Bangladesh tightens belts as currency crisis approaches – The Diplomat

With foreign exchange reserves shrinking due to rising import costs, Bangladesh sought to $4.5 billion loan from the International Monetary Fund (IMF).

Bangladesh is facing “economic crisiswhich won’t end anytime soon as the global economy is also shaken.

The crisis does not appear to have been unexpected. “We expected the current account deficit to worsen due to reduce remittancesreduced demand for exports and, of course, high prices for fuel and food,” said a sovereign analyst at Moody’s in Singapore.

On July 27, Bangladeshi Prime Minister Sheikh Hasina said that a crisis is not inevitable. The country has enough foreign exchange reserves to import food for six to nine months, she said. “We have money to import food grains and other commodities (essentials) for at least three months during any crisis.”

However, the signs of an economic crisis are clear. The value of the US dollar against the Bangladeshi taka has risen sharply and the Bangladeshi currency is devaluing almost every week. The dollar, which in May was worth about 85-90 taka, is now sold at the street market for 112 taka.

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Foreign exchange reserves of Bangladesh fell below $40 billion recently for the first time in two years. Amid the COVID-19 pandemic, in August 2021, foreign exchange reserves surpassed the $48 billion mark, the highest in Bangladesh’s history. Since then, it has been declining.

This is largely due to the trade deficit. Although export earnings reached a record high of $52.08 billion. in fiscal year 2021-2022, the trade deficit also peaked at $33 billion. The high trade deficit is to some extent a consequence of the Russo-Ukrainian war, which has affected food and fuel supplies around the world. Global inflation has also affected Bangladesh’s reserves.

Foreign remittances are a lifeline for Bangladesh. According to the World Bank, Bangladesh is 7th largest recipient of remittances country in the world. Remittance inflows hit an all-time high of $24.77 billion in fiscal 2020-21, but fell to $21.03 billion. next year.

Bangladesh is among the top 30 money laundering countries in the world. Some analysts describe this problem as the cancer of his economy. Bangladesh is among the countries hardest hit by the disaster, according to the US-based Global Financial Integrity (GFI) think tank. money laundering through trade. GFI statistics show that Bangladesh launders on average7.53 billion every year through international trade.

A recent report from the Swiss National Bank (SNB) states that “the amount of money deposited by Bangladeshis in various Swiss banks at the end of 2021 was 871.1 million Swiss francs” (about $916.92 million). increased by $310 million in just one year.

Currently, Bangladesh’s external debt exceeds $90 billion. Its debt has doubled over the past five years due to major infrastructure projects. These projects, which are part of the government’s People’s League (AL) program,More development, less democracy”, allowed AL manipulate and won the general elections in 2014 and 2018.

These mega-projects can now become a major source of concern for the government. He will have to find foreign currency to pay off the debts incurred on these projects.

According to Debapriya Bhattacharya, CPD Distinguished Officer and Organizer of the Civic Platform for SDGs, “Bangladesh may face major shocks in 2024 and 2026 regarding the repayment of external debt on 20 large mega-projects”. This amounts to about $43 billion, mostly owed to Russia, Japan and China.

As the economic crisis approached, the government of Bangladesh began to take measures to limit foreign exchange spending. Bank of Bangladesh tightened its policy on the importation of luxury goods and necessities like SUVs, washing machines and air conditioners.

Meanwhile, Hasina’s government cuts the expenses of its officials. Foreign trips or government officials were abolished. They were asked to cut their electricity consumption by 20 percent and limit the number of vehicles they use.

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As part of austerity measures, Hasina called for planned power outages across the country, though her government noted 100% electrical coverage for the first time in the history of Bangladesh in March. Some power plants have been shut down to reduce electricity consumption. fuel consumption.

In addition, the government has divided its development projects into three groups. Nearly completed projects (Category A) will continue, while Category B projects can only use up to 75 percent of their budget. Category C projects will be put on hold until the economic crisis subsides.

The Albanian government has begun to take action in anticipation of an economic crisis. Will this prevent Bangladesh from following the path of Sri Lanka?