Originally posted in The Business Standard on 29 October 2022
All sources of foreign currency – export, remittance and foreign loan – have been on the decline. Remittance and export earnings have been at the lowest levels since January, the month before the Russia-Ukraine war broke out. But import expenditures, though marked some fall following central bank’s restrictions, are still high due to soaring global prices of food and energy. As a result, foreign currency reserves are depleting and the external balance is in the red. The trade deficit stood at a record $33.25 billion at the end of the outgoing fiscal 2021-22. At the same time, the current account deficit also surpassed $18.50 billion. Export sector sees a fall in order and fears further slide in the coming months. Fuel import bills show no sign of slimming, fertilisers remain pricier and if food prices go up further, foreign reserves will be under more stress.
Is doomsday nearing? Or, is there still a way out? Exporters say they will be able to prevent export fall if their factories get gas and electricity. As more Bangladeshis have gone abroad so far this year, a surge in remittance is expected in near future. Advanced economies are in need of skills and Bangladesh needs to focus more on skill development to benefit from the higher-paid job market.
Jahidul Islam of The Business Standard approached analysts to get their views on the deepening crisis and possible ways out.
Plug illicit outflows, boost inflows
Dr Fahmida Khatun, Executive Director, Centre for Policy Dialogue
Foreign exchange reserves are depleting so fast that it has become a cause for great concern. The trade deficit continues to widen as the import cost continues to outshine export earnings and the deficit is becoming more difficult to manage due to the downturn in remittance inflows.
With a looming global recession, export earnings are unlikely to pick up quickly, which translates to more pressure on reserves. There is no possibility of a reduction in import costs unless global commodity prices come down.
Repatriation of all types of earnings including the income of expatriate workers, and export proceeds would play a vital role to increase the reserves in time with a gloomy outlook.
One of the significant reasons for reserve depletion is illicit capital outflow caused by under-invoicing and over-invoicing at both the import and export stages.
Money is going out of Bangladesh at a rate that is unprecedented in any other country, which suggests that many people think of Bangladesh as not safe. They do not see a better future here.
The government should rein in capital outflows and remittance through informal channels by implementing existing policies and formulating new ones if necessary.
Currency support from the International Monetary Fund (IMF), budget support from the World Bank, Asian Development Bank (ADB) and other development partners would help to tackle the immediate pressure on the reserve.
The government should accelerate efforts to ensure the availability of such types of support even complying with conditions which would not hamper economic growth, employment and overall well-being.
But the problem is how many of the IMF loan conditions can be met. The government should ensure reforms from its own interest to ensure discipline in the financial sector, increasing revenue generation, reducing subsidies to nonindustrial sectors, and reducing corruption even out of the condition of the IMF.
Project support from foreign sources would help reduce reserve pressure and expand the government’s fiscal spaces also.
Slower implementation of the development projects hinders the opportunity of releasing from the pipeline of foreign aid committed by the development partners worth over $50 billion. Many projects have stalled due to a lack of efficiency, transparency and accountability.
Our export earnings are confined to a single product and to a few countries. If the demand for this product falls, there will be no other sector to retain the export income. The diversification of markets and products has been discussed extensively for years but to no avail.
Like exports, our remittances are also limited to a handful of countries. The tendency of sending our manpower to countries other than the Middle East and Malaysia is low. Apart from that, due to low skills, they are not able to earn as expected, nor are they able to remit adequate amounts back to the country.