Economy
BB Takes Action to Stabilize Inflation and Dollar Crisis
Bangladesh Bank (BB) is carefully advancing with an optimistic outlook as it strives to alleviate the economic strain caused by the US dollar crisis and soaring inflation, according to the central bank’s quarterly report on the economy. The report highlights the persisting pressure on the economy from external factors, including escalating commodity prices and supply disruptions resulting from the ongoing Russia-Ukraine conflict, global economic slowdown, and financial sector volatility.
The report emphasizes that the issue is linked to geopolitical conflicts and cannot be resolved overnight. Consequently, the report urges banks and other financial institutions to exercise prudence in their future financial plans.
Bangladesh Bank publishes such reports every quarter, providing updated data on the country’s overall economy.
As per the report, Bangladesh is currently grappling with geopolitical conflicts, which have yet to exert a direct negative impact on the economy. Nevertheless, the economy remains under pressure, necessitating cautious measures.
A significant portion of Bangladesh’s economy relies on the United States, Canada, and the European Union, which constitute the primary sources of foreign investment in the country. These regions also account for approximately 82% of Bangladesh’s exports.
Furthermore, 725 of imports originate from India and China, while a substantial portion of remittances flows from the United States. The ongoing geopolitical conflicts pose a risk to Bangladesh’s export earnings and remittances.
In the current geopolitical landscape characterized by tensions between China and the United States, Bangladesh remains prudent in its decision-making process concerning these two countries.
Additionally, the United States has been openly critical of Bangladesh regarding issues of democracy and human rights. Although Bangladesh aims to maintain good relations with all countries, it is not inclined to accept unwarranted criticism from the United States. Notably, Bangladesh’s export income to the United States experienced a decline of around 12% in the past year due to certain restrictions and recent changes in visa policies.
Previously, restrictions imposed by the US, coupled with the recent visa policy changes, redirected remittances from Bangladeshi nationals residing in the United States back to the country, resulting in a sudden surge in remittance inflows.
The report highlights that Bangladesh continues to face the adverse effects of soaring global prices and supply chain disruptions caused by the Russia-Ukraine conflict. The repercussions of these factors persist, along with the ongoing global economic slowdown that stems from the conflict’s impact. While instability in the financial sector has started to subside, the report indicates an increase in liquidity supply within banks.
The Central Bank expresses optimism that the situation will gradually improve in the forthcoming days.
Remittance inflows, a crucial source of USD earnings for Bangladesh, have reached a concerning low, marking the lowest level in three and a half years. This decline comes at a time when Bangladesh is actively seeking to bolster its foreign exchange reserves. According to data released by Bangladesh Bank on a Sunday, remittance inflows stood at $1.34 billion in September 2023, the lowest figure since March 2020 when it was $1.27 billion. Compared to the same month last year, remittances decreased by 12.72 percent or $200 million.
During the first quarter of the fiscal year 2024 (July-September), Bangladesh received $4.91 billion in remittances. This was compared to $4.52 billion during the same period in fiscal year 2020. The decline in remittances has raised concerns among economists and bankers, with hundi, an illegal cross-border money transaction channel, cited as a major reason.
Remitters are drawn to hundi due to its offering of higher exchange rates in comparison to the official channel. Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank, emphasized the need for the central bank to take action against hundi to reverse the declining trend in remittance inflows through official banking channels.
Zahid Hussain, a former lead economist at the World Bank’s Dhaka Office, pointed out that the primary reason for the drop in remittances is the exchange rate disparity between the banking channel and the kerb market. Remitters receive Tk 112.75 per USD, including an incentive, through the banking channel, while in the kerb market, they get Tk 117 to Tk 118, resulting in a difference of nearly Tk 5 to Tk 6.
An anonymous senior bank manager and director revealed that some businessmen are encouraging remitters to use hundi, possibly due to the uncertainty surrounding the upcoming national polls. Zahid Hussain also noted that the number of Bangladeshi remitters has not decreased, and the countries where they predominantly work are not experiencing economic turmoil.
Despite the declining remittance inflow, Bangladesh has witnessed a substantial increase in the number of overseas workers. In 2022, after the easing of pandemic restrictions, Bangladesh exported a record 11.35 lakh manpower, the highest in its history. In the first eight months of 2023, this figure stood at 8.82 lakh, surpassing the 2021 yearly figure of 6.17 lakh.
The impact of this decline in remittances is being felt on Bangladesh’s foreign exchange reserves, which have been steadily decreasing. In September, reserves dwindled to $21.14 billion, compared to $36.5 billion in the same month the previous year. The devaluation of the Taka against the USD continues due to declining reserves, with the interbank exchange rate recently increased to Tk 110.5.
While the government’s austerity measures curbed imports of luxury goods, leading to an overall decline in import payments in July, the cost of essential goods imports has risen significantly due to USD price hikes. This situation has prevented Bangladesh from benefiting from the drop in global goods prices.
Bangladesh and India have engaged in discussions regarding the initiation of talks for a free trade agreement aimed at bolstering their economic ties. This noteworthy development emerged during an official-level meeting of the Joint Working Group on Trade (JWG) between the two nations, which took place in Dhaka last week.
The discussions, as outlined by the Indian Commerce Ministry, encompassed a wide array of bilateral issues. These included addressing port restrictions, laying the groundwork for the commencement of a Comprehensive Economic Partnership Agreement (CEPA), aligning standards, mutual recognition of standards, and ensuring the supply of essential commodities to Bangladesh.
These annual meetings serve as a crucial platform for both countries to delve into key trade-related concerns and explore opportunities for collaboration, trade expansion, technical cooperation, and diversification of their economic engagement.
CEPA, a variant of a free trade agreement, involves a substantial reduction or elimination of customs duties on a substantial portion of traded goods between the participating nations. Additionally, CEPA facilitates the easing of regulations to encourage trade in services and investments.
In the course of the meeting, discussions also revolved around matters pertaining to the enhancement of road and rail infrastructure, regional connectivity via multi-modal transportation, and the development or fortification of infrastructure at Land Customs Stations and Integrated Check Posts, as well as the establishment of border haats.
Notably, bilateral trade between the two nations has seen fluctuations, with it registering at $14.2 billion in the fiscal year 2022-23, compared to $8.13 billion in the preceding fiscal year 2021-22.
In September of this year, the country’s export earnings from goods demonstrated robust growth, surging by 10.37 percent and reaching a total of $4,310.33 million. However, these single-month export figures fell short by 7.05 percent of the strategic export target set at $4,637 million, as reported by the latest statistics from the Export Promotion Bureau (EPB).
Comparatively, the export earnings for September in the previous year amounted to $3,905.07 million, indicating a noteworthy increase in the current year.
Taking a broader view, the data from EPB revealed that the overall export earnings during the first quarter of the current fiscal year (July-September) saw a significant growth of 9.51 percent, totaling $13,685.44 million. This exceeded the strategic target of $13,988 million set for the same period.
In contrast, during the same July-September period in the last fiscal year (FY23), the export earnings were recorded at $12,496.89 million, illustrating a noticeable upswing in the current fiscal year.
Among the various exportable items, the Ready-Made Garment (RMG) sector continued to dominate the overseas market during this three-month period, amassing an impressive $11,617.5 million with a growth rate of 13.07 percent.
Breaking down the RMG category, knitwear stood out as the frontrunner, securing the highest export amount of $6,762.59 million, followed closely by woven garments with earnings of $4,854.91 million.
For the current fiscal year, the government has set an ambitious target to export goods worth $62 billion, aiming for an 11.59 percent year-on-year growth. This follows a remarkable achievement in the previous fiscal year (FY23), where exports reached a record-breaking $55.56 billion despite challenging global conditions and uncertainties.
