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How Iran-Israel war may cost Bangladesh economy

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In recent months, Bangladesh’s economy has shown signs of recovery, particularly in export earnings and inward remittances. The volatility in the foreign exchange market has also begun to ease after over a year and a half. However, the Iran-Israel conflict has emerged as a fresh concern, posing a potential threat to the nation’s ongoing recovery efforts.

Businesses and economists have expressed concerns that if the conflict escalates and prolongs, it could have various repercussions on Bangladesh’s economy.

One such impact could be the destabilisation of the energy market and subsequent price fluctuations, akin to what occurred following the Russia-Ukraine conflict in 2022. This could lead to increased burdens on Bangladesh’s oil and LNG import bills due to inevitable price hikes.

They caution that the Red Sea shipping route, already affected by Yemen’s Houthi attacks, could face additional disruptions. This situation could potentially have significant impacts on global supply chains, especially if there are further complications at the Strait of Hormuz which sees one-fifth of global oil production flow through it daily. This could result in increased freight costs and shipping times.

“Further escalation means everything will be difficult for us and many others,” said Azam J Chowdhury, chairman of East Coast Group, a conglomerate engaged in diverse sectors ranging from oil and gas to ocean-going ships, as well as banking and finance, among others.

Azam said the price of oil has already risen by $1 per barrel, and it is likely to further increase if the conflict between Iran and Israel persists. The state-owned Bangladesh Petroleum Corporation (BPC) has generated approximately Tk4,000 crore in profits since implementing the automated monthly pricing formula. However, these profits might not be sustained if prices further increase. Therefore, the pressure on the balance of payments (BOP) will further intensify.

Dr Masrur Reaz, CEO of the private think-tank Policy Exchange of Bangladesh, said an unstable energy market could lead to price escalations and increase import bills. If the government fails to import energy at higher prices, there may be an increase in load shedding and economic losses.

He said the Red Sea route, already experiencing disruptions with ships rerouting via Africa, would further increase shipping time and costs if trade through the Strait of Hormuz is disrupted. This situation could potentially create a crisis for ships due to the additional time required to navigate through the African region.

While neither Iran nor Israel directly hosts Bangladesh’s migrant workers, the repercussions of the conflict will be felt in other Middle Eastern countries, notably Saudi Arabia and the UAE, where hundreds of thousands of Bangladeshis are employed, Masrur said, noting that the war’s impact on tourism and other service sectors in these countries will inevitably affect the livelihoods of Bangladeshi workers residing there.

“In the short term, expatriate Bangladeshis may not lose their current jobs, but new recruitment will likely be halted. As a result, the inflow of remittances will decrease, putting pressure on the balance of payments,” he said.

Masrur added that if the conflict persists for a year or more, Bangladeshis may indeed begin to lose their jobs.

Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), reiterated concerns about the rise in energy prices and maritime trade costs.

He said if the conflict escalates, the global economy would suffer negative consequences. Consequently, demand in the USA and EU markets could decrease, with the obvious impact to be felt on Bangladesh’s garment exports.

However, Md Sazzadul Hassan, chairman and managing director of BASF Bangladesh Limited, cautioned against premature conclusions, stating that the outcome depends on how the tension unfolds.

“In general, the ongoing shipping challenges are likely to worsen, and fuel costs may skyrocket,” he said.

Nonetheless, he said, since a large number of Bangladeshis work in the Middle East, any further escalation could potentially impact these workers.

Oil price after Iran’s missile attack on Israel

Iran possesses extensive oil reserves and ranks as the third-largest producer within the oil cartel OPEC. According to CNBC, an American business news channel, any disruption to its ability to supply global markets could result in elevated oil prices. The potential closure of the Strait of Hormuz could further exacerbate this situation.

CNBC reported on Monday that oil prices could surge to $100 per barrel and beyond if renewed fears of a regional war emerge.

“Any attack on oil production or export facilities in Iran would drive the price of Brent crude oil to $100, and the closure of the Strait of Hormuz would lead to prices in the $120 to $130 range,” reports CNBC quoting Andy Lipow, president of Lipow Oil Associates.

Meanwhile, Reuters reports a 1% decrease in oil prices on Monday, indicating the market’s downplaying of the risk of a broader regional conflict following Iran’s weekend attack on Israel.

Brent futures for June delivery dropped by 99 cents, approximately 1%, reaching $89.46 a barrel by 0933 GMT on Monday. Meanwhile, West Texas Intermediate futures for May delivery experienced a decline of $1.05, around 1.2%, standing at $84.61.

Earlier on 12 April, oil benchmarks had risen in anticipation of Iran’s retaliatory attack, with prices touching their highest since October.

The report indicates that the price of each barrel of Iran’s heavy crude oil in March 2024 reached $83.48, marking a $3.14 increase compared to the previous month.

Furthermore, the average oil price of OPEC in March 2024 reached $84.22, reflecting a $2.99 growth compared to the preceding month, as stated in the report.

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PM Sheikh Hasina Seeks U.S. Business Support for ‘Smart Bangladesh’ Vision

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Prime Minister Sheikh Hasina today called on U.S. businessmen to support Bangladesh’s goal of becoming a developed and smart nation by 2041. Addressing a delegation from the US-Bangladesh Business Council at her official residence in Ganabhaban, she emphasized the importance of their partnership in this transformative journey.

“We aim to become a ‘Smart Nation’ by 2041. Your support in enhancing our global competitiveness and expanding our export base is crucial,” she said.

The Prime Minister highlighted Bangladesh’s imminent graduation from a “least developed” to a “developing” country in 2026, attributing this progress to sustained efforts over the last 15 years. “Our efforts have led to Bangladesh being recognized globally as a ‘Role Model of Socio-Economic Development’,” she stated, citing good governance, the rule of law, rural investment, women’s empowerment, and ICT advancements as key factors.

Sheikh Hasina noted the longstanding economic and developmental partnership with the U.S., which is Bangladesh’s largest export destination and source of foreign direct investment. She expressed optimism about further strengthening this relationship.

“To protect our economy from current pressures, investment—both domestic and foreign—is vital. The implementation of Bida’s One Stop Service (OSS) will facilitate this,” she said, addressing the OSS implementation progress review meeting at the Bangladesh Investment Development Authority’s (Bida) headquarters.

She urged the U.S. business community to invest in Bangladesh’s high-potential sectors, including renewable energy, shipbuilding, pharmaceuticals, and ICT. “We are establishing 100 Special Economic Zones (SEZs) and 28 hi-tech parks, making Bangladesh a prime destination for IT investments,” she added.

Highlighting Bangladesh’s competitive advantages, she mentioned the availability of a young, skilled workforce at competitive wages and the country’s liberal investment policy. She reassured investors of the government’s commitment to improving the investment environment.

In response to the Prime Minister’s address, Bida Executive Member Mohsina Yasmin presented a report on OSS progress, while NBR Chairman Abu Hena Md Rahmatul Muneem assured the business community of considering logical amendments to the Customs Act.

Sheikh Hasina underscored Bangladesh’s significant socio-economic achievements, including reduced poverty rates, increased life expectancy, and higher literacy rates, particularly among women. She noted that Bangladesh is currently one of the world’s fastest-growing economies, projected to be the 25th largest by 2030.

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FBCCI Calls for Customs Act Amendments and Full Automation to Ease Trade

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The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has called on the National Board of Revenue (NBR) to amend the Customs Act and implement full automation to streamline the customs management system. At a workshop held at the FBCCI’s Motijheel office on Sunday, President Mahbubul Alam highlighted the potential benefits of these reforms.

“These changes would simplify customs procedures, create a more business-friendly environment, and reduce the cost of doing business in Bangladesh,” Alam stated. The workshop was a joint initiative between FBCCI and NBR.

Alam underscored the importance of the Customs Act in facilitating trade and lowering business costs. “We believe the new law will significantly expedite trade activities,” he added.

The FBCCI president also addressed the complications caused by the Harmonized System (HS) code for product classification, emphasizing the need for complete automation in customs management to mitigate this issue. “A well-crafted law is only beneficial if implemented effectively,” he noted, urging the NBR to incorporate private sector feedback before finalizing the implementation process.

FBCCI Director AM Mahbub Chowdhury spoke about the harassment faced by traders at ports. He pointed out that despite paying fines for delayed duty clearance, traders still encounter obstacles during customs clearance.

Industry representatives presented their specific concerns during the workshop. Abul Hashem, president of the Sugar Traders Association, called for a tax reduction on sugar, citing it as a basic commodity rather than a luxury item. This, he argued, would help curb illegal sugar imports.

Mohammad Enayet Ullah, president of the Bangladesh Spice Traders Association, urged the NBR to adjust taxes based on international market fluctuations for spices, noting that high taxes contribute to rising spice prices in local markets.

In response, NBR Chairman Abu Hena Md Rahmatul Muneem assured the business community that logical proposals would be considered during the amendments and implementation phase of the Customs Act. He encouraged businesses to submit written complaints against customs officials rather than making random accusations.

Muneem acknowledged that while large fines are sometimes necessary to maintain trade order, they must be imposed logically and proportionally.

Md Masud Sadiq, NBR Member (Customs Policy and ICT), expressed confidence that the new Customs Act would be more trade-friendly than its predecessor and urged traders to fully cooperate in its successful implementation.

FBCCI Senior Vice President Md Amin Helali, Vice President Shomi Kaiser, directors, former directors, and NBR officials also attended the workshop.

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Global Factors, Not Mismanagement, Behind Economic Challenges: Salman F Rahman

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Salman F Rahman, the private industry and investment adviser to the Prime Minister, stated today that the challenges facing Bangladesh’s economy stem from global factors rather than domestic mismanagement.

Speaking at the One Stop Service (OSS) implementation progress review meeting at the Bangladesh Investment Development Authority’s (Bida) headquarters, Rahman highlighted the impact of international events on the country’s economic situation.

“The country’s economy is facing many challenges. These are not due to our mismanagement but are a result of the international situation,” Rahman said. He emphasized that Bangladesh efficiently managed the Covid-19 crisis, but the problems began after the outbreak of the Russia-Ukraine war.

Rahman pointed out that the Federal Reserve’s interest rate hikes led to a stronger dollar, putting pressure on Bangladesh’s reserves. “Prices of commodities, fertilizers, and fuel increased significantly, causing added stress on our economy,” he noted.

To mitigate these pressures, Rahman underscored the need for increased investment, both domestic and foreign. He stated that the successful implementation of Bida’s OSS could facilitate this investment. “We have received complaints that despite going online, people still need to visit physically and submit paper documents. These issues will be discussed today to expedite the remaining services,” he said.

During the meeting, Bida Executive Member Mohsina Yasmin presented a report on OSS implementation progress. However, journalists were asked to leave before the detailed discussion, which continued for about two and a half hours. After the meeting, Bida released a statement announcing that memorandums of understanding (MoUs) have been signed with 48 organizations, adding 101 services from 41 organizations to the OSS. Including Bida’s own 23 services, a total of 124 services are now provided through the OSS.

Mohammad Salahuddin, secretary to the Prime Minister’s Office, stressed the importance of investment in overcoming current economic challenges. “We need to remove all obstacles to increase domestic and foreign investment, and everyone must work together for this purpose,” he said.

Bida Executive Chairman Lokman Hossain Miah, who presided over the meeting, compared the investment service timelines of other countries, stating, “Vietnam provides investment-related services in 29 days and Indonesia in 48 days. We hope to add all investment services to the OSS in the next 2-3 months, enabling us to provide these services within a month.”

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