Uncertainty looms large in macro-economy

Al Amin :
Uncertainty is looming large in the country’s macro-economy as the improvement in two major crises-inflation and erosion in foreign currency reserves for dollar shortage-is yet to be seen, economists said.

Following the backdrop of the crises, the production and investment in the country’s industrial sectors are hampering severely, they added.

Besides, the confidence of foreign buyers is also eroding as they feel that the manufacturers would not be able to supply their goods on time due to the ongoing gas and electricity crisis, the economists said.

Along with the crises, the unexpected political unrest centering the upcoming national election may also affect the country’s economy, they think.

They said though the inflation is continuing to ease globally, the situation in Bangladesh is yet to be improved as the government has not taken any strong measures in this regard.

On the other hand, the country’s foreign exchange reserves have been falling for more than a year due to higher import payments and lower than expected export earnings and remittance inflows.

The reserves stood at $23.56 billion–the amount is equal to Bangladesh’s four months’ import bills– as per the definition of the International Monetary Fund (IMF), while the current inflation rate is around 9.74 per cent.

Dr Zahid Hussain, former lead economist of the World Bank Dhaka office, told The New Nation, “Actually the government has not taken any pro-active measures to rein in inflation, though it has talked much about it. People are losing purchasing power due to higher inflation.”

“On the other hand, for reducing pressure on the foreign currency reserves, the government imposed restriction on import. But, it did not take any steps to increase dollar. As a result, the government has failed to pull off the erosion of reserves,” he said.

Bangladesh has been going through an energy crisis since the global energy market took
a hit from the outbreak of the Russia-Ukraine war in February last year.

The situation prompted the country to go for import controls of non-essential and luxury items amid falling foreign currency reserves.

The government has also paused the purchase of liquefied natural gas from the international open markets to stop the erosion of the reserves.

The import controls affected the import of primary energy, which, in turn, disrupted the production of electricity, leading to nationwide power outages and their consequent adverse effects on production.

Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh, said the industrial sector has been seriously impacted as many factories failed to import adequate raw materials.

“So, their production fell significantly,” he said.

Central bank reports show a 46 per cent drop in letters of credit (LC) openings for industrial machinery like computers or motorcycles, 32 per cent for industrial raw materials like textile fabrics and chemicals, 31 per cent for intermediate goods like cement and scrap vessels and 18 per cent for consumer goods like rice and wheat.

Mohammad Hatem, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, “The country’s apparel industry is passing through hard time as the buyers have reduced orders significantly. Many factories are with 50 per cent of their capacities.”