Bangladesh Taka (BDT) is likely to lose its value against major currencies as the relevant authorities are mulling appropriate measures to prop up falling exports. The local currency remained strong over nearly two years as country’s imports plunged.

By official count, the export earnings fell 7.63 per cent in October against its corresponding period a year before. The fall in exports led to a plunge in the current-account balance in the first quarter of the current fiscal year for the first time in more than two years. The current-account deficit stood at US $357 million in the first quarter (July-September) of the current fiscal year, according to the Banglades’s central bank statistics.

Apparel export, which accounts for more than 80 per cent of total exports, marked a fall causing concerns for the policy makers and government while promising economic and social prosperity to it’s citizens and leading Bangladesh to a middle income country by 2021.

The government at it’s policy-level meeting last Wednesday discussed the currency depreciation proposal placed by the central bank. A source present at the fiscal co-ordination meeting at the finance division said, the central bank proposed it as a strategy for boosting the export trade.

Bangladesh has been following floating currency-exchange rates since June 2003 by scrapping adjustable pegged system. Under the existing exchange rates system, Bangladesh cannot depreciate its currency as the actual value of foreign currencies is determined by the market forces (demand and supply).

In case of depreciation of the local currency, the exportable products become cheaper to the buyers and the exporters get higher earrings in terms of local currency.

The central bank of Bangladesh usually mops up US dollars from the market and it helps squeeze the supply of the greenback in the local market, leading to the erosion of local currency as a strategy to depreciate it without significant impact on the policy rates.

The government aims to stabilise the Bangladeshi currency, the BDT between 79 and 80 against one USD whereas the inter-bank exchange rate of the same was at 77.48 on November 12.

Economic analysts, however, disagree with devaluation of local currency as export growth measure, instead they argue improvement of efficiency, productivity and transparency in businesses to be competitive in the global market place.

Dr. Zahid Hussain, lead economist at the Dhaka office of the World Bank said, if the government really prompts erosion in the value of it’s currency, it will actually not raise the exports. “Bangladesh’s exports are now in slump, and this is not for the currency issue rather efficiency, productivity and transparency in businesses and most recently it’s image, especially as a result of the post-Rana Plaza impact on the major export item, the ready-made-garments,” Dr Hussain said.

Former EU diplomat and Wall-Street professional Mr. Kauser Bhuiyan said that artificial depreciation of local currency against any major foreign currency was bound to have multiple adverse effects on Bangladesh’s economy.

He said that such measures would increase investment and production costs reducing rate of return because Bangladesh imports almost 100% of machinery and technologies from abroad by paying foreign currency on one hand and most of the raw material for industrial processing and domestic consumption on the other hand.

The worst case scenario is, of course, significantly low or no investment (as the economy is going through now) due to high political and economic risks and low return on investments. One of the basic economic principles is that growths are not generated without investments.

At the same time purchasing power of the local currency will decline and inflation will rise as depreciation causes inflationary pressures on the economy, he further said.

So, you are actually achieving higher investment and production costs, lower rate of return and higher inflation rates at one hit through local currency devaluation. None of which is good for Bangladesh, let alone export growth in real sense, Mr. Bhuiyan further observed.

-: END :-

Mr. Kauser Bhuiyan is a former EU diplomat and Wall-Street professional who gained nearly two decades of professional experience at Accenture, Bloomberg, European Commission and Stein & Partners. He learned professional skills in the areas of Change Management Consulting, International Financial Market, Economic Co-operation and Sustainability Advisory services in Frankfurt, Zurich, London, New York, Brussels, Islamabad and Dhaka. Mr. Bhuiyan can be reached at to[at]bangladeshinside.com
advert

Korean Export Processing Zone at serious risk

korean-epz-01

Instead of handing over the Korean Export Processing Zone (KEPZ) to the investor, the government of Bangladesh plans to take back […]

Dhaka needs to remove its rocky anti-FDI atmosphere

Korean Ambassador to Bangladesh Lee Yun-young

Korean Ambassador to Bangladesh Mr. Lee Yun-young has said Bangladesh should come out from protectionism and open up its market […]

‘Welfare Associations’ to negotiate for rights at Bangladesh EPZ

The Government of Bangladesh today approved, in principle, draft of a labour law for Export Processing Zones (EPZ) with the provision […]

Return of GSP seems far off – a lot more must be done

Bangladesh’s progress in implementation of the National Tripartite Plan of Action on Fire Safety and Structural Integrity (the Action Plan) which provides a […]

Bangladesh halts shutdown of “unsafe” factories

The Bangladeshi government is refusing to shut down garment factories declared unsafe, following a row with independent inspectors over the […]

Yawning gap between pledges and delivery to Rana Plaza victims

Many Rana Plaza victims are yet to receive the promised compensation from the government and retailers, nine months after the […]