Home ›› 28 Nov 2021 ›› Opinion
Bangladesh’s ranking in the global competitiveness index is not in conformity with the pace at which its economy is growing. The Global Competitiveness Report, prepared by the World Economic Forum (WEF), is drafted with 98 variables organized into 12 pillars. The pillars are institutions, infrastructure, ICT adoption; macroeconomic stability, health, skills, product market; labour market; financial system, market size, business dynamism and innovation capability. Bangladesh in global competitiveness index achieved the score of 52.12 clearly trailing behind Sri Lanka scoring 57.11, India 61.36, Vietnam 61.54, Thailand 68.11, China 73.9, Malaysia 74,6 and Singapore 84.78. Higher average score means higher degree of competitiveness.
Though Bangladesh, in the meantime, has experienced macroeconomic stability, the level of dynamism in businesses has largely fallen short of the expectation, making it difficult for Bangladesh to stand with its head held high in export competitiveness stage. Bangladesh is set to lose GSP facilities in European Union (EU) markets after graduation from LDC. Now, duty free facility under Everything But Arms (EBA) in EU markets is being availed under the provisions of the World Trade Organization (WTO). In fear of losing the existing EBA facility in 2026, Bangladesh recently began its move to avail GSP+ facility. There is no possibility of getting GSP+ facility if EU-provided directives remain unaddressed. Bangladesh is now beset with uncertainty in terms of holding itself in export competitiveness race. Vietnam, known as competitor of Bangladesh, has managed to achieve competitive marks in export competitiveness index.
With 12.8 per cent export to GDP ratio, Bangladesh may face trouble in addressing import payments in future. The trade to GDP ratio in Vietnam and Cambodia has been recorded at 106.80 and 61.09 per cent respectively. According to the World Development Indicators (WDI) 2019, around 34.01 per cent trade to GDP ratio in Bhutan, 23.12 per cent in Sri Lanka, 65.22 per cent in Malaysia, 69.02 per cent in Maldives, 18.50 per cent in China, 18.41 per cent in India, 173.52 per cent in Singapore. There are lots of reasons behind Bangladesh’s inability to experience superior level of trade to GDP ratio. Outdated trade-related policy and bureaucratic bottlenecks are the key reasons of experiencing unsatisfactory level of trade or export to GDP ratio. In order to boost export earnings, devaluation of Taka is needed. Many economies in the world took the decision of devaluating their currency in the aim of remaining competitive in international markets. India, Pakistan, Sri Lanka, Vietnam, Indonesia and Cambodia devalued their respective currencies over the last couple of years. It is important to note that currency devaluation decision favors the exporters who feel comfortable in exporting goods and services.
In view of experiencing export earnings fall during July- September of FY 2019-2020, the central bank of Bangladesh took quick decision for devaluating of Taka. According to media report, India and China have already devalued their currencies by around 10-15 per cent. Actually, the demand for depreciation of Taka against US dollar from exporters’ side is not nothing new. The rising Real Effective Exchange Rate (REER) index, along with depreciation by competing countries such as India and China, suggests further depreciation of the local currency in an orderly fashion, the Bangladesh Bank said in its financial stability report for 2019. REER is a measure of the value of a currency against a weighted average of several foreign currencies-divided by a price deflator or index of costs. An increase in REER implies that exports become more expensive and imports become cheaper; therefore, an increase indicates a loss in trade competitiveness. It is good to observe that due to decrease REER of Taka, Bangladesh has started to see export competitiveness in recent time. According to the central bank, Bangladesh’s REER depreciated to 110.41 in June 2021 from 112.41 in March. Media report suggested that Indian rupee depreciated by 2.56 per cent against the US dollar in 2019, while China saw a 1.61 per cent depreciation of its currency.
If Bangladesh fails to show dynamism in exports business in international markets, current growth trend might see sharp decline. With a view to be sustainable in competitive markets, the need for diversifying export baskets is a must. Nevertheless, the choice for devaluating of Taka might be taken from time to time for keeping pace with the competitors in the days to come. Bangladesh has started to record about 11 per cent export growth since 2001. The World Trade Organization (WTO) study said that merchandise trade was set to drop between 13 and 32 per cent in 2020. Amid pandemic, exports bounced back to US $ 38.75 billion in FY 2020-2021. A premier business daily reported that Bangladesh government set a target for exports amounting to US$ 51 billion for current FY 2021-2022.
It is being observed that export to GDP ratio in Bangladesh is gradually falling indicating that Bangladesh will surely lose required marks for qualifying in export competitiveness. According to reliable sources, Bangladesh’s export to GDP ratio in 2012 was registered around 20.16 per cent whereas 12.18 per cent in 2020. Is it possible for Bangladesh to march ahead economically with current trade to GDP ratio? The concept of Terms of Trade (ToT) in international trading is very important to stay in competitive stage. ToT concept puts emphasis on quality rather than quantity. What is worrying that Bangladesh has, in the meantime, seen sharp deteriorating ToT value. According to a published article, between 1980 and 2019, the average value of ToT for Bangladesh with the base year 2000 stands at 99.91 per cent with a minimum of 57.4 per cent in 2011 and a maximum of 162.26 per cent in 1985. In 2019, ToT value was 65.4, indicative of Bangladesh’s increased focus on quantity exported rather than quality.
In view of current account balance as a per centage of GDP, it is possible to be informed about a country’s position through the lens of international competitiveness. Bangladesh Bank sources said that current account balance as a per centage of GDP was recorded -3.7 per cent in FY 2017-2018 clearly showing Bangladesh’s lack of international competitiveness. Because of being an import-oriented economy, Bangladesh rarely showed surplus in current accounts. Bangladesh achieved a current account surplus for 14 years and a deficit for 27 years from the year 1980. Confusion and debate exist both on appreciation and depreciation of Taka. Many vote for appreciation of Taka. The issue of inflationary pressure appears from critics when emphasizing on depreciation of Taka. I want to vouch for devaluation of Taka. Vietnam’s annual import is about US $ 225 billion, constituting over 92 per cent of its GDP. Bangladesh’s annual import is US $ 66 billion, accounting for around 23 per cent of GDP. Based on already stated import figures, it can be said that Vietnam’s economy is more import-intensive than the Bangladesh economy.
Since November 2018, Vietnam has allowed 1.6 per cent devaluation of its currency, while Bangladesh allowed 1.0 per cent. Inflation in Vietnam rose from 2.98 per cent in December 2018 to 3.52 per cent in November 2019 whereas in Bangladesh it increased from 5.35 per cent to 6.05 per cent during the same period. Vietnam devalued more with less inflation while Bangladesh devalued less with more inflation. Considering current export competitiveness index, devaluating of Taka would be a wise decision. It is noteworthy that appreciation of Taka never confirms competitiveness internationally. Through REER mechanism, the market watchdog had better take plan for Taka devaluation for greater interest of Bangladesh economy.
The writer is an economic affairs analyst. He can be contacted at maadul1985@gmail.com.
