Austerity and curbs on unnecessary imports

With the Ukraine war showing no signs of ending anytime soon, countries are bracing for unpredictable times ahead. Many nations have already adopted emergency measures to preserve foreign currency and reduce the import of non-essential items. The war in Ukraine is manifesting its impact on the global economic functions with fuels prices soaring and unchecked inflation. With regional neighbour Sri Lanka teetering on the brink of economic collapse, topped by political upheaval, plummeting foreign reserves and nationwide unrest, it’s natural for other countries to feel uneasy. Bangladesh’s foreign debt to GDP is still within a safe zone although the foreign currency reserve has fallen recently to go below $ 40 billion. On Wednesday the reserve stood at $39.70 billion.

In these testing times when economists are predicting a recession, it’s always prudent to shake off complacency and adopt austerity measures. The PM had earlier underlined the need to cut down expenses and urged everyone to tighten the belt.

According to a report published in The Business Post yesterday, Bangladesh Bank has tightened its monitoring for opening of letters of credit (LCs) to curb unnecessary imports, aiming to reduce the ongoing pressure on foreign exchange reserves.

As part of the move, the central bank on Thursday asked authorised dealer (AD) banks to submit import information to the regulator’s Online Import Monitoring System (OIMS) 24 hours prior to the opening of LCs – based on proforma invoices/purchase contracts.

According to Bangladesh Bank data, during the last fiscal year’s July-May period, import payments stood at $75.13 billion, up from $50.90 billion posted in the same period of FY21.

To assist banks settle import bills, the Bangladesh Bank sold a record $7.62 billion to banks in FY22 and $575 million as of July 14.

To add the woes, the local currency saw a record depreciation of 9.24 per cent in the running year. The inter-bank exchange rate stood at Tk. 93.95 per USD on Wednesday, up from Tuesday’s Tk 93.45.

According to media reports, the continuous injection of USD in the banking sector has put pressure on the foreign exchange reserves of Bangladesh. Data from The Bureau of Economic Analysis in the USA show that one of the biggest economies in the world went through a dip in the first quarter of 2022, when GDP fell by 1.5 per cent.

A Goldman Sachs report stated in June, recession risks are “higher and more front-loaded” due to high inflation and energy prices.

Bangladesh has shown some remarkable export figures recently by crossing the $10 billion export mark to the USA but if the latter goes into recession, orders for RMG and other items will be impacted adversely.

As the war rages on and developed nations become starkly divided, sanctions are being imposed which will, in the long run, disrupt global trading operations, thus making commerce more expensive.

For Bangladesh, the first move should be to cut down imports of luxury items.

Unfortunately, there are signs that exploiting crisis periods, unscrupulous people circumvent laws to import exorbitantly priced items and, when caught, remain nonchalant.

With prices of essentials not following a set pattern and employment becoming scarce, eschewing ostentation is a key necessity.

While the authorities can urge the people to live moderately; the actual change will come when there is a nationwide belt tightening.

The government may mull about putting a cap on the import of luxury vehicles for a certain period. In addition, to protect small enterprises and independent entrepreneurs, loans on soft terms can be taken into serious consideration.