December has brought some good news! Remittance hit a record high, taking the total for the 2024 calendar year to $26.87 billion. Exports surged too, pushing the final annual figure to $50 billion.
These two numbers of exports and remittances, the major pillars of Bangladesh’s struggling economy, provide some respite for the time being, alleviating pressure on the country’s external accounts to some extent.
For all latest news, follow The Daily Star’s Google News channel. This may also help contain volatility in the forex market, a key source of instability in the economy amidst a surge in imports after the relaxation of Covid restrictions and Russia’s invasion of Ukraine in early 2022.
The question now is would the gain in exports and buoyancy in remittances break the cycle of sluggishness plaguing the economy?
Will this renewed vitality prevail and give a new lease of life to the hundreds of export and domestic market-oriented factories surrounding the capital Dhaka, port city Chattogram and other parts of the country?
The developments may help contain volatility in the forex market, a key source of instability in the economy amidst a surge in imports
When it comes to identifying the acceleration pedal in export growth, much of the answer lies on ensuring law and order and political stability, as the spike in shipments shows buyers’ reliance on the country’s capacity and competitiveness.
It will also depend largely on import payments, said Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue (CPD).
“Definitely, increased inflow of remittance and export will contribute to import payments. But overall flow is still not enough, which is why we see the devaluation of the taka against the dollar,” he said.
The taka came under pressure over the last two weeks on remaining stable for several months following the introduction of the crawling peg, which allows a currency with a fixed exchange rate to fluctuate within a band of rates.
Against this backdrop, Bangladesh Bank (BB) hiked the crawling peg rate to Tk 119 per US dollar early this week from Tk 117.
Consequently, the taka weakened further in the inter-bank and customer transactions in Dhaka yesterday to Tk 122 per US dollar, losing 1.66 percent from Tk 120 a greenback a day before.
Taking the latest development into account, the taka has been devalued by 10.9 percent over the past year, according to the BB.
Now the flow of foreign funds needs to be closely observed, said Moazzem.
So far, disbursement of foreign loans has been slow, although the World Bank has given some assurance, while International Monetary Fund is expected to release another tranche of loans, he said.
“But we have payment backlogs, including payments to foreign companies. Profit repatriation by firms here has been slow too,” he said.
“If we factor in all this, we need a higher inflow, and we are yet to arrive at a time to relax restrictions on imports. Exports have to grow at a higher pace along with remittance to improve the overall external payment situation,” said Moazzem.
The discouragement caused overall imports to fall 10.6 percent year-on-year in fiscal year 2023-24.
During the July-October period, imports grew slightly by one percent, amidst a decrease in the arrival of capital machinery and intermediate goods, indicating a slump in fresh investment.
Moazzem is aware of this.
But investors are not interested in going for fresh investments given the current political environment and state of law and order.
“An investment friendly environment does not exist. So, at this time, restoration of macroeconomic stability should be the priority. We are not in a position to go on an acceleration mode,” he said.