Bangladesh Tightens Its Belt as Forex Crisis Looms

Amid shrinking foreign exchange reserves due to rising import bills, Bangladesh has sought a $4.5 billion loan of the International Monetary Fund (IMF).

According to economists who participated in a recent debate at the Center for Policy Dialogue in Dhaka, Bangladesh faces a “economic crisis”, one that will not end soon as the global economy is also in turmoil.

The crisis was not unexpected, it seems. “We expected a deterioration in the current account deficit due to lower remittanceslower demand for exports and, of course, higher fuel and food prices,” according to a Moody’s sovereign analyst in Singapore.

On July 27, Bangladeshi Prime Minister Sheikh Hasina stated that the crisis was not imminent. The country has enough foreign exchange reserves to import food for six to nine months, she said. “We have money in our hands to import food grains and other (essential items) for at least three months during any crisis.”

However, the signs of an economic crisis are evident. The cost of the US dollar against the Bangladeshi taka has risen sharply and the Bangladeshi currency is devaluing almost every week. One dollar, which was worth around 85-90 takas in May, now sells for 112 takas at the sidewalk market.

Do you enjoy this article? Click here to subscribe and get full access. Only $5 a month.

bangladesh foreign exchange reserve fell below $40 billion recently for the first time in two years. Amid the COVID-19 pandemic, foreign exchange reserves surpassed the $48 billion mark in August 2021, the highest in Bangladesh’s history. It has been declining ever since.

This is largely due to the trade deficit. Although export earnings hit a record $52.08 billion in fiscal year 2021-2022, the trade deficit also peaked at $33 billion. The high trade deficit is, to some extent, a consequence of the war between Russia and Ukraine, which has affected food and fuel supplies around the world. Global inflation has also been affecting Bangladesh’s reserves.

Foreign remittances are the lifeline of Bangladesh. According to the World Bank, Bangladesh is the seventh largest recipient of remittances country in the world. Its remittance inflows reached a record $24.77 billion in fiscal year 2020-21, but fell to $21.03 billion Next year.

Bangladesh is listed as one of the top 30 money laundering countries in the world. Some analysts describe this problem as the cancer of your economy. According to the US think tank Global Financial Integrity (GFI), Bangladesh is among the countries most affected by the scourge of trade-based money laundering. GFI statistics indicate that Bangladesh launders an average of $7.53 billion each year through international trade.

A recent report from the Swiss National Bank (SNB) says that “the amount of money deposited by Bangladeshis in various banks in Switzerland stood at 871.1 million Swiss francs” (about $916.92 million) at the end of 2021. The report reveals that the amount increased by $310 million in just one year.

Currently, Bangladesh has more than $90 billion in external debt. Its debt has doubled in the last five years due to the implementation of mega infrastructure projects. These projects, which are part of the Awami League (AL) government”More Development Less Democracy” strategy, allowed the AL handle and win the general elections in 2014 and 2018.

These megaprojects could now become a major source of concern for the government. You will have to find the foreign exchange to pay off the debts incurred on these projects.

According to Debapriya Bhattacharya, CPD Distinguished Fellow and convener of the Citizen Platform for the SDGs, “Bangladesh may face big shocks in 2024 and 2026 regarding the payment of the external debt of 20 large megaprojects”. This equates to about $43 billion owed primarily to Russia, Japan, and China.

With an economic crisis looming, the Bangladeshi government has started to take steps to curb foreign exchange spending. The Bangladesh Bank has tightened your import policy for luxury and non-essential items such as sports utility vehicles, washing machines, and air conditioners.

Meanwhile, the Hasina government is cutting spending for its officials. Trips abroad of government officials have been canceled. They have been asked to cut electricity use by 20 percent and limit the number of vehicles they use.

Do you enjoy this article? Click here to subscribe and get full access. Only $5 a month.

As part of her austerity measures, Hasina has called for scheduled power cuts across the country, though her government celebrated 100 percent electricity coverage for the first time in the history of Bangladesh in March. Some power plants have been shut down to reduce gas consumption.

Furthermore, the government has categorized its development projects into three groups. Almost completed projects (category A) will continue, while category B projects can only use up to 75 percent of their budget. Category C projects will remain suspended until the economic crisis eases.

The AL government has started to take measures in anticipation of an economic crisis. Will it prevent Bangladesh from going the way of Sri Lanka?

Source link

Leave a Reply

Your email address will not be published.