Is Bangladesh’s economy bouncing back?

The Ukraine-Russia war has led to adverse ramifications for the global economy. The prices of goods and transportation costs have jumped in the international market. On the other hand, the economy of Bangladesh turned around as the Covid-19 pandemic eased. As a result, the demand in production and other sectors has increased. This led to a record import payment of $89.16 billion last fiscal year, which was about 36 per cent higher than the previous fiscal year.

Dollar crisis is prevailing in the country and the phenomenon is directly related to high import costs. As a result, Taka depre-ciated against the dollar. In May last year, the price of each greenback was Tk 86, which has jumped by 24.4 per cent to Tk 107 at present.

Bangladesh Bank started selling USD from the reserves to banks to meet the crisis. As the relevant data shows the reserves are rapidly depleting. It has fallen by about $13 billion over the course of just a year. According to the central bank, the re-serves fell to $31.18 billion on April 17, which was $44.16 billion on the same day the previous year.

Sri Lanka’s declaration of bankruptcy came at a time when Bangladesh was in the midst of the greenback crisis. Naturally there was panic in the country. Economists and opposition political leaders continued to express fears that Bangladesh may also face a similar situation. The government took quick action to avert Sri Lanka-like situation in Bangladesh.

We believe that the most significant step the authorities concerned have taken is to limit imports to minimise greenbacks going out of the border. In addition to increasing the LC margin of all products except essential commodities, the regulato-ry duty on some products has also been increased. As a result, LC opening has decreased by 25.38 per cent to $51.36 billion during the July-March period of FY23 compared to the same period of the previous fiscal.

But due to deferred LCs of previous FYs, LC settlement growth was much lower than LC opening. LC settlements declined by 5.87 per cent to $57.05 billion during July-March of FY23 compared to the same period of the previous fiscal.

And overall, the import payment during July-February of the current financial year has decreased by 10.27 per cent com-pared to the same period of FY22. Import payment decreased from $54.37 billion to $48.79 billion. As LC openings have come down drastically, the impact will likely to be felt in the remaining months of the current fiscal.

As imports declined to a marked degree, the depletion of reserves also began to slow down. Analysing the data of each month during July-April of FY23, it is seen that the reserve has decreased the most by 5.64 per cent in the month of Novem-ber compared to the previous month. Since then the decline in reserves has been somewhat moderate.

The price of the USD has also stabilized to some extent. According to data from Bangladesh Bank, the big fall of Taka against the greenback, which started in September last year, has been rather stable from the last week of December. Now it can be said USD price is now a bit stable compared to last year.

In other words, the pressure on the reserves has also decreased due to the reduction of import payment. On the other hand, export income and remittances inflow are contributing to defusing the crisis. Export earnings rose by 8.07 per cent to $41.72 billion and remittance inflow increased by 4.79 per cent to $16.03 billion during July-March of FY23 compared to the same period of previous year respectively.

In such a situation on April 18, at a discussion programme in the meeting room of the Executive Committee of the National Economic Council (ECNEC), journalists wanted to know whether the economy has been relieved of the intense pressure it was in. In response, State Minister for Planning Shamsul Alam categorically stated that the economy is not in trouble now. “We have been able to manage it properly. Despite global wars and inflation, we are moving forward,” he said expressing his satisfaction.

He also said that the apprehensions about the Bangladesh crisis were unwarranted. “Many said we will become Sri Lanka. But that didn’t happen. Currently the economic indicators are looking good. Many of us are sometimes influenced by nega-tivity and it’s not right.”

We can more or less agree with the words of the state minister. First of all it is true that Bangladesh didn’t face a crisis like Sri Lanka. Secondly, although there is a crisis in the economy, the pressure that was felt at the beginning of the current FY has reduced to some extent.

But the measures taken to reduce it came under scrutiny? Downsizing imports without any impact assessment to the econ-omy is rarely a prudent move.

Recently, the World Bank strongly criticized the massive reduction in imports to save reserves, in its report Bangladesh De-velopment Update. This global lender says, as a result of such a decision, import-dependent small businesses will be severe-ly affected. So the time has come to decide whether imports will continue to be strictly controlled, or more emphasis will be placed on increasing export earnings and remittances.

Bangladesh has taken a loan of $4.7 billion from the International Monetary Fund (IMF) as a pre-emptive measure to fore-stall a full-blown economic crisis. The first instalment of the loan has been received. The purpose of this loan is to mitigate the balance of payment (BoP) deficit to some extent. In this case, the deficit of the current account balance decreases, but the deficit of the BoP increases due to the financial account going from positive to negative.

The balance of payments deficit stood at about $8 billion in July-February of FY23, which was only $2.22 billion in the same period last FY. This shortfall tells us that although the pressure on the economy is temporarily reduced, if the remittance and export income and foreign debt do not increase, there is a risk of the pressure increasing again.

And if the pressure increases, it will have to be borne by the people, as is always the case. Bangladesh is facing the highest inflation pressure in the last decade as a result of doubling the price of fuel as a condition to get an IMF loan. Although there is a similar situation in many countries of the world, if it is possible to improve the internal weaknesses then Bangla-desh could reduce the pressure to some degree.

Recently, prices of other commodities including fuel have come down in the international market. But, will the general pub-lic get that benefit? In Bangladesh, once the price of a product increases, it usually does not come down. The unholy phe-nomenon of unscrupulous traders increasing prices of commodities by creating an artificial crisis is always in the horizon. If the government can take measures regarding these matters, may be the cost of living can be reduced to a tolerable level. It will also reduce the pressure on the economy.

The writer is a journalist. He can be conducted at farhadh17@gmail.com