The recent plunge in inward remittances, export earnings and a looming global recession all signal that the crisis in the external account will drag on further, they say.
They projected that around $20-25 billion of foreign currency was consumed in various forms through informal transactions, which are not recorded at any official level. For this reason, the depth of the currency crisis remains less understood and unresolved. they say.
Dr. Debapriya Bhattacharya, a macro-economist and Emeritus Fellow at the Center for Policy Dialogue (CPD), told UNB that to understand the scale of the problem, it’s important to see how it works or doesn’t work in a market. complex of foreign markets. currency.
“We must take note that a large volume of foreign currency, I mean the US dollar is used to finance the consumption of goods and services abroad as well as cross-border payment from third parties for contraband items such as gold and cattle,” he said.
“Additionally, illicit financial flows also arise from overcharging in private sector transactions and public sector projects,” he said.
Along with these unrecorded, informal and often illicit foreign exchange transactions, monetary policy in general and foreign exchange regulations in particular have limited institutional effectiveness in managing the external balance, he pointed out.
Debapriya said that Bangladesh is now a $500 billion economy and managing such an emerging macro-economy with a rapidly changing global scenario requires institutional reforms to quickly oversee the foreign exchange market.
As the government negotiates balance of payments support from the International Monetary Fund (MF), such reforms addressing informal foreign exchange transactions will become a major concern to address, he said.
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It will also require complementary trade and investment policy reforms, he added.
Although the economy is expanding, institutional reforms and capacities are not being strengthened accordingly, he said.
He said the World Bank has rightly predicted that unless massive reforms are undertaken, Bangladesh’s economic growth will collapse under the impact of global trade competition.
Dr Mohammad Abdur Razzaque, an economist and applied international trade specialist, told UNB that the drop in remittances of 25% and the drop in exports of more than 6% are “a warning sign for the foreign exchange market of the Bangladesh”.
He said Bangladesh would benefit slightly from lower prices for fuel, edible oil and other commodities in the global market due to a recession.
The use of forex for import payments will decline at the same time, affecting Bangladesh’s export earnings, and the trade deficit will then widen as well, he said.
In the first two months (July-August) of the current fiscal year 2022-23, the trade deficit stood at $4.55 billion. As export earnings are lower than import expenses, this large trade deficit appeared at the beginning of the fiscal year.
At the same time, the current account deficit of foreign transactions also exceeded $1.5 billion.
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According to the Bangladesh Bank, in the first two months (July-August) of the current financial year, goods worth $12.69 billion were imported against exports worth $8.13 billions of dollars. This created a trade deficit of $4.55 billion.
The size of the deficit will widen further as exports last month (September) fell by 6%.
Bangladesh Bank sells US dollars from reserves in continuation of last fiscal year to bring “stability” to the foreign exchange market. The central bank sold $2.57 billion in reserves in two months (July-August) and in the current fiscal year 2022-23.
The central bank sold $7.67 billion in reserves in the 2021-22 fiscal year to stabilize the foreign exchange market. Bangladesh had never sold so many dollars from the reserve in a single fiscal year before. However, in the previous fiscal year (2020-21), Bangladesh Bank purchased a record $8 billion to maintain foreign exchange market stability during the downward trend in imports during the Covid-pandemic. 19.
