The government should support the garment exporters by devaluing taka against US dollar instead of giving them direct cash incentives, two economists said yesterday.
They made the observation after the government in the national budget for 2019-20 fiscal year proposed increasing the cash incentive on garment export by an additional one percent.
It also proposed introducing two percent cash incentive for remittance from abroad.
Currently, garment exporters receive a cash incentive of 4 percent for emerging markets. All the countries except for Canada, the EU members and the US are considered as emerging markets.
In the proposed budget, an additional Tk 2,825 crore has been allocated for paying cash incentives on garment export receipts. Some Tk 3,060 crore has been allocated for paying incentives on remittance receipts.
Ahsan H Mansur, executive director of Policy Research Institute, said it was not needed to raise the cash incentive against the export receipts as it could be compensated by devaluing the local currency against US dollar.
According to him, the devaluation of taka is long overdue.
“There is a room for devaluation of the local currency by another Tk 7, of which the exporters would get at least Tk 4 as they have to spend Tk 3 for import of raw materials,” Mansur told The Daily Star over the phone.
“The exporters deserve more, but they should not be compensated with the people’s tax money. The government should not give an incentive to any matured industry,” he observed.
Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), platform for garment factory owners, said 1 percent cash incentive was quite inadequate for them as they were “passing through a very bad time”.
The apparel exporters had demanded 5 percent cash incentive.
“Had it been at least 3 percent, it would have been okay for us,” Rubana said at a Facebook live event on the budget.
She said it was estimated that the amount of cash incentive would be Tk 14,000 crore at the rate of 5 percent in a year solely for the garment sector, but the government allocated Tk 2,825 crore for the same period.
Zahid Hussain, lead economist at the World Bank’s Dhaka office, said it is not right to include the offer of a cash incentive in the national budget, rather taka should be depreciated against US dollar.
He said given the real time effects of exchange, taka can be devalued up to Tk 90 against $1 which is now exchanged between Tk 84 and Tk 84.50.
The economist said the garment exporters would be more benefited from the devaluation of the local currency.
He, however, said he was not sure about the necessity for giving a cash incentive to the garment sector as the country’s garment export was on the rise.
Moreover, a big opportunity has been created for Bangladesh due to the current global trade scenario. For instance, Bangladesh has been receiving a lot of work orders, especially from the US retailers and brands, over the last one year because of the ongoing tariff war between the US and China, he told this newspaper over phone.
Many Western retailers and brands have been transferring work orders from China, the world’s largest apparel exporter, to Bangladesh and some other neighbouring countries, mainly to avoid any uncertainty in the entire supply chain, said the WB official.
Furthermore, the US government recently suspended the GSP facilities of India and Turkey, two major global competitors of Bangladesh, which has also created an opportunity for the local exporters to grab more share in the US market, Zahid said.
According to him, many competitors of Bangladesh in Asia devalued their local currencies significantly to be more competitive in global trade and to give incentives to their exporters.
He said the government did not need to pay a two percent incentive to the remitters.
Salehuddin Ahmed, a former governor of Bangladesh Bank, said taka can be devalued slightly.
“We may devalue taka slightly against US dollar in line with the market demand, but we have to keep in mind that there is no negative impact on the imports,” he told The Daily Star.
Bangladesh Bank data shows that expatriate Bangladeshis sent home $15.06 billion in eleven months (July 2018-May 2019) of the current fiscal year.
In the ongoing fiscal year, cash incentives are being offered against 35 categories of export products, according to budget documents.
Export incentives provided in fiscal 2008-09 amounted to Tk 1,500 crore, which stood at Tk 4,481 crore in the fiscal 2017-18.