A harder math for finance minister to solve

Time seems to have not been in favour of Finance Minister AHM Mustafa Kamal. He had to place the last two budgets amid the full-blown Covid-19 pandemic. Though both the budgets were criticised for their business-as-usual nature, the Bangladesh economy, however, fared better than many others among the peers.

This time is going to be even harder.

Pandemic, though it has waned, is not over yet. And the world is now under direct impacts of another disaster – a full-blown war whose severity is no less than that of the pandemic that rampaged through the global economy.

The supply chain crunch stemmed from pandemic-induced worldwide shutdowns and skyrocketing ocean freight costs caused global commodity prices to soar. The Russia-Ukraine war has turned the global market volatile further as it cut food and oil supplies. Economic weapons targeted at Russia are punishing the consumers of the whole world as it has made food, oil and gas dearer.

The world engaged scientists in efforts to develop vaccines to win over the coronavirus. The vaccines brought the pandemic under control. But no such "vaccine" is in sight to end the war soon. The economic weapons, like sanctions and cutting Russia off the global financial platform, have not stopped Russia from the war.

Rather, they are changing the way global trade and transactions are taking place.

The war has made wheat, fertiliser, oil and gas pricier in Bangladesh. Though exports continue to grow and remittance broke a declining streak in March, imports soared more in prices than in volumes. The current account deficit – a measure of the balance of payment – jumped to an all-time high at $12.83 billion in February, a reverse from a surplus of $825 million in the same time last year. The current account has posted a deficit of $2 billion every month since December, pushing the country's BoP into a worrying state.

The trade deficit for the eight months to February was $22.30 billion, an 80% jump from the year-ago period.

During this period, import expenditure increased by 46.70%, while export earnings increased by 29.80%.

The total import expenditure for the July-January period stood at $54.77 billion, while export earnings were $32.07 billion, according to Bangladesh Bank data.

Exports posted an impressive 55% year-on-year growth in March amid the Russia-Ukraine war on the back of increased apparel shipments to the USA and Europe. But exporters are not sure about the future growth trend as they fear decades-high inflation may dampen clothing demand in two of Bangladesh apparel's biggest destinations – the US and Europe.

Despite some growth in March, remittance earnings in nine months of the current fiscal year to March stood at $15.30 billion, a decrease of 17.07% compared to the same period a year ago.

Increased demands from import payments and outbound business, student and health travellers have created a sudden pressure on dollar supply, making the greenback dearer since July last year. The US dollar's rate reached Tk88-89 level in banks and higher in the exchange market from Tk84.80 in July.

The inter-bank call money rate soared to 4.7% last week, a level last seen in August 2020, driven by immediate cash demand of banks in their bid to buy foreign currencies.

The central bank withdrew money from the banking system by selling $3.73 billion as of 23 March, according to the BB data.

All these are not happy numbers for a finance minister in the final months before placing the next budget.

Ominous dark clouds are around. Sri Lanka's economy is on the verge of collapse; Pakistan's economy has worsened further amid political turmoil. Bangladesh's major export markets, the US and Europe, are fighting their worst inflation in decades.

Surging oil and gas prices will inflate import bills, further widening the trade gap. The subsidy pressure will rise further in the coming budget if the prices of utility and fertiliser are to be kept at current levels.

Amid repeated crunches in global supply, once by pandemic and now by war, the call is getting louder for protecting local productions. That is why economists find some logic when business associations demand a range of cuts in taxes and duties to help them survive the impacts of factors beyond their control.

But meeting these demands will dig deep into state coffers. The NBR chairman, facing a sea of demands of tax cuts and privileges in a series of pre-budget meetings, reminded the business community of post-graduation days after 2026, when zero-duty benefit will end. But businesses are more concerned about their short-term needs to stay afloat in hard times one after another.

Concern over debt management is also there. Sri Lanka is a ready reference now. Though Bangladesh is still good at debt management, no one can say for sure what the future would look like when Bangladesh's debt servicing liabilities would go up with the maturity of mega project loans.

Given the global uncertainty, the central bank has to count every dollar in its reserves. The National Board of Revenue is left with little scope to further squeeze those who are already in its dragnet. Finding new areas to widen its tax base remains a difficult test for the revenue board.

The global outlook is darkening amid a gloomy combination of factors. Just a year back, the world's major economies were upbeat with the hope of a rapid rebound. Now they are on a recession roulette wheel, as described in The Economist. The US Federal Reserve is battling high inflation by raising interest rates, and Europe is seeking to protect its consumers from gas price shocks that sapped average people of spending capacity. And China, the major raw material source for Bangladesh's industries, is fighting a fresh outbreak of the Omicron variant.

These are not good news for Bangladesh, which has to rely on the global market both for exports and imports.

Although the Asian Development Bank in its latest projection said Bangladesh's economic growth would be strong in the current and next fiscal years, the maths this year is not going to be an easy one for the finance minister. A chartered accountant by training, he might have some magic numbers stored in his purse to balance his book this time too.