Reduce trade deficit to tackle financial crisis
Dr. S M Jahangir Alam :
Bangladesh is a developing country. There is no denying that Bangladesh has made great strides in the economic field in recent times.
But many people have doubts about how sustainable and stable the achieved development is.
In the last 51 years since independence, the balance of international trade has never been in favour of Bangladesh.
The failure of our policy makers is responsible for this. In the initial stage, the international trade of Bangladesh was mainly dependent on the ‘kindness’ of a few countries and regions.
Of note, Bangladesh lost quota benefits from the United States in 2005 after the introduction of a liberal and free trade regime initiated by the World Trade Organization.
Before this, the United States used to provide quota facilities for the import of Bangladeshi products.
The United States imported a certain amount of goods each year from countries with quota privileges. Besides, the European Union has been providing duty-free GSP (Generalized System of Preferences) facilities to Bangladesh since 1976. Under the GSP facility, the country’s products are getting duty-free entry into 27 European Union countries.
While other countries have to pay a duty of up to 12 percent on the export of goods to the European Union countries, Bangladesh including various GSP privileged countries are able to export the goods without paying any kind of duty.
About 90 percent of Bangladesh’s annual export earnings come from the United States and European Union countries.
After the United States withdrew the quota facility, Bangladesh had been providing GSP benefits for exports of goods for several years.
But the GSP benefits granted to Bangladesh have been suspended due to various reasons, especially allegations of human rights violations.
The European Union still provides GSP benefits to Bangladesh. They will provide this facility for another three years after Bangladesh finally passes the list of developing countries in 2026.
From 2029, the European Union will stop the GSP benefits granted to Bangladesh.
In that situation, the country will definitely face problems in international trade. Bangladesh has tried to boast of various clever policies and strategies at various times.
But no real effective action has been taken in the field of international trade.
No one knows what problems Bangladesh is facing in international trade.
But we have not taken any practical initiative to solve the problem so far.
Bangladesh’s main problem in international trade is that we want to be successful in international trade by being overly dependent on a limited number of countries and few products.
It is not possible at all. Bangladesh exports products to at least 200 countries. Out of this, almost 90 percent of the total export income is earned from the United States and European Union countries.
One more problem appears before us nakedly, which is that our exports to the countries from which Bangladesh imports the largest quantity of goods are very small.
The matter is clear from the statistics given by the Minister of Commerce.
Bangladesh imports the largest amount of goods from China and India. But the export of Bangladesh products to these two countries is very less. Such unequal trade cannot be desirable at all.
Another critical issue is the country’s international trade. Local raw material dependent products are very less present in our export product list.
In the last financial year, Bangladesh for the first time exported goods worth 52 billion US dollars.
Of this, $42 billion comes from exports of ready-made garments. But the readymade garment industry is largely dependent on imported raw materials.
As a result, this sector is not able to add value to the national economy at a proportionate rate.
At least 35 to 40 per cent of the foreign exchange earned by exporting ready-made garments every year goes to importing raw materials.
For the first time in the last financial year, apart from ready-made garments, four other products crossed the hundred billion dollar export revenue landmark.
The four new products that have generated billions of dollars in exports are all dependent on local raw materials.
If the export of local raw material dependent products is not increased, the export income cannot be raised to the desired level in any way.
The statistics given by the commerce minister about the deficit created against the country in international trade is very worrying.
But there are doubts about how realistic it is, because the information of import cost is published, it is not a picture of actual import cost, because most goods are overvalued in import trade.
The Governor of Bangladesh Bank said a few days ago that he has come across some examples of increasing the price of some products during importation.
In some cases, the product is shown to be overvalued by 20 to 200 times its actual value.
If the relevant departments of the government had properly checked the international market price of the products while importing them, then the overvaluation of the imported products could have been reduced a lot.
At the beginning of the fiscal year, import expenditure had risen abnormally.
As Bangladesh Bank has imposed some strictness in this regard, the opening rate of LC (Letter of Credit) for imports has decreased slightly.
In the first 6 months of the financial year, the LC opening rate has decreased by 22.52 percent compared to the same period of the previous financial year.
The LC opening rate was 37.59 percent in FY 2020-2021. In the first 6 months of the current financial year, LC opening rate has decreased by 22.41 percent.
In the first 6 months of the previous financial year, LC opening rate for consumer goods imports increased by 25.92 percent.
It has decreased by 14.41 percent in the current financial year. Similarly, the import of industrial capital equipment increased by 13.33 percent in the previous financial year.
This year it has decreased by 65.32 percent. In the first 6 months of the last financial year, 3 thousand 369 million US dollars were spent on imports.
In the first 6 months of the financial year 2022-2023, it has increased to 3 thousand 515 million US dollars.
But it does not end here. Trade deficit should be reduced and brought to sustainable levels. If not, the country’s economic crisis will increase.
(The writer, a Bir Muktijoddha, is former Tax Commissioner and Director, Bangladesh
Satellite Co. Ltd.)
