Pressure on economy: Next three months are critical

Economists say

For the Bangladesh economy, the next three months are expected to be delicate as the measures the government has taken so far to steady the ship amid the global economic tempest start to play out.

Take the case of imports. With import bills spiralling, the government in May placed a series of speed breakers to slow down the momentum. And the latest data from the Bangladesh Bank suggests the import curbs are working.

Between July 1 and November 16, $25.96 billion worth of letters of credit were opened. That is 21.7 percent less than a year earlier.

"By January, I can assure you there won't be any shortage of foreign currency in Bangladesh," BB Governor Abdur Rouf Talukder told a seminar organised by the Economic Relations Division yesterday.

The imports have come down to $5 billion from $8.4-8.5 billion, he said.

"Our imports are now less than exports and remittances. By December, the volatility will be eased," Talukder added.

In a similar vein, measures were taken in recent weeks to tempt expatriate Bangladeshis to send money home through the official channel to arrest the slide in inflows.

"The next three months are very crucial for banks as the ongoing stress in the foreign exchange market may continue during the period," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

He went on to hope that the situation will ease after January owing to the ongoing declining trend in the opening of LCs.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, however, is sceptical: there would not be any glad tidings before March given the trend of inflow and outflow of dollars.

In October, both exports and remittances declined for the second consecutive month, while imports continued to be higher year-on-year going by the LC settlement data.

"Export earnings may rebound after March as the ongoing recession in the West may ease. But there is little scope to predict the fate of remittances as a group of people may be laundering money abroad."

And the capital flight may continue in the coming months as there will be uncertainty on both the economic and political fronts, said Mansur, a former economist of the International Monetary Fund.

Despite a surge in the outflow of migrant workers, remittance receipts so far this fiscal year totalled $7.19 billion, down 2.03 per cent year-on-year.

Remittance may pick up if the law enforcement agencies crack down on hundi rackets, Mansur added. Hundi is an illicit cross-border financial transaction system.

Regardless of how the three elements play out, Bangladesh's stellar growth momentum in recent years will be the real victim of the economic turmoil, according to Selim Raihan, executive director of the South Asian Network on Economic Modelling (Sanem).

"Businesses have been compelled to cut back their import of raw materials and capital machinery -- that may create unemployment and job losses."

In the last 11 months, foreign exchange reserves have dropped by nearly $1 billion a month, he said at a webinar organised by Sanem styled "Bangladesh Economy: Concerns and Required Interventions".

If reserves fall by another $4 billion by June 2023, imports will decline further.

"Our current crisis is multifaceted. While fixing one side, new problems are being created on the other side. This is why overall coordination is required to tackle the ongoing stress."

If exports and remittances do not pick up in the coming days, there would be additional pressure on the economy to repay the foreign debts after a few years, said Raihan, also a professor at the University of Dhaka's economics department.

This fiscal year, $2.78 billion would be paid against foreign loans, up from $2.45 billion last year, according to a projection made by the ERD in May-June as part of the government's updated medium-term debt strategy.

Repayment amounts would progressively increase and hit a peak in fiscal 2029-30: $5.15 billion.

To ensure that the current crisis does not undo the vast progress in poverty reduction over the years, Raihan called for bringing the marginalised population under the social safety net programmes for the short term.

"We should also address inflation as the prices of essential goods are on the rise persistently," said Mansur, also the chairman of Brac Bank.

Inflation averaged 8.75 percent in the first four months of the fiscal year -- a long way off the target of 5.6 percent set in fiscal 2022-23's budget.

He, however, says that inflation can be contained if the ongoing stress in the foreign exchange market is resolved.

To address the ongoing volatility in the foreign exchange market, the BB is injecting hefty amounts of greenbacks almost every day to ensure that businesses can clear their import payments.

So far, the central bank has supplied greenbacks to the tune of $5.94 billion to the market. Between November 1 and 16, $837 million was injected.

The routine injection of dollar ate up the foreign exchange reserves: yesterday, it stood at $34.3 billion, down 23.8 percent from a year earlier, according to the central bank.

The IMF, however, calculated following international statistical definitions that the volume of existing reserves is about $27.5 billion.


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