Bank, the account deficit stood at $1,006 crore in January, which is an all-time high in the history of Bangladesh.

It was a surplus of $155 crore in the previous year. The record import expenditure and negative growth of remittance are mainly responsible for the scenario.

It is feared that a large deficit would appear in the overall transaction thanks to the deficit in current account.

Against such a backdrop, experts think now is the time to be careful as the prevailing crisis in the international arena is not going away easily. Commodity prices in the international market would not decrease soon while ship fares are also very high.

Bangladesh is still dependent on imports for many types of consumer goods. Every year a huge amount of raw materials, intermediate goods and capital equipment are imported for the industrial sector.

As the price of everything goes up, so does the cost of production. Now the problem will only get worse if the macroeconomic indicators keep turning weak.

*This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Misbahul Haque

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