September brings no cheer for economy
The economy of Bangladesh has continued to suffer from foreign exchange-related stress as both exports and remittances declined in September whereas import payments were almost unchanged.
This means that the strain on the foreign currency reserves and the volatility of the exchange rate of the taka is unlikely to be over anytime soon.
Exports fell 6.25 per cent year-on-year to $3.9 billion in September while remittances dropped 11 per cent to $1.54 billion, data from the Export Promotion Bureau and the Bangladesh Bank showed.
Despite the fall, overall exports, however, rose 13.38 per cent in the July-September quarter. Remittance was up 5 per cent.
September actually turned out to be a difficult month for Bangladesh as export slipped for the first time in 14 months while remittance flow fell to a seven-month low.
But in a major relief, imports did not increase substantially. Rather, it was slightly down at $6 billion in September from $6.1 billion in the same month last year.
Overall import payments, however, swelled 26.5 per cent to $20.69 billion in the first three months of the fiscal year, according to the provisional data from the BB.
"We have been hearing from the policymakers that the external shock on the economy will be over soon. But these three indicators in the first quarter showed that it has not happened," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
"The macroeconomic stress continues and it is unlikely to ease anytime soon. So, policy-makers should revisit their policies."
Owing to the poor show of the export and remittance sectors, the country's foreign exchange reserves fell to $36.44 billion on September 28, down 21.25 per cent from a year earlier. This has forced the local currency to suffer a major depreciation in recent months.
The exchange rate stood at Tk 107.5 per dollar on September 29, down 25.7 per cent year-on-year.
Selim Raihan, executive director of the South Asian Network on Economic Modeling, said: "The reduced exports have made it clear that recession fears and higher inflation in Europe and the US have started to affect exports."
He warned that exports might be affected further as western nations are raising interest rates to curb inflation which would affect consumer behaviour.
Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, however, thinks that the fall in exports is temporary.
"We hear that buyers are putting orders on hold or are deferring them. It raises concerns to some extent. But I think export orders will make a turnaround from November," he said.
At the same time, the economist says, remittance inflow would also rebound because of the higher number of people going to the Middle East for jobs.
The number of Bangladeshi workers who headed to the Middle East countries in search of jobs surged 177 per cent in the first eight months of 2022.
Moazzem suggested the government review the measures it has taken to discourage imports.
Bankers, however, are yet to get any clear idea about the direction of remittances and imports as uncertainty in the global economy shows no sign of abating and higher commodity prices persist.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, says that many importers are now making payments while opening letters of credit (LCs) by securing post-import financing from banks.
Under post-import financing, banks provide loans to importers to settle LCs. "This might have increased the import volume in recent times," he said.
"The importers are making the payments upfront to avoid the fluctuation in the exchange rate."
Emranul Huq, managing director of Dhaka Bank, said that the LCs that had been opened earlier might have been settled in August to a large extent.
Imports through Dhaka Bank decreased by 40-45 per cent in September from the month before.
Huq went on to hope that import payments might decline from October because of the cautious stance taken by banks.
According to him, lenders are now following a uniform exchange rate while purchasing US dollars from exchange houses, which might put an adverse impact on the inflow of remittances.
The exchange houses might not have remitted the money immediately so that the foreign exchange market faces further volatility and they can gain from the situation, Huq said.
Expatriate Bangladeshis usually send money home through exchange houses.
As export receipts were lower than imports in July and August, Bangladesh suffered a trade gap of $4.55 billion.
Similarly, the deficit in the current account, which shows transactions in goods and services by a country with the rest of the world, grew to $1.5 billion.