Tariff Debate Continues

More partners press Dhaka for tariff concession, Reserve accumulation employed to rescue ally from awkward situation.

Both the European Union and Japan have asked for similar concessions that Bangladesh pledged to give the USA. If [everything] is OK, Bangladesh and the USA are likely to have a deal by December this year. But the USA stressed that Bangladesh would not give similar concession to other countries (for instance, reduced tariff on US originated goods and services and purchase of 25 Boeng aircrafts in next 20 years). Recently, the EU countries held a press conference and emphasized that the EU would expect similar purchase commitment from Bangladesh. Bangladesh is scheduled to be graduated from LDC countries by 2026, which Bangladesh wants to be delayed. Once graduated from the LDC countries ,Bangladesh may lose duty free access to EU countries ,where 49% of its export goes.

Tariff reduction and import from the USA witnessed a revenue shortfall of Tk 88.99 billion against a target of Tk 990.05 billion. It is too early to tell whether tariff debate or moribund business activity hit by tight monetary policy contributed to the decline of tariff shortfall. Because reduced tariff came into effect from early August and we still have three quarters to go. And there will be widespread optimism in the economy if there is a participatory election by February next year.

Tariff commitments to EU and Japan [mean] we have to increase import from the countries. Bangladesh is thinking to sign an FTA with the EU and PTA with the Japan, which even sent a letter to Bangladesh to expedite the negotiation to conclude the deal.

Increasing import from these countries means we have to downsize our import from somewhere else. Currently India and China are the largest sources of import. Both countries account for around $40 billion of import. We mostly import intermediate goods from these countries. From China, we heavily import defense equipments. Since Japan and the EU are unlikely to be major sources of intermediate goods in one decade, the most plausible conclusion is Bangladesh may end up procuring more Western originated defense articles. Bangladesh has special agreement with the Turkey,France,Italy,Japan and the UK.

Since the EU and Japan may not provide the raw materials at competitive price, it is highly likely we may share part of import spending in defense with the two partners to secure the export market there.

Yuan is still cheaper than USD. But whether it [will remain] so in the future is not certain. In October, we saw the USA announced a currency swap line worth $20 billion to rescue the Argentine peso ,halting depletion of forex reserve of the Argentine central bank. The US treasury secretary urged US banks and investment funds to invest more in Argentina. This is the first time,[reserve accumulation] is employed in tariff debate. This time it is used to rescue an ally Argentina to curb influence of China,which has also given a $18 billion currency swap line with the Argentina. Earlier, Argentina had chosen refurbished F-16 over JF-17 and J-10C offered by China for its Air Force. Here security is being projected as public good and currency is used to aid ally through security umbrella. Now think there comes a moment when this same [reserve accumulation] is being used to punish/ stall behavior of a rival. In fact, Federal Reserve governor Stephen Miran depicted such scenario in his influential paper on tariff titled "A User's Guide To Restructuring Global Trading System" where the US govt requests the Fed to print $1 trillion in a bid to purchase Yuan so that it appreciates in the international market.(See "Reshaping Global Trading System:What Lies Ahead" published here on April 4,2025)

The step may weaken the US dollar,which the US administration wants in the long run, and hurt communist party related corporations and Chinese billionaires who denominated their assets in USD across the globe. Weakening USD downsizes /shrinks their wealth. Point is [reserve accumulation] may be employed by any big trading partner for harmful purposes,not only for rescuing ally.

Ultimately we are heading towards a clustered trading blocs. Despite risk of import revenue shortfall, import diversification appears to be new reality in this new trading system. Despite challenges, export registered a 2% growth in the first 4 months of this year. If the growth of revenue collection for the remaining period surpasses the shortfall and optimism prevails then there will be good news from this tariff debate. And we have to be cautious about intentional use of major currencies to influence other currencies [through reserve accumulation].

[Update: this piece is updated by me on November 06,2025 at 9:13 AM Bangladesh Standard Time; update includes replacing words like "currency tool", "currency weapon" with "reserve accumulation".]

Currency Swap To Ease Dollar Demand

To Reduce dollar dependency, Countries ink deal to swap currency.

In the wake of dollar crisis, government is mulling to trade in currencies like Yuan and Rupee. A huge debt obligation in the years down the line has made the prospect of such idea even stronger. Undoubtedly pressure on dollar will be huge. This year alone we have to make interest payment of Taka 1 trillion. However, Bangladesh is looking for alleys to settle some trade deals and debt obligations in other currencies.

So far Yuan and Rupee have emerged out as the would-be currencies for future limited trade. But there is a growing debate about sustainability of trading in such currencies.

Central banks in this region are not unfamiliar with currency swap. Back in 2018,I wrote a piece titled “Lessons From India-Japan Currency Swap Deal"¹. Sharing parts of it again:

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Last week I took a lot of interest in two news. First one is about a $75 billion currency swap deal between Japan and India. Second, Taka is getting stronger against the Indian Rupee as the latter continues to depreciate against US dollar.

India and Japan inked a $75 billion currency swap deal. According to reports, the deal will help both countries to do trade in Rupee and Yen, without depending on dollar. The deal came amid volatile nature of Rupee against the US dollar. Economists and experts say that though India, whose foreign exchange reserve is more than $340 billion, is in better position in terms of stocking forex and in financing trade deficit , the currency swap deal with Japan will offer it a psychological comfort in any kind of worst case scenario in the wake of trade war by lessening its dependence on Dollar.

In brief, a currency swap deal between two parties is a currency agreement that will take place at a future date at an exchange rate that prevailed in the past. The parties will negotiate the exchange rate. This kind of deal helps parties get rid of brokerage fees, costs and uncertainties in volatile currency market.

For instance, an Indian exporter may export some goods to Japan. He gets the exports receipts in dollar at his bank account. Then he has to convert the dollar again to Rupee to meet his expenditure at home.

Meanwhile, another Indian importer imports some Japanese goods and markets it at home. He buys dollars and sends it to Japanese exporter’s bank account.Japanese exporter converts it to Yen to meet his local expenditures. This Yen-Dollar-Rupee and Rupee-Dollar-Yen conversion process takes lots of fees and costs. In any kind of uncertainty in the foreign exchange market, the costs also climb up. Central banks of the two countries make a deal that the two will swap their currencies at an agreed exchange rate in the future. So the central bank of India deposits rupees at the account of Indian exporter and central bank of Japan subtracts yen as import payment from the account of Japanese importer. Processing the whole transaction requires less time and cost and at the same time the swap deal works as a cushion for exporter and importer in a volatile currency market.

This kind of deal needs prior agreement between governments.

Bangladesh needs more of this kind of currency deal than India. Bangladesh’s forex reserve is not enough to meet the looming uncertainties in the volatile currency market. In 2016-2017, our Forex reserve was $33.49 billion. At the end of September 2018, it stood at $31.95 billion. Trade deficit is on the rise .In 2017-2018, our overall balance was negative. Current account deficit grew by 7.35 times (Source: Bangladesh Bank). Need for backing up the forex reserve has never been felt so dearly before.

If one takes a look at Bangladesh’s top trading partners, he will understand the point I am making here. India and China are two key trading partners. Moreover, the two are offering credits to finance many projects here. Add another influential country to this list: Russia, which is also financing major energy projects. Trade is also growing with Russia.

Every year we are repaying interest plus part of the debt in foreign currency.In addition, imports from these countries are higher than our exports.

In recent years, our exports to these countries are also growing. But trade balance is always against us as exports never catch up the imports.

According to Bangladesh Bank, we imported $ 4.72 billion worth of goods from India in the first two quarters of this year(2018).Meanwhile, we exported only $402 million worth of goods in the same period.

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In 2021-2022,export to India reached $1.5 billion. However, trade deficits with both India and China have widened.

But another thing is that the number of Indian tourists to Bangladesh is increasing. Every month, Bangladesh issues 15000/20000 Visas to Indians. Meanwhile, a far more greater number of Bangladeshis travel to India every month. In addition, Indian workers remit around $4 billion every year. If both the countries agree, then the two can use Rupee and Taka in these cases, easing demand on dollar in both the countries.

But Bangladesh is willing to trade in these currencies in limited amount. With India, $5 billion worth of trade could take place in Rupee. However,unlike Yuan,Rupee is not an IMF SDR and is susceptible to volatility. Both Bangladesh and India may reach a currency swap deal by June,addressing the challenges of doing business in Rupee. An IMF SDR like Yen /Euro could be a better alternative as they are less prone to market volatility.

Bangladesh already lent $200 million at LIBOR + 2.0 percent interest rate to Sri Lanka under currency swap deal². Bangladesh extended the repayment period till September, 2023 at the request of Sri Lanka. Currency swap between India-Bangladesh is anticipated to be attractive. Otherwise, it will not take off. Nitty-gritty of the deal is still unknown. Such deal may pave the path for greater market access to India and augment Indian investment in Bangladesh. But the market volatility casts shadow over Rupee-Taka deal.

Notes And References

1. ”Lessons From India-Japan Currency Swap Deal”,Rezaul Hoque,https://rezaulhoque.wordpress.com,November 03,2018.For more read at https://rezaulhoque.wordpress.com/2018/11/03/lessons-from-india-japan-currency-swap-deal/
2. ”Sri Lanka Set To Get Another $100 million From Bangladesh Under Swap Arrangement “,Siddique Islam,The Financial Express,August 30,2021. For more read at https://thefinancialexpress.com.bd/economy/bangladesh/sri-lanka-set-to-get-another-100m-from-bangladesh-under-swap-arrangement-1630290778

CAB Worries Remain

Deficit shows no sign to lower As defense ties get stronger. Upcoming visits high profile Yet to bring the needed smile.

Bangladesh and IMF have concluded first round of talks for a credit of $4.5 billion in the wake of record current account deficit.Govt claims it is a successful talk.However, many fear govt may not avail full credit it sought as some reforms deemed politically costly for the govt. In February, govt may get $432 million as part of the credit package if IMF board approves the credit.

Another round of hike in utility price is likely as subsidy in energy is strongly discouraged. Government is now claiming its net reserve is $26 billion and gross reserve is $34 billion,which govt was reluctant to disclose and remained a bone of contention between govt and IMF.

Govt has however kept maintaining the managed floating exchange rate: one rate for the remittance-earners and another for the exporters. This somewhat fixed exchange rate has already cost the govt part of the forex reserve.Open market rate is much higher. Falling remittances,negative growth in export earnings hint current account deficit may widen. Even IMF team in the press conference underscored that balance of payment may further deteriorate. Depleting reserve and deteriorating current account deficit may lead people to anticipate that Taka may depreciate further and further increase in policy rate is coming. The belief is already strengthened by Monetary Policy Statement (MPS).IMF also insists on quarterly MPS instead of semiannual MPS.

Finance minister in the press conference took credit for pegging the lending rate at 9% for a long time. But sluggish domestic investment and regulated LC openings show investors have little confidence on him. Importers request letting them open LCs for raw-materials.Even the 2.5% incentive on remittances is criticized right and left.

Market determined exchange rate would curb import spending and increase the remittances through official channels. Moreover, some exporters would also feel encouraged to bring the earnings back home. And govt may not need to use the reserve.

Govt is also trying to get $1 billion from World Bank. Senior World Bank officials are on a visit to Bangladesh. Even if govt somehow manages to get $5.5 billion things may not improve. Government may increase spending in the election year,further widening the budget deficit.

Luckily oil prices slump as covid infection in China lowers demand for oil. Meanwhile, container operators see decline in demand. This hints that aggregate demand in the world may further fall,bad news for export items.

However, Bangladesh is eying the bilateral relations. Two high profile visits from Middle East and PMs upcoming visit to Japan to mark the 50th anniversary of establishing bilateral ties expect to bring good news for the economy.

Prior to arrival of IMF team,Qatar inked defense pact with Bangladesh.Bangladesh has already signed similar agreement with Saudi Arabia. As tension in the Middle East escalates ,these countries need foot soldiers to secure their borders. Shia-factor in the Pakistani armed forces makes it reluctant to play an active role there.Sunni-majority Bangladesh may easily fill the void.In exchange, lucrative defense deals,concessional oil, investment deals are on the table.Pakistan, which have huge presence in the armed forces of these countries,managed to convince these countries to approach IMF for redirecting their drawing rights to cash-strapped Pakistan.IMF member countries have such rights to draw loan. Oil rich countries seldom use the rights,which remain unutilized. It is likely that Bangladesh may follow such foot step. In addition, these countries may deposit part of their forex reserve at Bangladesh Bank to prevent wild fall of Taka.

PM's Japan visit expects to bring new funding commitment for development projects.Meanwhile, JICA is keen to finance defense project.ADB's budget finance may also widen.

However, if govt fails to show any improvement in macroeconomic management, the countries may withdraw their support.The visits may benefit the govt but current account deficit may grow further.

La Semaine Dernière A Mes Yeux

(26 juillet --- 2 août)

Selon un reportage, un Bangladais a été appréhendé par Police américaine pour avoir tenté dáller au Pakistan afin de joindre les Talibans en Afghanistan.

Selon un reportage, le nombre de personne infectée par la Dengue et inscrite a l’hôpital est parvenu 10000. Un nouveau virus de la Dengue se propage à Dacca. De plus, les moustiques vecteurs de la Dengue ont ciblé 10 villes , en causant mort de deux universitaires et un médecin. Le bureau de la santé a fixé le seuil de frais pour détecter la Dengue à Tk 500.

Selon un reportage, Police a préparé un procès verbal contre 90 suspects pour avoir assisté un assaut incendiaire contre Santal, un groupe indigène très persécuté ici. Cependant, on ne trouve pas les noms d’ancien député et policiers.

Selon une page de Facebook, un groupe urduphone aussi connu comme les Biharis ont fait une grève de la faim devant les camps de Biharis à Mirpur en signe de protestation contre évincement sous pétexte d'aggrandir une rue.

Selon un reportage, le ministre de la Santé a causé de polémique pour avoir fait une visite familiale en Malaisie quand la Dengue se propage à travers tout le Bangladesh.

Selon un reportage, Bangladesh a transmit une liste de 25000 Rohingyas à l’autorité birmane pour vérifier leur identité afin de faciliter le rapatriement. Selon un reportage, le ministre des Affaires étrangères s’est dit que le ministre des Affaires étrangères du Japon qui était en visite officielle dans les camps de Rohingya à Cox’s Bazaar avait exprimé désir de médier entre Bangladesh et Birmanie pour resoudre le problème de rapatriement.