The global economy has been battered by the Russia-Ukraine war, sanctions imposed by the US-led Western countries on Russia and counter-sanctions. The entire global economy felt the effects of slower growth and faster inflation. The war came at a time when the world economy was recovering from the shocks of Covid-19. It pushed up the commodity prices and disrupted supply chains of essential commodities. US dollar, the currency of choice for international trade, has also got costlier with the countries left to struggle to defend their currencies against a rapidly strengthening dollar. The increase in commodity and dollar prices put a tremendous pressure on forex reserves of the countries that are dependent on import. All the countries took measures to preserve the forex reserves with Bangladesh being no exception. However, the foreign exchange reserves of many countries dwindled sharply and several of them almost ran out of their reserves. Sri Lanka and Pakistan are among them with the former already gone bankrupt after being unable to repay foreign loans. And Pakistan’s foreign exchange reserves had dropped to as low as $3.1 billion, which was enough to cover 18 days of imports.

Bangladesh is now in a better position to ride out the economic crisis with a growing trend in export earnings and inward remittances though its forex reserves also declined for meeting inflated import bills. The foreign exchange reserves crossed the milestone of $48 billion last year. However, it has now come down to $32 billion and as per the estimation of International Monetary Fund, the reserves stand at $24 billion. The good news is that Bangladesh’s export earnings and foreign remittances increased in the first month of 2023. The Export Promotion Bureau reported that the export earnings rose by 5.89 percent to reach $5.13 billion in January compared to $4.85 billion during the corresponding period last year. Foreign remittances, a crucial source of foreign currency for the country, also showed a positive trend. The central bank reported that remittances rose to $1,958.8 million in January, up from $1,704.5 million in January 2022 and $1,699.6 million in December 2022. Economic analysts see the trend as a positive sign for the economy and the rise in exports and inward remittances may help address the dollar crisis the country is now facing.

Economists and business people have suggested that the import of all luxury and unnecessary products and those that are being produced in the country should be banned to prevent forex reserves from declining further. They said had the duty on luxury goods been increased based on the list of 330 products provided by the Trade and Tariff Commission, there would have been no dollar crisis. Efforts should also be taken to protect local industries. In August 2022, the commission had made a list of 330 items to discourage their import. It recommended increasing taxes on those items, stating that it may reduce the burden on the local industry. The commission proposed taxes on items such as electronic goods, kitchen basins, marble and granite, leather belts, ceramic goods, imitation jewellery, home appliances, processed and tin-coated food items, chocolate, biscuits, juice, soft drinks, alcohol and tobacco products. The commission believes if this recommendation is implemented, approximately $100 crore may be saved.

Bangladesh Bank and the National Board of Revenue (NBR) should step up efforts to overcome the situation as there is no sign of solution to the current global economic crisis anytime soon. The government should impose anti-dumping duty to discourage the import of luxury and unnecessary items. Many countries impose higher duty on import in the interest of local industries. This will cut the import on the one hand and protect local industries on the other hand, thus saving valuable foreign exchange. If it is not possible to impose the anti-dumping duty, supplementary or restrictive duty can be put in place at a higher rate. The government can involve Bangladesh Competition Commission in controlling the import of unnecessary foreign products. Banks should also be held accountable if they open LCs for non-essential products. Steps should also be taken to prevent trade-based money laundering through under- and over-invoicing as some entities inflate their price than the actual cost of the products. Over-invoicing takes place when exporters submit an inflated invoice to the importers, generating a payment that exceeds the value of the shipped goods in order to launder money abroad.

At the same time, emphasis should be given on boosting local industries, export earnings and remittances by exploring new markets abroad. More incentives can also be offered to encourage Bangladeshi expatriates living in different countries to send remittances through the banking channel. If there is any failure to take these measures right now, the economic challenges the country is now facing will deepen in the future.

The writer is a columnist