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Country faces dire economic uncertainty pre-election

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With monthly remittance flow during September at a 41-month low around 1.34 B USD, the country is facing significant balance of payment challenges on the eve of the upcoming parliamentary elections.

Except for June this year due to Eid, remittance flows from our migrant workers has been on a free fall on a monthly basis.

Economists suspect the widening spread between official rate of 110.5 BDT/USD and market rate which now stands at around 117 BDT/USD, is the primary cause for the massive drop in remittance flows through banking channels.

Among the other reasons cited for this drop is the expectation that BDT will weaken further down the road due to deteriorating economic conditions.

Migrant workers as a result have reduced the amount sent to meet basic needs of their dependents in the country.

However, government is reluctant to free-float BDT fearing escalation in inflation especially before the elections.

The two other major sources of forex for the country are RMG exports and foreign loan disbursements for various development projects.

However, after netting for raw material imports such as cotton, related accessories, energy subsidies and cash incentives it is unclear how much low-margin RMG contributes to our forex reserves.

A report by The Business Standard showed that $12 billion of export proceeds never arrived in Bangladesh last
year.

Most likely this is due to over-invoicing by certain parties to collect the inflated export cash incentives provided by the government through unfair means.

While the country still has low forex debt relative to size of GDP, country’s debt service scenario pales when it is compared against forex earnings.

Even after cutting imports by nearly 45% from its monthly peak in Q4 2022 at around 8.1 billion USD, the country’s reserves are dwindling.

Bangladesh, as a result of this tight forex reserve scenario, hasn’t been able to meet the IMF minimum reserve requirements during the first two tranches of disbursement and will need take a waiver again for September 2023.

By the close of the previous fiscal year, the total outstanding foreign debt was $131.14 billion, marking an average increase of $16.45 billion annually over the preceding three years according to a report by The Daily Star.

Back in 2015, this debt stood at only $4 billion. It just shows that over a decade a significant part of the current account deficit has been paid by foreign debt.

Additionally, this exponential growth in foreign debt will cause substantial economic challenges for the new government post elections next year, as the country is struggling to pay import bills with the current flow of forex.

It is paramount that Bangladesh manages its remittance from migrant well as it is by far the country’s biggest source of forex earnings.

Financing our current account deficit through debt is a dangerous recipe that will result in an economic disaster sooner than most economists anticipate.

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