Some concerns about macro stability As Bangladesh faces serious concerns about growing budget deficit and the figure about forex reserve, government has started a negotiation with IMF team for a credit of $4.5 billion. Though balance of payment has been negative for two years,forex reserve is enough to meet the need of the country for 5 months. But debate raged over government’s boasting of $35 billion reserve. Many keep saying reserve is much lower than the official claim. Government already used the reserve by lending some to commercial banks and Sri Lanka,financing the dredging work of Payra port,creating a new industrial fund. A total of $8 billion was used. Government keeps showing the spent part in the forex reserve. IMF insists that government discard the figure from reserve and portray the true reserve. However, government’s gradualist policy has started to yield dividend. 50 basis points increase of policy rate and stern caution from the central bank about opening of LCs of goods deemed not urgent significantly reduced import.Meanwhile, depreciation of taka in the open market also played a role.But food inflation shows no sign to abate. Rather, a report says food import was lowest in 7 years(Source:"Rice,Wheat and Lentils:Food Grain Imports Lowest in Years",MasudMilad,Daily Prothom Alo,October 26,2022)1. But many here are optimistic that pledged delivery of food will happen in time and winter crop production will be good. Strong dollar and depreciation of taka also get blame for rising food prices.But exporters and others criticized govt for managing the rate of taka which is lower than the market rate. Following the discussion with IMF and the gradualist policy, another policy rate increase is likely. When policy rate rises there is a curb in money supply.It means Taka will appreciate in future. Rise in interest rate and appreciation of taka will block unnecessary spending.At the same time,it will give government a sigh of relief before import of food grain. However,Pakistan's removal from FATF's grey list,depreciation of both Indian and Pakistani rupees,Russian support for Myanmar's apparel industry, and decision of Benin(third largest cotton exporter to Bangladesh) to set up export zone for RMG and textile factories augur ill for Bangladesh apparel industry(source:"Tular Bikolpo Bazaar Khujte Hobey Bangladeshke(Bangladesh Has To Find Alternative Cotton Market)",Nujhat Kamal,Ekhon,October 28,2022)2,which witnesses fall in exports in two consecutive months this year alone. Before any further policy rate hike,Bangladesh Bank should let Taka depreciate so that any later appreciation could at least ensure the Taka-Rupee exchange rate prevailed prior to the Ukraine war. Bangladesh’s closeness with oil-richer countries and upcoming high profile visits of royals of gulf countries herald that macroeconomic stability may not be a concern. Bangladesh signed a military agreement with Qatar to send troops in the kingdom. Saudi Arabia is in talks with Bangladesh for similar agreement. In recent years,when Pakistan in crisis Saudis perked billions of dollars in Pak central bank on condition that Pakistan would send the money back in a notice of 72 hours and Pakistan would not use it elsewhere (Source:"Saudi Conditions ",Editorial,Dawn,November 30,2021)3.The artificially swollen reserve sent a positive signal about Pakistani rupee and prevented its wild fall.Qatar back in 2013/14,when Bangladesh sought first ECF to IMF,approached Bangladesh about perking some of its forex reserve in the central bank.If somewhat flexible arrangement is made this time coupled with more workers to gulf countries and concessional oil-gas , then balance of payment will be healthy again. Difficult times lie ahead.High oil price is partly to blame. It is useless to make commitment if Bangladesh fails to gain something to address its macroeconomic concerns. Notes and References:
[Update:This piece has been updated on November 01,2022 at 10:50 am and at 16:05 pm Bangladesh Standard Time. Updates include inclusion of key references.]
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