An upward trend in imports once again amid calls for austerity from the highest levels of government has raised concern among economists as to whether truly effective steps are being taken to check trade-based capital flight, particularly through the practise of over-invoicing by the country’s importers.
The government has been looking to shore up its dwindling reserves of foreign exchange by cutting down imports of non-essential and luxury items, as well as tightening the process for issuing LCs by banks on behalf of importers, during which over-invoicing occurs.
Both Bangladesh Bank and the government took a number of measures to curb import payments, which hit a record high of $82.5 billion in FY22, that ended last June 30. The central bank has asked banks to impose a 100 percent margin on the opening of LCs for non-essential items, meaning that importers have to make a full import payment in advance.
The results were mixed, with only a slight cooling down in imports noticeable in the first quarter of the current fiscal (July to September 2022), clocking $19.3 billion. With exports too slowing somewhat to $10.8 billion in the same period, the country’s trade deficit had already ballooned to $7.5 billion in the first three months of the year – sustaining the pressure on the reserves.
Subsequent data from the Export Promotion Bureau have shown that exports bounced back strongly in the second quarter, breaking records in November and December. But now import data, which from Bangladesh Bank tends to be a month behind the export numbers from EPB, has shown that imports too have kept performing robustly. After continuing to hover above the $6 billion mark in October, the country’s imports crossed the $7 billion mark once again in November 2022, clocking $7.03 billion, up 14.2 percent from the previous month.
Acknowledging the need for austerity to check superficial spending, economist and former caretaker government advisor Dr. A.B.M Mirza Azizul Islam was keen not to see rising imports as a negative per se, since it also signals strong demand in the economy and the people’s purchasing power. Consumption can be a driver of growth.
“This is a good aspect of increasing imports. It is natural that imports will increase when the economy grows. Imports will increase, investment in the country will increase. The economy will move forward,” he told UNB.”The problem is our imports had increased abnormally. It came down in various steps. Now there is an increasing trend again. But our reserves are dwindling. In this situation, there will be more pressure on reserves,” he said.
So the government has to stay on the path of austerity, it should continue for some more time. After getting loans from the IMF, World Bank and ADB, things can be thought of differently, Mirza Aziz said. Former governor of the central bank, Dr Salehuddin Ahmed, opined much the same, encouraging increased domestic resource mobilisation while following the path of austerity.
He also suggested strongly to verify the LCs against goods arriving via containers to stop trade-based money laundering, the real menace that needs to be targeted. As the global economy started to normalise in the post-pandemic period, Bangladesh witnessed galloping import demand outshine record exports in the 2021-22 fiscal. The $82.5 billion import figure was itself a record, up 36 percent year-on-year and leading to a record trade deficit as well.The country’s forex reserves, which peaked at $48.1 billion in August 2021, will soon have halved since then.
At the end of the last trading week on Thursday (Jan. 5), the reserves stood at $33.6 billion, including encumbered reserves. The unencumbered reserves figure would be $24.5 billion, following the next payment to the Asian Clearing Union, $1.12 billion for the November-December period, due this week.
