Did ad-hoc monetary steps drag down our businesses?
- Bangladesh kept taka artificially overvalued when others adjusted their currency values to stay competitive
- Soon the dollar crisis began to deplete foreign exchange reserves
- But the exchange rate was officially kept lower and banks were provided with dollars at cheaper rates
- Then, Bangladesh Bank started devaluing taka frequently and take lost nearly 25% value against dollar in just a year
- Bangladesh has managed to keep its exports growing
- Businesses also see prospects to gain from the shifts in global commerce
- But things are not going to be so easy for Bangladeshi exporters
- As the dollar crisis is not going to end anytime soon, they will continue to face problems in opening LCs for basic raw materials and capital machinery imports
- Expecting a sudden boon from the West's withdrawal from China won't be worthy, too, for 2 reasons
- Bangladesh doesn't have the capacity to grab a big pie of the global market overnight
- Western countries are not going to find a ready alternative to say good-bye to China either for exports or imports
- Bangladesh fails to gain from falling global commodity prices due to the dollar crisis and weakened taka
If monetary measures taken in the past year or so were prudent and forward looking instead of stopgap ones, Bangladesh could have been better-placed like Asian countries such as India, Indonesia and Thailand to weather any crisis from the global market downturn.
Drastic fall in shipments from top 3 exporters
Latest trade data point to a slowdown in global commerce amid the likelihood of recessions in major economies, with the world's top three exporters – China, the USA and Germany – seeing drastic fall in shipments.
Exports from India, Taiwan, Vietnam and Canada also plunged.
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Declines in exports from China and Russia can be reasoned to the US-led western policy to cut reliance on the two countries, which is reshaping the global trade flows.
Bangladesh has managed to keep its exports growing and businesses see prospects to gain from the shifts in global commerce.
Inflation is now under control in Europe and the US, two major destinations of Bangladesh's merchandise.
Moreover, Bangladesh stands out to gain a slice of the orders being shifted out of China.
"China's economic slowdown will bring some benefits for Bangladesh as some apparel orders will shift to us," said Kutubuddin Ahmed, a former president of BGMEA and founder of Envoy Textile.
He said already some orders are shifting to Bangladesh.
It's not going to be easy
But things are not going to be so easy for Bangladeshi exporters.
As the dollar crisis is not going to end anytime soon, they will continue to face problems in opening letters of credit for basic raw materials and capital machinery imports.
China is the largest import source for Bangladesh and slowing manufacturing activities there could be a reason for worries for Bangladeshi exporters about future supply of raw materials.
Expecting a sudden boon from the West's intended withdrawal from China will not be worthy on two counts – Bangladesh does not have the capacity to grab a big pie of the global market overnight and the western countries are not going to find a ready alternative to say good-bye to China either for exports or for imports.
Judicious measures taken in the last couple of years put our mighty competitors well ahead of us to gain from the changing global trade scenario.
India and Indonesia, the largest economy in South Asia and Southeast Asia respectively, stand out as strong players in the global market with their resilient internal dynamics – better-managed currency and inflation. Despite substantial decline in exports, mainly because of falling prices of their commodities, both the countries are well set to see their growth and investment picking up, which will help them regain export growth. Thailand's central bank raised policy rate six times in the last one year but it feels the need for further belt-tightening as it finds benchmark rate not at neutral levels yet and core inflation still high.
Persisting dollar crisis
Bangladesh's robust export growth data runs counter to the exporters' claim of falling export orders and operating factories at almost their half capacity. The persisting dollar crisis continues to impede their imports of raw materials and capital machinery as evident in the latest data.
Import LCs fell by $2 billion in July from the year-ago period led by massive decline in capital machinery. While a decline in import bills is widely expected to ease pressure on the foreign exchange and balance of payment, it is an indication of slowdown in manufacturing activities, which will jeopardise supplies to both local and export markets.
Bangladesh fails to gain from falling global prices of commodities because of the dollar crisis and weakened taka that makes imported items costlier for both industries and consumers as well.
The chickens are coming home to roost
Stopgap measures in the past years are taking their toll on businesses and consumers. When major Asian countries adjusted the value of their currency to stay competitive in the export market, Bangladesh stubbornly kept taka artificially overvalued. Even when the dollar crisis began to deplete foreign exchange reserves, the exchange rate was officially kept lower and banks were provided with dollars at cheaper rates.
At one stage, Bangladesh Bank started devaluing taka at such a frequency that the local currency lost nearly 25% value against dollar in just a year. Imported goods worth $100, which were priced at Tk8,500 in the local market a year ago, would now cost Tk10,800 or even more.
While countries across the globe followed the repeated US rate hikes and tried to control the flow of money, Bangladesh's central bank opted to keep the interest rate cap unchanged until July this year.
Some measures were taken to restrict less important imports to reduce pressure on foreign exchange reserves, which helped import bills to decline and external balance to improve to some extent.
But continued fall in imports is not good for an economy that depends on imports to run its export industries and meet demands for major commodities.
Slowdown in imports and the current dollar liquidity crisis will affect private sector investment down the line which will contribute to slow growth of the Bangladesh economy, Edimon Ginting, Bangladesh country director of the Asian Development Bank, said in January.
Bangladesh Bank's data of import LCs opening reveals machinery declined by 55% and industrial raw materials by 30% in July-May of last fiscal year as compared to a year-ago period.
Importers are failing to procure the amount of goods they need as banks decline to open LCs citing dollar shortage.
Whatever amounts are imported, prices go high in the local market due to a weaker taka. Small businesses are even struggling to buy dollars even at Tk114 to open LCs.
While countries across the globe, from neighbouring India to the US, succeeded in taming inflation through prudent and timely interventions mainly from the central banks, Bangladesh is still facing high inflation, as the central bank's interventions did not deliver desired results so far.
The central bank itself is now worried about the future course of the economy. In its latest Financial Stability Report, it forecasts economic uncertainty and inflation pressure to stay in 2023 due to a more expensive dollar.
Bangladesh's economic growth will decelerate in the coming years as economies having close links with the country are projected to expand slowly through 2024, the Bangladesh Bank has also predicted.
"The US restriction on imports of Russian oil disrupted global petroleum flows and rendered prices unpredictable. Despite a downward trend in oil prices since July 2022, import costs and the corresponding pressure on other commodity prices might inflate in 2023 owing to a more expensive US dollar for developing nations like Bangladesh," the central bank's flagship report states.
Businesses hold off expansion
Businesses also do not see good days ahead. A number of big companies, which planned to expand their businesses even during the pandemic years, are now delaying new investment plans. With national elections just a few months away, concerns about political stability also loom large. Given the persisting dollar crisis, high inflation and high energy prices at home, Bangladesh's economic and business futures will depend on how the global commerce and economy take shape.
Some good signs are also there. Prospects of Japan and the euro region looked good. A global recession, or even stagnation, looks like a distant prospect today, says a Bloomberg report on 12 August, citing most contemporary analysis. Though the prospect looks gloomy for the world's second largest economy China and any wave of trouble there may wash up on everyone's shores, the world's No 1, US, still holds the potential to keep global growth ticking over.
Bangladesh's businesses may find some solace here.
