Almost all the indicators showing bad signs
The current inflation rate in the country is the highest in almost 12 years. The inflation rate is 9.1 per cent. According to the IMF forecast, the average inflation in Bangladesh will be 9.1pc in 2023. In other word, there is no sign of any good news in terms of inflation rate in future either.
The Bangladesh Bank had maintained the value of taka artificially till last year. However, as the import cost increased and foreign exchange earnings dwindled, the central bank started depreciation of taka gradually. In the end it was forced to leave the dollar exchange rate on the market to some extent. As a result, the rate of the dollar increased to Tk 107. At the same time, Bangladesh Bank started selling dollars from the reserve to maintain the supply in the market. Therefore, the reserve of $ 48 billion has decreased to $ 34.33 billion now, which will cover four months’ import expenditure. Even a few months ago, it was possible to cover seven months’ export cost with the same reserve.
However, according to the IMF this estimation is not complete as some 7.2 billion dollars has been given as loan and there is no guarantee of getting the full amount back. As such, the usable reserves is a bit more $27 billion at the moment.
Besides, the ratio of the overall earning and expenditures of the government has become mostly imbalanced. The government is not being able to meet the targeted income; however, the expenditure is rising.
The deficit in the earning of the National Board of Revenue (NBR) in the first three months of the current fiscal (July-September) was $ 55 billion. On the other hand, the government subsidy in fuel and fertilisers is rising due to the rise of its prices in the international market. However, the government is not being able to increase the allocation in this sector. Therefore, the price of fuel had been raised once more. Now the pressure is mounting to increase the price of fertilisers and power.
Concerns even over reliable indices
Exports and expatriates' income, the main sources of foreign currencies in Bangladesh, have been declining for the last two months. The Export Promotion Bureau (EPB) said the country’s earnings from exports dropped by 8 per cent in October, compared to the corresponding month of last year. The earnings earlier fell by 6.25 per cent in September, snapping a 13-month gaining streak.
In total, the country registered a 7 per cent growth in export earnings in the first four months of the current fiscal, which was recorded at 22.62 per cent in the previous year’s corresponding months. The exporters feared the income to fall further in the coming days due to the decline in purchase orders.
Meanwhile, the inward remittance fell to an eight-month low in October. There is a 2 per cent growth in remittance if all four months of the current fiscal are taken into account. More than 900,000 workers went abroad in the current fiscal year. The remittance is expected to improve once they start to remit their income to their families.
Here, it is crucial to fix a market-based exchange rate for the greenback. Otherwise, the hundi business will expand further. But the experts find no visible step by the government to contain the money laundering.
The inflationary pressures intensified globally after the commencement of the Russia-Ukraine war. Against such a backdrop, Bangladesh welcomed inflation by raising the fuel prices up to 52 per cent. When the other central banks were struggling to deal with the high price of dollars, the Bangladesh Bank launched an investigation into the dollar selling methods of the commercial banks and the amounts of profits bagged by them through dollar trading.
The situation became more complex when the central bank took an initiative to punish the top officials of some major banks. It was forced to move away from the initiative. The authorities introduced a managed floating exchange rate, but still maintain multiple exchange rates. Also, there is no sign for the hundi business to abate. New decisions are still being made about exchange rates, and they are being revised frequently. The situation is not being stable in the aftermath.
The government has chosen the method of import control to relax the pressure on dollars. The banks turn a deaf ear to the applications for opening letters of credit (LCs) if the importers do not have export earnings. Many traders are failing to open LCs, which eventually has created a commodity crisis. Also, the import of food commodities decreased to a large extent. The facts are responsible for the recent instability in sugar market.
Mega threats await
Turkish-born American economist Nouriel Roubini has a global reputation for accurate economic forecasting. He wrote in the The Guardian on Monday, “In our partisan political world, where we kick the can down the road – we are biased towards short-term planning and leave thinking about the future to others – these threats are something different. Left to grow, they will make life worse for people across the world.”
He identified some economic mega threats as the spectre of inflation and recession at the same time and the historic rise in private and public debt ratios.
The World Economic Forum (WEF) said in a survey recently that high inflation, loan repayment crisis and rising cost of living are the biggest threats for the next two years. Especially, as the developed countries are raising interest rates to rein in inflation, recession is assumed to be inevitable.
All are predicting that the global economic crisis would not go away in the next year. Bangladesh will also take heat from the crisis. The prices of fuel oil, coal and LNG in the world market will not decrease soon and the crisis in the power sector will not fade away. Rather, the crisis is reducing production in the private sector.
The consumer demand subsided in the market due to the high inflation, so did the sale. Some big companies are counting losses. The economy, on the whole, has slowed down.
In such a situation, the IMF delegation is now in Dhaka to discuss the terms for a proposed USD 4.5 billion loan. The fate of the loan depends on what conditions the lender places and how far Bangladesh complies with it.
Zahid Hussain, former lead economist of the World Bank's Dhaka office, believes that there are risks for Bangladesh from both sides - internal and global. He said, “The internal situation is getting critical gradually. There have been slowdown in export and remittance income and disruption in production due to gas and power crisis. Factories are unable to produce even if there is demand.
“The import of fuel oils, including diesel, was reined in to save dollars. There have been power cuts as a consequence. The agriculture (croplands) cannot be irrigated due to load shedding. Again the production in the industry is decreasing,” he added, suggesting that the government should fix the priority first.