However, there is a ray of hope that the export earnings have been seeing a rising streak. Bangladesh’s earnings from export of home textiles, agro-processed products, leather and leather products has touched the USD1 billion-mark in July-April of the current fiscal year. At the same time, export earnings from jute and jute products inched near the same mark.
Overseas earnings would gain pace if the authorities ensure that the manpower is exported through proper planning and the remittance inflow through illegal channels is kept in check. The forex reserve will not come under pressure then, even if imports continue to rise.
Meantime, Bangladesh Bank has taken several initiatives to put a brake on the import of luxury products while the government has imposed a ban on government officials' foreign trips to combat the prevailing dollar crisis. Besides, the authorities are mulling over a temporary suspension of the comparatively less important projects.
Economists supported the government moves and said it needs some more strict measures on an emergency basis before the crisis takes a turn for the worse.
High jump in imports
Bangladesh spends the most on import of industrial raw materials, followed by consumer products. Fuel occupies the fifth place on the spending chart.
Industrial raw materials worth USD22 billion were imported in the July-March period of the fiscal year 2021-22, which is up by 54 per cent from that of the previous year’s corresponding period.
The country witnessed the highest 87 per cent surge in spending for fuel imports as the expenditure rose to USD5.4 billion in the first three quarters of FY22.
Besides, the import cost of consumer products rose 41 per cent while that of capital machinery increased 42 per cent and intermediary products 50 per cent. As a whole, the country's import cost jumped 44 per cent during the first three quarters of FY22.
Bankers say the rise in import costs does not mean the rise in import volume. The recent surge is triggered by the increased shipping costs and high commodity prices in the global market, which is unlikely to come down any time soon.
Against such a backdrop, they stressed beefing up surveillance on imported goods so that money laundering in the guise of import-export is contained and import costs are kept under control.
Meanwhile, the cash margin for opening letter of credit (LC) to import luxury cars and electronic home appliances has been raised to 75 per cent. Now a businessman has to deposit Tk 7.5 million in advance if he wants to import a car worth Tk 10 million. Bangladesh Bank expects that these initiatives would reduce the import expenditures.
Exports up, remittance down
Exports seem to have completely recovered from the Covid-19 shock as the country’s annual export target for FY22 is almost met in only ten months (July-April). Bangladesh exported products worth USD43.34 billion in the first ten months of FY22 when the annual export target was USD43.50 billion. During the period, the exports rose 35 per cent comparing to that of previous year.
But overseas income plunged 16 per cent during the period. The individuals involved with the banking sector said all the migrant Bangladeshis sent money through legitimate channels when the communication systems were suspended due to Covid-19 pandemic.
Now, the difference between the dollar prices of bank and open market has exceeded Tk 8, which is persuading the migrants to opt for illegal means to send money home and eventually shrinking the country's foreign currency income.
According to the central bank data, the country received $17.3 billion in remittance in July-April period of FY22, when the figure was $26.6 billion in the same period a year ago.
Why the reserve under pressure
Bangladesh earned $4.76 billion from exports in March this year and the remittance income was $1.86 billion, which totaled at 6.62 billion. On the flip side, the country paid import liabilities worth USD7.14 billion, creating a trade deficit of $520 million. However, there is a surplus export income of USD1.3 billion if the first three quarters (July-March) are taken into account.
The cost of imports swelled recently, which forced the country to settle the trade deficit from its reserve. Bangladesh has so far sold out a total of USD5.2 billion, which downsized the foreign currency reserve to USD42 billion.
The increased demand pushed up the dollar exchange rate. Although the central bank set the exchange rate at Tk 86.7, the banks are charging importers Tk 95 for each dollar. The price of imported items, including consumer products, rose as a consequence.
Against such a backdrop, the pressure on people would decline if the government and the central bank take time-befitting decisions, say the industry insiders.
I don’t understand how the government is expecting high growth in such a situationDr Salehuddin Ahmed, former governor of the Bangladesh Bank
In a conversation with Prothom Alo, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, blamed the rising import costs for the current situation.
The central bank initiative would reduce the import pressure to some extent, he said, adding that such a situation should be dealt with efficiently.
Dr Salehuddin Ahmed, former governor of the Bangladesh Bank, said the current pressure on forex reserve is a matter of concern. Import costs increased due to multifaceted problems, including local and international issues. A pressure has been created on people due to rise in prices of essential commodities.
“I don’t understand how the government is expecting high growth in such a situation,” he said.
The economist stressed on looking into the surge in import costs and gearing up monitoring to ensure that all imported products are entering the country.
In addition, high tariffs might be imposed on imported food items and cosmetics that are also being produced locally, he suggested. Expressing concern about the current pace of money laundering, Dr Salehuddin said the government must adopt a strict stance to stop this unethical practice.