Target should trade-based capital flight, not genuine consumption through imports

Business Desk :
An upward trend in imports once again amid calls for austerity from the highest levels of government has raised concern among economists as to whether truly effective steps are being taken to check trade-based capital flight, particularly through the practice of over-invoicing by the country’s importers.
The government has been looking to shore up its dwindling reserves of foreign exchange by cutting down imports of non-essential and luxury items, as well as tightening the process for issuing LCs by banks on behalf of importers, during which over-invoicing occurs.
Both Bangladesh Bank and the government took a number of measures to curb import payments, which hit a record high of $82.5 billion in FY22.
The central bank has asked banks to impose a 100% margin on the opening of LCs for non-essential items, meaning that importers have to make a full import payment in advance.
The results were mixed, with only a slight cooling down in imports noticeable in the first quarter of the current fiscal (July to September 2022), clocking $19.3 billion.
With exports too slowing somewhat to $10.8 billion in the same period, the country’s trade deficit had already ballooned to $7.5 billion in the first three months of the year — sustaining the pressure on the reserves.
Subsequent data from the Export Promotion Bureau have shown that exports bounced back strongly in the second quarter, breaking records in November and December.
But now import data, which from Bangladesh Bank tends to be a month behind the export numbers from EPB, has shown that imports too have kept performing robustly.
After continuing to hover above the $6 billion mark in October, the country’s imports crossed the $7 billion mark once again in November 2022, clocking $7.03 billion, up 14.2% from the previous month.
Acknowledging the need for austerity to check superficial spending, economist and former caretaker government adviser ABM Mirza Azizul Islam was keen not to see rising imports as a negative per se, since it also signals strong demand in the economy and the people’s purchasing power.
Consumption can be a driver of growth. “This is a good aspect of increasing imports. It is natural that imports will increase when the economy grows. Imports will increase, and investment in the country will increase. The economy will move forward,” he told UNB.