#Title

Can falling imports alone ease stress in the economy?
AKM ZAMIR UDDIN
Bangladesh’s trade gap and current account deficit have narrowed significantly in recent months but the positive developments might not prove enough to bring back stability to the economy.
The government and the central bank earlier took a set of initiatives to reduce import payments in order to decrease both the trade gap and the shortfall in the current account. The initiatives have not paid off since the erosion of the foreign exchange reserves could not be stopped.
The large shortfall in the financial account, which had historically enjoyed a surplus, is now responsible for the drastic fall in the reserves.
Bangladesh’s international currency reserves stood at $30.34 billion last week in contrast to $42.20 billion in May last year, a decrease of 28 per cent year-on-year.
“The entire economy has been hit hard because of the continued fall in the reserves,” said Ahsan H Mansur, the executive director of the Policy Research Institute of Bangladesh.
“If we can’t restore the discipline in the foreign exchange market, attaining the economic growth target will be difficult in the days ahead and inflation may go up further.”
The gross domestic product (GDP) growth has already slowed owing to the persisting severe fallout of the Russia-Ukraine war.
GDP grew 6.08 per cent in the current fiscal year, ending in June, provisional data from the Bangladesh Bureau of Statistics showed. The economy expanded by 7.1 per cent in 2021-22.
The government has set a GDP growth target of 7.5 per cent for the next fiscal year, which begins in July.
And the factors behind the drastic fall in the reserves such as higher import bills, runaway inflation and escalated commodity prices are still there.
And Mansur, also a former official of the International Monetary Fund (IMF), thinks there is no scope to rein in import payments further.
“If imports decrease further, industrial production will shrink,” he said.
In the first nine months of 2022-23, import bills dropped 12.33 per cent year-on-year to $53.93 billion. As a result, the trade deficit, which occurs when a country’s imports exceed its exports, declined 41.6 per cent year-on-year to $14.61 billion in July-March.
“Imports of industrial raw materials and capital machinery have already decreased significantly, so a further reduction in imports should be stopped in the interest of the economy,” Mansur said.
Imports of raw materials stood at $20.64 billion in July-April, down 6.68 per cent from a year earlier.
Mansur says if the central bank tries to tackle the ongoing stress in the foreign exchange market by reducing the deficit in the current account, it will be a “draconian adjustment”.
The deficit in the current account, which records a nation’s transactions with the rest of the world, was $4.64 billion between July and March, a decrease of 75 per cent from a year ago.
The economist argued many businesses are facing a dollar shortage to import raw materials to run their factories, leading to a shortage of essential goods in the market and fueling inflation.
Inflation fell slightly to 9.24 per cent in April after the Consumer Price Index jumped to a seven-month high of 9.33 per cent in March.
And if the exchange rate of the taka against the dollar declines, it will compound further pressure on the poor and limited-income households, which are already struggling to make ends meet amid the cost-of-living crisis.
The dollar traded at Tk 108 on May 14, down 25 per cent year-on-year.
“We have to stop the downward trend of the reserves. And strengthening the financial account is key to bolstering the reserves. If we can’t do so, the local currency will weaken further,” Mansur said.