Dhaka, Bangladesh (BBN) - The ongoing political turmoil in Bangladesh is pushing up pressure on the economy by squeezing the inflow of foreign exchange along with affecting the payment system mainly due to the lack of security across the country.
The country’s external front may face extra pressure following closure of different industries particularly the apparel and clothing sector because the political unrest intensified in the last few weeks.
The protests that led to the abrupt resignation of former prime minister Sheikh Hasina on August 05, 2024, have exacerbated downside risks to economic growth, fiscal performance, and external front.
Currently, production is being hampered as goods are not being transported from the port to factories mainly due to the lack of security on major roads.
Other than safety concerns, many garment owners have already missed the lead times set by global retailers and brands. Such a situation is pushing down the country’s overall export earnings which is a key source of foreign exchange.
Meanwhile, Bangladesh’s export earnings fell by more than 16 per cent to US$4.07 billion in May this calendar year from $4.85 billion a year ago, according to the state-run export promotion bureau (EPB) latest data.
“In this scenario, exports would be materially lower than our expectations, with a more prolonged impact on Bangladesh's external balance sheet,” S&P, a global rating agency, said in a report. “Materially lower exports could weaken the generation of foreign exchange (forex), further diminishing the central bank's usable reserves.”
It also said a normal flow of remittances will also be crucial for Bangladesh to avoid a more acute forex shortage. “Other possible negative developments would include prolonged disruptions to communications systems that affect normal financial payments.”
Meanwhile, the flow of inward remittances dropped by nearly 25 percent in July, the first month of the current fiscal year (FY) 2024-25 following a five-day internet blackout across the country.
The remittances from Bangladeshi nationals working abroad were estimated at $1.91 billion in July 2024, down by $633 million from the level of the previous month. In June, the remittances stood at $2.54 billion, according to the central bank statistics. It was $1.97 billion in July 2023.
On the other hand, the country’s foreign (forex) exchange reserves fell significantly in July despite of the close monitoring of the central bank.
The forex reserve fell to US$25.92 billion on July 31 from $26.81 billion a month before as per traditional calculation of the Bangladesh Bank (BB).
As per the International Monetary Fund (IMF)’s Balance of Payments International Investment Poisson Manual-six edition, generally known as BMP6, the forex reserves dropped to $20.49 billion during the period under review from $21.79 billion a month ago.
Outlook: The exchange rate of Bangladesh Taka (BDT) against the US greenback may depreciate further in the near future if the ongoing unstable situation continues.
BBN/SI/AD