The economy of the country is under pressure due to the ongoing global economic crisis. An increase in inflation, decrease in reserves, high prices of products in the world market, and decrease in remittances are the main causes of the crisis. In the last nine years, the price inflation in food products has increased at an exponential rate.
However, noting that there is no need to be over-cautious, the way to survive is to manage our monetary and fiscal policies through a fruitful dialogue with all stakeholders and the policy framework applicable to the financial atmosphere of the country. Bangladesh is walking on its path. Agriculture plays an important role in this regard. We will find the right way out of this economic tension without spreading panic.
We are not able to produce enough products according to the demand, due to the increase in the price of the products that we depend on imports from abroad; it is taking time to reach the domestic market. Syndicates are the major obstacle to the supply of goods in the market. Unscrupulous syndicates control the market, extort money, and fuel inflation for these reasons. If the supply of goods was guaranteed, it would have been possible to control inflation. We need infrastructure, but we need parallel initiatives to maximize returns and the ongoing projects with good governance should be given importance to be implemented cost-effectively and completed on time. So that our internal rate of return and economic rate of return is assured. Then it will not be a burden on the economy.
The government has adopted various strategies to overcome the ongoing economic crisis– in particular, the initiatives to reduce expenditure in various areas of the country. Various initiatives have been undertaken including reducing the cost of electricity, banning all types of foreign travel by government officials, and stopping the use of AC in offices and courts.
The current economic crisis is not unique to Bangladesh, it is a global problem. If the people help a little, the transition from this crisis will be easier. But those who want to play with fire should remember that they will also get burnt if the fire starts. There is a silent crisis in the world of the global economy. Inflation, unemployment, and various economic instabilities are also going on in developed countries. Behind this crisis and instability, the Russia-Ukraine war has a negative effect. The global practice of crony capitalism, corruption, economic inefficiency, interest, debt-based financial system, unequal distribution of wealth, etc. especially the main reason behind the ongoing economic crisis of our country is terrible. We have to remember that the successive steps to get rid of any crisis are to admit the crisis, find the real cause of the crisis and then find a way out. Unfortunately, these steps are neglected in our country. Regulatory authorities are unwilling to acknowledge the crisis. Finding the real cause is another matter.
Just like a person needs money to run and meet their needs like company needs money, a country also needs money to run, to meet expenses.
That revenue is spent to meet the internal needs of the country. These include social infrastructure, physical infrastructure, and the general services sector. Among these, physical infrastructure is usually the top spending sector. Lately excessive deficit budget, corruption, and reduced tax to GDP ratio have added to the government's interest-based debt and interest expenditure and subsidies. Recently these two are now the top spending sectors of the budget. Needless to say, the ongoing fiscal policy and expenditure sector is inconsistent in many ways. The benefits of the economy are not reaching the masses as expected.
The second asset pocket is foreign exchange reserves. It is stored in the central bank. The majority of these reserves are in dollars, but the dollar is the main reserve component. In addition, there are small amounts of euros, yen, pounds, and gold. The national reserve of foreign exchange is an important part of a country's economy. Through this, the value of the country's currency is determined. All foreign financial transactions are done through it. Not only in Bangladesh; about 90 per cent of current global financial transactions are done in dollars. This means that in almost all the countries of the world, those pockets of wealth are saved in dollars. Therefore, all payments and exchanges including imports and export from one country to another will be settled in dollars. Suppose there is a fuel oil crisis in your country. The transport sector is at a standstill. Power generation has stopped. Fuel oil has to be imported from other countries. The only recourse is dollars. Therefore, we understand how essential the cash flow of dollar-based reserves is to our economy.
What is the source of such an important matter as a reserve? Reserves are rich from what sector? In this regard, the overall review shows that our reserves are enriched by three sources. In the last financial year (2021-22), our exports were worth 58.4 billion dollars, which is the highest record in the history of Bangladesh. However, two facts have to be added to this. Firstly, the export of such a large quantity of goods did not generate foreign exchange as expected. The Export Promotion Bureau (EPB) publishes statistics on products shipped. Bangladesh Bank calculates the amount of income against this. Analyzing the statistics for almost three years of the two institutions, it is seen that during this period, the amount of non-repatriated money against exported goods is gradually increasing.
According to traders and experts, the amount of money repatriated could be low due to various reasons. However, there is no chance for it to be more than 10 per cent. More than this will not be good for the economy. Unfortunately, it is going to double in the current financial year. According to Global Financial Integrity (GFI) data, an average of 7.53 billion 37 million dollars is laundered from Bangladesh every year through international trade. At the current market rate (100 taka per dollar), the amount is more than 75 thousand crore taka. Bangladesh ranks 33rd out of 135 developing countries in terms of average money laundering. Secondly, the fact that needs to be added is that despite such huge exports there has been a record trade deficit. Imports cost about 90 billion dollars. In this, the deficit in the balance of trade stands at a record 32 billion dollars.
Remittance flow is also called 'secondary income'. In the last financial year (2021-22), our remittance amount was 16.2 billion dollars. According to the calculations of June this year, only 2 billion dollars of remittances came in that month. But we have more than one crore workers in various countries. We send a large number of workers from this country. It does not create any special skills either. The methods of receiving remittances through legal means are not made comparatively easy in many ways. It can be seen that expatriate relatives cannot use the bank because they do not have a bank account. Again, even if there is a bank account, it is not at his doorstep.
As mobile financial services (MFS) have reached people's doorsteps, we have not been able to ease the way for remittances to come through legitimate channels. Due to these various inefficiencies and mismanagement, our remittances are coming through legitimate channels.
Primary Income is meant, to use a specific skilled person or an economic sector of the country in the work of the outside world. For example, a great doctor, engineer, or any such skilled person is properly evaluated and sent to the outside world to earn foreign exchange by exploiting skills. Generally developed countries earn foreign currency by this method. Our country has not earned any kind of foreign currency from this sector for several years; on the contrary, it has lost 3.4 billion dollars. For those who work in the country, but live abroad, their dues are mainly included in this minus. In the last 2020-21, we have no achievement from the sector, rather it is minus. This is called 'Negative Primary Income'. So, it appears that there are only two main and top sources of accumulation of foreign currency in our reserves. Namely Export earnings and Remittance.
A country's national foreign exchange reserves decrease due to various reasons. In our observation, two types of factors are active in this case. One type of material is directly active in reserve depletion. There are three such elements in total, namely - import expenditure and trade deficit, money laundering, the balance of payments, and current account deficit. Another type of material is indirectly active such as inefficiency and corruption, foreign debt or mega projects, and negative primary income. Altogether six economic factors contribute to the reserve deficit.
To continue the country’s commendable achievements, an economic strategy advisory committee comprising of nationally and internationally renowned Bangladeshi economists, sociologists and other relevant experts should be urgently constituted for independent and impartial guidance.
The writer is a columnist and researcher. He can be reached at [email protected]