Dollar crisis not ebbing despite ‘best efforts’

Bangladesh's dollar crisis is just not subsiding even though imports have dropped off and both exports and remittance are staging a rally.

At the end of January, the overall balance -- which is the record of all economic transactions in goods, services and assets of the country with the rest of the world -- stood at $7.4 billion in the deficit in contrast to the deficit of $2.1 billion a year earlier, according to data from the Bangladesh Bank.

But, the trade balance, which is the difference between exports and imports, improved: it was $13.4 billion in the deficit in contrast to $18.8 billion in the deficit a year earlier.

In the first seven months of the fiscal year, exports increased about 10 percent while imports declined 5.7 percent.

"This is a paradoxical situation. You would think that if imports dropped, the cash flow situation would become stable, but that hasn't been the case," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

The reason could be that exporters are not bringing in their proceeds to the country holding out for a better exchange rate. Exporters get the lowest rate for dollar.

As per rules, exporters are supposed to cash in their proceeds within four months.

An exporter gets Tk 104 per dollar now, whereas the official exchange rate is Tk 106.9.

At the same time, portfolio investment, which is investment in the country's stock market by foreign investors, crashed 95.5 percent in January from the previous month.

Both short-term and long-term loans have dropped exponentially, in perhaps a reflection of Moody's putting the Bangladesh's sovereign rating and that of seven Bangladeshi banks under review for downgrade.

Commercial banks are also liquidating their nostro accounts with foreign banks to clear their dues.

"Money is flowing out everywhere. There are more outflows than inflows," Hussain said.

As a result, reserves are not looking up.

As of March 1, foreign reserves stood at $32.3 billion, down 29.8 percent from a year earlier, according to BB.

Reserves are poised to come down to about $31 billion after the forthcoming $1.05 billion payment to the Asian Clearing Union for imports from the Saarc region.

"What is there to be done from the administrative side has already been done but it is not bringing any change in improvement. Stick didn't work -- now it is time for carrot."

In the absence of any major policy changes, it is unlikely that the government would be able to meet one of the mandatory conditions to get the second tranche of the $4.7 billion loan from the International Monetary Fund, Hussain said.

As per the condition set for June and December, Bangladesh's net international reserves (NIR) cannot be below $22.9 billion in March, $24.5 billion in June, $25.3 billion in September and $26.8 billion in December.

At present, Bangladesh's NIR is in the neighbourhood of $24 billion.

If exporters do not cash in their proceeds within the stipulated time and remittance inflows do not increase much, it would be tough to meet the IMF's condition.

"If you put more curbs on imports, what will happen to the economy? There is no space to put more curbs."

Moody's forecast GDP growth will slow to 5 percent this fiscal year and 5.5 percent next fiscal year, down from 7.2 percent registered for fiscal 2021-22.

In January, the World Bank pared back Bangladesh's growth forecast for this fiscal year by 1.5 percent to 5.2 percent.

Earlier in December, the government revised down the growth forecast from 7.2 percent to 6.5 percent due to the impacts of the Ukraine war, bringing it in line with the projection made by the Asian Development Bank (6.6 percent) in September last year and the IMF (6 percent) the following month.