Policymakers, leading macroeconomists and Bangladesh Bank are saying that the decline of COVID-19 cases was met with a global hike at the prices of commodities as the Russia-Ukraine war caused the production and supply costs to go up. Alongside this, a decline in remittances compared to last year’s inflow has caused concerns.
High imports caused the demand for dollars to rise and the Bangladeshi taka, like many other currencies in the world, began losing value.
Meanwhile, the higher dollar expenditure for imports and other necessities is putting pressure on the foreign exchange reserves. Bangladesh had a record $48.02 billion in August last year, sufficient to pay import bills for up to one year, but a steady decline has brought it down to the current $42 billion.
The International Monetary Fund does not agree with Bangladesh Bank on how it reports its dollar reserves.
In an assessment, when the reserve was at $44 billion by end of last fiscal, the IMF said the central bank overstated its reserves by $7.2 billion through the inclusion of non-reserve assets underestimating related risks, leading to an inflated reserve estimate.
HOW DID BANGLADESH END UP HERE?
According to the central bank’s data, from July-March of the current fiscal, the import of various commodities was worth $66.5 billion, which is 43.84 percent higher than the last fiscal in the same period.
On remittances, in the same nine months, the expatriates have sent $17.31 billion, which is 16.25 percent lower than the same period last fiscal.
Meanwhile, Bangladesh earned $43.34 billion by exporting goods, which is 35.14 percent higher than the same period in last fiscal.
The data reveals that, on average, a billion US dollar deficit remained every month, which is putting immense pressure on the reserve.
WHAT MEASURES HAVE BEEN TAKEN SO FAR?
To stabilise an already dwindling economy and a currency market, a phenomenon some economists are calling “crisis at both ends”, the central bank has devalued the taka against the US dollar three times in the last two months.
Bangladesh Bank has also toughened its policy for importing luxury and non-essential items like sports-utility vehicles, washing machines, air conditioners and refrigerators.
It had ordered the banks in April to keep the cash margin at 25 percent for letters of credit to import the non-essential products after the country’s trade deficit kept widening, posting a 64 percent rise to around $25 billion year on year in the first nine months of the current fiscal year.
