Home ›› 01 Jan 2023 ›› Front
Inflation was the most concerning issue for the low-income segment in Bangladesh, which dropped people from a frying pan into the fire amid shrinking income in 2022.
Appreciation of USD against the local currency, and elevated fuel, electricity and raw material prices with high freight costs had put a serious squeeze on the business community, not to mention the consumers as well.
The interbank exchange rate hit Tk 86.20 per USD for the first time on 23 March this year, which reached the peak of Tk 107 per on December 27. The local currency devalued by 24.41 per cent against the greenback last year.
The foreign exchange crisis had put the government in trouble, especially in terms of meeting import bills, even prompting government to introduce austerity measures to save USD.
As the Russia-Ukraine war drags on, and elevated food and fuel prices are projected to persist in the coming days, the outlook for 2023 is to be defined by uncertainty in some key areas.
As we venture into 2023, economic uncertainty can be in every corner, but there is hope in exports, mostly in the readymade garment (RMG) segment, because of low production costs.
Besides, better management and effective initiatives will improve remittance inflow, as the number of migrants recorded a sharp growth.
Rising global inflation, GDP contraction, increasing unemployment rates, and probable recession in Europe and the US, would put the Bangladesh economy under pressure because of high dependency on their markets.
The question is about what to expect and how to prepare for 2023. There will be challenges, and the government has to be more strategic and pragmatic to face these hurdles and remain safe amid the crisis.
“Crucial challenges for Bangladesh in 2023 will be energy and food security, and maintaining healthy foreign exchange reserves already in sharp decline,” Zahid Hussain, former lead economist of World Bank Dhaka Office, told the Business Post.
Until December 31, gross reserves came down to $33.8 billion, which was $48 billion in August 2021.
If Bangladesh wants to ensure food security, it will have to ensure electricity and low-cost fuel to farmers. For electricity generation, fuel import is a must, which is highly dependent on forex, the economist explained.
Without having enough reserves, we won’t be able to cover the import bills in running the wheels of both local and export-oriented industries.
If power and energy shortages hit the local industries, employment and exports would severely impact the economy, he added.
So, maintaining sound forex reserves is the prime challenge for the government in 2023.
On top of that, Europe is very close to a recession, similar to the US, and these are big concerns for Bangladesh. Over 65 per cent of Bangladesh’s apparel export earnings come from the EU and 17 per cent from the US.
In this context, there is no alternative to market diversification.
“Due to high inflation, energy crisis triggered by the ongoing war, the purchasing power of western people went sharply down. So, it is high time to go beyond Europe and US markets,” said Rizwan Rahman, a former president of the Dhaka Chamber of Commerce & Industry (DCCI).
Now, not product diversification but market diversification should be in the spotlight to overcome the crisis. The war has created a domino effect on global economies and we are an integral part of this, he added.
The economic growth and stability of China will hugely affect Bangladesh’s economic activities in 2023 as it is the largest trading partner.
Further deterioration of the Covid-19 situation in the second-largest economy would be a bad signal for the export-oriented industry, as most of the raw materials come from there.
Proper implementation is they key
The government has taken austerity measures to reduce pressure on reserves, but it did not implement them properly. Bangladesh should remain strict on its policy of limiting government officials’ foreign tours, stopping luxury imports and regulatory steps.
The government should implement foreign-funded projects, and simplify the process of receiving donations from global donors to increase reserves.
On the other hand, it should also focus on stopping import-dependent less important projects.
Hopes lie on RMG, manpower exports
However, exporters think that the export growth will remain positive in 2023, but they need more policy support.
“The year 2022 was not a good one despite having a good start with strong signs of recovery. In the second half, exports showed slower growth,” Mohammad Hatem, executive chairman of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) told the Business Post.
“We are not expecting 2023 to be good, instead it should be more challenging. As a business leader, I expect the Russia-Ukraine war will be over and the global economy will be normal,” he added.
Buyers from global brands will continue to buy from Bangladesh as it is the safest sourcing hub. While Bangladesh produces basic apparel goods and offers a reasonable price, Hatem pointed out.
We can certainly say export growth will remain positive if there is no gas and electricity shortage, said the business leader. During January-November of 2022, Bangladesh exports rose by 25.46 per cent to $49.32 billion, while apparel exports increased by 29.20per cent to $41 billion.
Amid the depleting forex reserves, manpower exports could be a great tool to improve reserves.
With the economic recovery in the destination countries increasing labour demand, Bangladesh has made a new record in annual manpower exports this year, with 10,24,458 people going abroad between January and November, sending $8.79 billion.
To cash in on the opportunity, the government has to ensure remittance inflow through legal channels and take measures to encourage sending more by offering benefits.
Steps needed in 2023
Local Inflation is the key concern in 2023 for the public at large, while global one is for exporters.
People’s suffering caused by the soaring commodity prices went beyond the tolerance level. In giving ease to living expenses, the government should think of keeping prices of fuel, energy and electricity within a reasonable limit, Rahman said.
Appreciation of the USD caused higher inflation as we are an import-dependent country.
The interbank exchange rate hit Tk 86.20 per USD for the first time on 23 March 2022, which reached the peak of Tk 107 per on December 27.
The local currency Taka devalued by 24.41 per cent against the USD last year despite a series of initiatives to cool down the forex market. On the other hand, to reduce pressures of soaring commodity prices, the government has to come up with more social safety net programmes, Rahman added.
It is high time to lift the cap on the interest rates and shun the multiple exchange rates to ensure a level playing field for all. The Bangladesh Bank also set its exchange policy for the year without any delay.
“The ongoing Russia-Ukraine war is a big challenge for the New Year 2023. If the war does not stop, the price of goods will be increased in the international market, which will directly affect in the Bangladesh market,” said Mostofa Azad Chowdhury Babu, Senior Vice President, FBCCI.
Besides, due to dollar crisis, we requested the Bangladesh Bank to support dollar assistance from reserve for the import’s letter of credit (LC). But the central bank did not respond to it and gave deferred payment facility. Many LCs are already deferred, which unable to be repaid due to USD crunch.
In that case, if the central bank does not provide green back support, the import of daily commodities may be disrupted and the prices of the products may sky rocketing in the coming Ramadan and centenary there will be impact everywhere.
Besides, if the government cannot buy LNG from the spot market, the power crisis will intensify from coming March. This will affect both the production and employment. Many businessmen will not be able to repay their bank loans regularly due to the disruption in production. As a result, number of loan defaults will be increased.
Arresting NPLs
Brining discipline to the country’s banking sector, which is already marred by high non-performing loans (NPLs), will be another big challenge in 2023. As per the latest data of the Bangladesh Bank, the country’s NPLs stood at Tk 1,34,396 crore until the end of September 2022, which is all-time high.
The trouble that the Shariah based banks have been facing in recent months is another concern for the country’s investment as it may hit the private investment.
“If the economic activities are disrupted due to political unrest, it will also put impact on banking sector. In such reality, loan recovery will decline as the disbursement of loans will also be reduced,” said Nurul Amin, former president of Association of Bankers, Bangladesh (ABB) Even with concessions in the current situation, default loans are not likely to be reduced in the coming year. The only way is to strengthen governance in the banking sector, he adds.
Taking advantage of new infrastructure
Infrastructure gave a facelift to our communication in 2022 with the opening of mega projects such as the Padma Bridge, Metro Rail, widening highways, and hundreds of connecting bridges across the country.
These infrastructures have to be utilised properly to expand economic activities.
“Infrastructural development is necessary for economic mileage and Bangladesh is gradually achieving that. Now, we need to use the potential to achieve the economic target,” said Zahid Hussain.
“Bangladesh’s targets should include finding effective ways to use this transportation means, such as finding more ways to transport goods fast and cost-effectively. When goods can be transported uninterruptedly at low cost and people can move without the hassle, that obviously plays a role in gaining economic mileage,” he stated.
