Pressure on forex remains high despite robust export
The pressure on Bangladesh's foreign exchange reserves continues to remain high as robust export growth was not enough to reduce deficits in external payments resulting from high import growth.
And the foreign exchange reserve is likely to be under stress in fiscal year 2022-23 which started from July 1 owing to risks of a slowdown in exports, thereby affecting macroeconomic stability, said two economists.
The caution comes after release of official figures of exports and remittance inflow.
Exports surged 34 per cent while remittance inflow declined 15 per cent year-on-year in the July-June period of fiscal year 2021-22.
However, the two vital sources of foreign currency for Bangladesh were not enough to reduce the current account deficit which Bangladesh Bank estimates to be at $17.7 billion for fiscal year 2022 because of a 35 per cent growth in imports.
The current account represents a country's import and export of goods and services, payments made to foreign investors, and transfers such as foreign aid, according to investopedia.com.
Zahid Hussain, a former lead economist at World Bank's Dhaka office, said, "External pressure still remains high despite the export growth."
"Unless the foreign exchange market is allowed to respond to the market realities, the pressure on external balance will continue to be disruptive," he said.
Imports have not slowed down to that much of an extent although Bangladesh Bank took some measures to discourage non-essential imports. As a result, pressure on the foreign exchange reserve continues to exist, he said.
Besides, he said, the outlook for export did not look good owing to a risk of a slowdown in the global economy.
But remittances are expected to increase as the outflow of migrant workers increased. And they went for jobs to oil-rich countries, which registered booming revenues because of increased prices of petroleum, he said.
Hussain said the remittance inflow in June could have crossed the $2 billion mark had Bangladesh Bank taken a flexible approach in the exchange rate management.
Exports would have also increased, he added.
A floating exchange rate will reflect the market reality and help bring about stability in the foreign exchange market as export and remittance will have increased while services imports will have dropped, he said.
Hussain warned about the risks of underinvoicing of prices of exported products and over-invoicing of imported ones unless the gap between the official exchange rate and markets reduces.
At present, importers have to pay Tk 97 to Tk 98 for a US dollar while exporters get Tk 96 to Tk 97 for selling the greenback to banks, which is higher than the interbank exchange rate of Tk 93.45 set by Bangladesh Bank.
Prof Selim Raihan of the Department of Economics at the University of Dhaka said the performance of exports has been remarkable.
The concern is whether the robustness of export earnings will continue in this new fiscal year as there are fears of a recession is major economies such as in the US and Europe, the two major markets for Bangladesh's export products.
As remittances declined and imports still remained at a record high, the pressure on the current account is still high, he said.
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