USD appreciation an icing on cake for exporters

With Bangladesh witnessing a sharp and steady appreciation of USD against Taka, the country’s exporters gained an additional Tk 14,078 crore in the March-August period of 2022, shows an analysis of the Export Promotion Bureau (EPB) data.

As the country’s import costs soared due to the ongoing Russia-Ukraine war – which triggered the rise in raw material prices and put pressure on foreign exchange reserves – the USD rates jumped in recent months.

The USD witnessed appreciation by 10.28 per cent to Tk 94.906 in August, compared to Tk 86.059 recorded in March this year, EPB data shows.

Besides, the greenback gained 12.11 per cent in value to reach Tk 94.906 in August of 2022, compared to Tk 84.652 recorded during the same period of 2021. The average USD rate against Taka was Tk 84.952 in 2021, which rose to Tk 94.906 this year.

In August 2021, an exporter received Tk 8,465 crore against $1 billion export earnings, but thanks to the USD appreciation, they received Tk 9,490 crore for the same amount in August 2022.

It means an exporter received an additional Tk 1,025 crore against $1 billion export proceeds during the period.

EPB data shows that exporters received Tk 43,751 crore against $4.61 billion export earnings in August 2022, which means their earnings rose by Tk 4,727 crore when compared year-on-year due to the appreciation of USD.

In July 2022, exporters received Tk 37,404 crore against exports of $3.98 billion, where Tk 3,619 crore came additionally.

Meanwhile in June, May, April and March, exporters earned Tk 45,170 crore ($4.9 billion), Tk 33,391 crore ($3.83 billion), Tk 40,855 crore ($4.73 billion) and Tk 40,981 crore ($4.76 billion) respectively.

Of the figures recorded in June, May, April and March, the exporters made an additional Tk 3,543 crore, Tk 912 crore, Tk 677 crore and Tk 599 crore more respectively due to the appreciation of USD.

In March-August period of 2022, Bangladesh earned $26.83 billion from exporting goods, which is equal to Tk 241,555 crore on the basis of monthly average USD rate. The exchange rate was Tk 86.059, Tk 86.23, TK 87.183, Tk 92.035, Tk 93.887, and Tk 94.906 respectively in March, April, May, June, July, and August of 2022.

A positive impact on exporters’ profits

Economists say the devaluation of Taka increased exporters’ profit margin. Exporters agreed with the observation, but said they could not cash in on the opportunity due to a rise in production costs mostly caused by raw material price hikes.

Zahid Hussain, former lead economist of the World Bank Dhaka office, said, “There is a positive impact on exporters’ profits due to the appreciation of USD against Taka. But the businesses are not admitting this as a business strategy to realise their demands from the government.

“The exporters are enjoying more profits, but importers are in hot water as their costs have gone up significantly.”

He then said, “The fixed exchange rate was aimed at helping the importers to keep the costs reasonable, but they did not get the intended benefits as the banks were charging higher than the fixed rate during the opening of LCs (letters of credit).

“Artificial support or fixed prices did not bring any benefits. Instead, such measures put pressure on the forex reserves, as the Bangladesh Bank had to provide support to banks by releasing USD to keep the prices stable in the markets.”

Exporters unhappy with the gains

Industry leaders claimed that they did not manage to fully cash in on the opportunity due to the ongoing crisis in the global markets, as it pushed up the prices of raw materials and freight costs.

But they admitted that their profit margin has grown compared to that of the previous year.

Md Saiful Islam, managing director of Picard Bangladesh Ltd – a leather and footwear exporter, said, “Leather and leather footwear sector has higher value addition as raw materials are sourced locally.”

“But exporters could not get the benefits of USD appreciation as the workers’ wages and transportation costs jumped due to a rise in energy costs. However, we have to admit that the exporters are making more money by encashing the exports proceeds,” said Saiful, also the president of Metropolitan Chamber of Commerce and Industry (MCCI).

Some exporters also blamed the banks, claiming they charged more for USD to settle LCs (letters of credit) for importing goods.

Md Fazlul Hoque, managing director at Plummy Fashions Ltd, said, “Compared to the last year and even the last few months, we are getting better earnings from the exports as the USD appreciated against Taka.

“The government should set the exchange rate close to the Real Effective Exchange Rate (REER) and ensure this rate in the market. This would help exporters further in gaining from their export earnings.”

Industry insiders say though the USD rate is higher in banks, the exporters did not get that rate while encashing their export proceeds.

Claiming that the banks are charging more for USD than the Bangladesh Bank rate for opening LCs, they urged the government to monitor the situation properly so that banks cannot take advantage of exchange market volatility.

Exporters also point out that the global economic crisis is a challenge, and it could lower the demand of consumer goods across the world, and already the inflow of work orders is showing a slower trend.

Who are the big gainers?

Sectors, which have higher local value addition, are gaining more from the appreciation of USD. Leather and leather goods, agriculture products, frozen and live fish, furniture and knitwear products were among the highest gainers.

“The appreciation of USD gives a little boost to our profit margin, but not as expected, as the costs of doing business increased multifold,” said Masoodur Rahman, owner of Shoronika Enterprise – a vegetable and fruit exporter.

“The soaring freight charges ate up our profit margin. In retaining the earnings growth, there should be a standard rate for fares, which should not be a burden for exporters, said Rahman, also the vice president of Bangladesh Fruits Vegetables & Allied Products Exporters’ Association.

Floating exchange rate a key factor

The Bangladesh Bank adopted a floating exchange rate for USD on September 13, aiming to reduce pressure on foreign exchange reserves.

A floating exchange rate is a system where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies.

Following the decision, the inter-bank exchange rate immediately began going up. As of Monday, the inter-bank exchange rate stood at Tk 105.50, which was a sharp increase from Tk 96 recorded before this central bank move.

Exports situation

In FY22, Bangladesh’s exports rose 34.38 per cent to $52 billion. Of the total earnings, $42.61 billion came from the apparel sector and $9.40 billion from the non-RMG sector.

In August 2022, exports rose by 36.18 per cent to $4.60 billion, which was $3.38 billion in the same period a year ago. Meanwhile, during the July-August period of the current FY, exports rose by 25.31 per cent to $8.60 billion compared to $6.85 billion year-on-year.   

Importers in trouble     

Importers and the people at large are at their last gasp of breath as the soaring USD price and inflation are affecting them in multiple ways.

Mustafa Jamal Hossain, senior executive director (Finance and Accounts) of PHP Family, said, “We are an import dependent country. Our imports are much higher than exports. A stronger USD means costs of imports will go up, resulting in higher input costs and inflation pressure for domestic manufacturers.”

“Exporters, however, are gaining from the situation. The value addition of some of the sectors is not so much, and this matter should be assessed thoroughly. Imports are critical for us as we are manufacturing for local market consumption.”

Adding that the rise in production costs also pushes the inflation up, Mustafa urged the government to keep the USD rate stable and reasonable for the sake of people and local manufacturers, so that the supply remains smooth and prices affordable.