The Bangladeshi press has reported in recent months on the economic crisis in Bangladesh. There are countless such statements, meetings and presentations, both in the Bangladeshi media and in the foreign press. Much of this observation holds that Bangladesh’s economy was accumulating many disorders. that the government failed to resolve, and that the combination of global economic shocks and underlying weaknesses caused this economic crisis.
The government, denying there was a genuine crisis, turned to the International Monetary Fund and other donors for a budget as a security measure. The International Monetary Fund presented a modest program, as well as many vague concepts about how to “fix” the economy.
There is no crisis. The allegation of serious underlying weaknesses is incorrect. The government’s use of the International Monetary Fund was prudent, but in reality it was not necessary.
Most of the International Monetary Fund’s recommendations have been advised by Bangladesh’s leading economists in recent years, there is never a shortage of advice. However, the government has done little in response. However, over the past 15 years, there has been strong economic growth. of living has taken a remarkable step forward; women’s empowerment has taken a step forward; fitness is better, as evidenced by longer life expectancy; Education is improving in both quality and quantity.
No one is claiming that things are perfect, yet there is really extensive progress.
Over the past 15 years, we have experienced strong economic growth; a strong balance of payments; low inflation; low levels of unemployment; the progression of an electric power source formula that has brought wonderful benefits to families and industry; and the progression of the South Asian production sector. A competitive personal banking sector has supported this economic progression. A competitive telephone formula for the personal sector has been developed. In general, there is a competitive economy with moderate government regulation.
So what is this so-called crisis?
Due to the ordinary point of spending in complex economies, largely triggered by the reaction to the Covid-19 disruption, the point of inflation in complex economies has risen sharply from 2% to 6%-7% [core inflation rate]. This resulted in the deficit of Bangladesh’s balance of accounts. The deficit triggered a depreciation of the taka that led to an accumulation at the point of internal value. The start of the war in Ukraine only worsened the balance of accounts and worsened inflationary pressures, in large part. due to disruption in global energy markets. There is a sign of a point of government-induced excess demand. Domestic inflation has been an increase in the rate due to higher import values.
External shocks were the cause of the disruption. There was nothing with the habit of Bangladesh’s economy. Seeing the economic scenario that emerged in fiscal year 2022 as a crisis is a false impression of what happened.
Of course, there are problems, but they were second-rate problems. The cause of disturbance number one is clear. There are two parts of the economy that many refer to as points to blame for the difficulties: energy and banking. Neither sector has reached crisis level. The banking sector faces challenging levels of nonperforming loans. This phenomenon is not new and has been annoying. through the influence of Covid-19 on the economy.
Industry terms are the ratio of export costs to import costs. If industry terms turn in Bangladesh’s favor, it translates into a stronger economy, perhaps faster growth, lower inflation, or greater job opportunities. When the terms of industry become opposed to Bangladesh, the country receives fewer goods and facilities than it would have received without substitution in industry terms. In fiscal year 2022, the terms of the industry became opposed to Bangladesh.
The ultimate vital political reaction to this terms-of-trade surprise is to increase exports to restrain currency depreciation and related inflation. It also maintains the point and expansion of the economy [measured through gross domestic product]. Reduced imports may restrict depreciation. and inflation, but economic expansion will also slow.
The crisis emerged in the first quarter of fiscal 2022. The central bank did not take any action on the replacement rate. Banks have depreciated the Taka without making public such a rate replacement. However, no innovations were presented to exporters, resulting in a giant difference between what banks charged importers and what Taka sold to exporters. This sparked a showdown with the central bank, adding to confusion over the replacement rate.
The electricity sector’s increasing dependence on imported fuels puts greater pressure on the balance of bills and reduces electricity and fuel supplies. Energy costs have risen, but the biggest problem has been supply shortages. It is not clear that this is the solution to emerging energy costs. But the real challenge is the persistent reluctance to expand domestic fuel sources.
To cover the bill balance’s deficit, the central bank used its reserves. But there have been few corrective measures to restrict imports and advertise exports. The central bank seemed reluctant to let the taka depreciate. The other action the central bank could take was to tighten financial policy by raising interest rates, but this action was deemed ineffective. That is, the Bangladesh Bank supposedly believed that the accumulation of interest rates would have little effect on the point of personal investment.
On this point, the Bangladesh Bank is probably right. The two main macroeconomic moves to correct the balance of payments, namely rising interest rates and currency depreciation, have been ignored by the Bangladesh Bank. Highlighted by Bangladesh’s leading economists, but there has been no replacement or explanation. However, banks and companies have responded in their own way.
With the central bank looking to spare it the depreciation of the Taka, there is a shortage of dollars to meet import demand. This has led to higher degrees of under-invoicing of imports and the consequent displacement of remittances to the Hundi market.
The Taka depreciated informally in fiscal 2022, but there was confusion and inconsistent solutions among commercial banks.
Instead of the classic macroeconomic moves, the Bangladesh Bank has returned to a 30-year technique of administrative moves to reduce imports. Instead of depreciating the currency to increase the import charge, the concept was to introduce special conditions, making the burden more expensive.
However, the currency depreciated by more than 20% without the approval of the Bangladesh Bank. This, of course, much higher the charge on imports. This effect is probably worth more important than administrative measures to reduce imports.
The Bank of Bangladesh has reduced reserves to cover the balance of payments deficit. This has resulted in a reduction in L/C openings and confusion in the organization of production.
Constraints in energy availability contributed to the decline in production. Confusion in the foreign exchange market and restrictions on energy sources have had a negative effect on production for export.
Despite all the confusion in the foreign exchange market, the ready-to-wear industry sought and gained a growing volume of orders and a strong expansion of exports. This is the central fact of the so-called crisis, exports have reacted strongly. If the currency had depreciated more rapidly, this expansion of exports would have been faster. A depreciated currency would have greater export competitiveness.
Looking further ahead, export customers in the ready-to-wear sector are in dispute. There are all kinds of reports, some optimistic, some pessimistic. We have to be optimistic. Two main points will be the price of ready-to-wear exports: the functionality of complex economies and how China’s clothing exports are evolving.
In my opinion, the preponderance of the evidence is that complex economies will not fall into recession, but will revel in a slow but positive expansion over the next 3 years. Inflation will not return to its previous low of 2%, but will stabilise at 3%. -4% and the major central banks will be content with that. Previous fears of slow and prolonged expansion seem much less likely.
Another explanation for why one expects solid functionality from complex economies is that fears of a continuation of war in Eastern Europe or over Taiwan are mounting. Defense spending will stack up in Europe, South Korea, Japan and the United States.
It will be expansive, expanding the call for levels.
China’s position is again complicated. Before the pandemic, Chinese wages were emerging and the trade competitiveness of the garment sector was in decline. This underlying condition will continue. In addition, the disruptions of forced hard labor in garment production and cotton cultivation make China a less horny supply place.
In addition, China’s economy will start growing faster, helping the global economy.
My conclusion is that the dollar price of Bangladesh’s garment exports will increase over the next five years at a constant rate of about 15 per cent with the year, doubling in five years. From this 5%-7% there will be an accumulation of costs and 8%-10% an accumulation in volume. With exports expanding by almost 10% in genuine terms, gross domestic product expansion will continue and the balance of bills is expected to balance at an exchange rate of around 110 Taka-115 Taka/Dollar. Inflation is expected to return to 5%-6%.
Such a result can be achieved by allowing the exchange rate to have a narrow difference between export and import rates.
Further measures are urgently needed to boost export growth.
The Export Development Fund will be allowed to process larger orders. The ready-to-wear sector will grow through larger, high-tech factories, not smaller, low-tech companies.
The adjustment of minimum wages for clothing deserves to be resolved through the market’s rejection of government-imposed grades or unreasonable grades required by meaningless concepts such as the living wage.
Improving established logistics is important for such a result. This can only be achieved through further privatisation. It will obviously be necessary to identify that public logistics organizations are inefficient, sometimes corrupt and obstruct economic growth. Control piracy on Chattagram-Dhaka Highway; Ensuring weigh stations operate efficiently, restricting lateral friction from cars parked along the road or buses stopping in unauthorized positions will reduce delays on roads.
Logistics can go a long way through intelligent control and disciplined processes. If the prices of bribery praise are contained, expansion will slow down.
The source of quality electrical power and herbal fuel for the garment industry should be a priority.
In conclusion, Bangladesh’s economy has been affected by a deterioration in the terms of trade. The exchange rate correction was dealt with clumsily, resulting in a slow adjustment and unnecessarily giant depreciation. Even now, for unfathomable reasons, the central bank is trying to appreciate the currency. and boosting economic expansion contrary to good macroeconomic practice.
In this context, drawing on funding from the International Monetary Fund and other donors is more of a spectacle than a genuine economic necessity. Accelerating the expansion of exports, i. e. ready-to-wear, is key to a successful return to a strong economic expansion. A greater concentration on export expansion will be the main direction.
This article first gave the impression in the Dhaka Tribune.