Waxing value of US dollar against taka has seen a wane in investment for import of capital machineries and raw materials.
Besides, a shrinking taka has also mounted pressure on the central bank's foreign exchange reserve as fuel oil import is costing more.
Economists say the depreciation of taka against dollar will not only push inflation further up and pull investment in industries down, making it difficult to achieve the projected economic growth of seven percent in the current fiscal year, but it will also impact all other sectors.
A dollar was sold at Tk 82 on Jan 4, according to the Bangladesh Bank website.
This time in January last year, a dollar was sold at Tk 70-70.25.
Value of taka has plummeted over 15 percent in the past one year – the highest-ever fall.
The devaluation of taka would previously happen through government announcements. But now, it takes place silently.
"Continuous rise in the value of dollar against taka is one of the major problems in our economy now. Dollar's value is rising almost on daily basis. The rise is not only fuelling inflation but also impacting investment negatively," Bangladesh Institute of Development Studies (BIDS) researcher Zaid Bakht told .
"Entrepreneurs are cutting import of necessary capital machineries and raw materials due to the rising value of dollar against taka. It will cause fall in industrial production and growth, impacting investments and the entire economy," he argued.
"As a result', he said, "The seven percent GDP growth rate set in the budget might not be achieved."
According to the latest Bangladesh Bank data, the rate of opening Letters of Credits (LoC) to import machineries necessary to set up industries decreased by 38 percent in the first five months (July-November) of the current fiscal year.
The rate of opening such LoCs increased by 105 percent in the same period last financial year while it increased by only 40.2 percent in the entire financial year.
Import of industrial raw materials rose by 65 percent during July-November last year, but decreased by eight percent in the same period this year.
In 2010-11 fiscal, import of industrial raw materials increased by 47 percent.
As per the Bangladesh Bureau of Statistics (BBS) data, the rate of inflation was 10.63 percent in December, and it has been in double digits for the past 10 months.
"The dollar price is growing at an alarming rate. In the recent times, it even grew by a taka a day," said economist Mirza Azizul Islam, former economic advisor to the caretaker government.
"The government was forced to raise fuel prices for this dollar hike. It admitted that in the last circular. Whatever it earned from the first two fuel price hikes, it lost all when taka was depreciated," he added.
Top business body FBCCI has also expressed concern over the depreciation. FBCCI president Abul Kalam Azad raised the issue in the presence of the prime minister during the opening of the International Trade Fair on Jan 1.
"Now the concern is where the value of dollar stops," Bakht told .
"As our economy is based on imports, rise in the value of dollar against taka affects the entire economy," he said.
The government raised prices of all types of fuel once again – fourth time this year – on Dec 29. Ever since, every litre of diesel, octane, petrol, kerosene and furnace oil has been taking an additional Tk 5.
Existing hefty subsidy to the fuel sector, oil price rise in the international market and depreciation of taka against dollar were cited for the latest round of price hike in a government statement.
Asked why the pressure on Bangladesh Bank's foreign exchange reserve is increasing despite fall in import of machineries, foods and industrial raw materials, the BIDS researcher said, "The import cost of fuel oil rose abnormally. So the pressure on foreign exchange reserve is not decreasing."
Asked how value of taka against dollar could be raised, he suggested increasing flow of remittance along with foreign aid.
"The foreign aid stuck in the pipeline will have to be cleared quickly. The foreign exchange reserve will get a boost and value of dollar will also dip," he said.
The central bank's foreign exchange reserve stood at $9.64 billion on Jan 2. The reserve was over $11 billion barely two months ago.
According to the central bank, the total import cost increased by 23.15 percent in July-November while export earnings rose by 17.33 percent and flow of remittance 7.56 percent.
Expatriates have set a new record by remitting around $ 1.15 billion in December. The previous record was $ 1.1 billion, in August last year.
Besides, a shrinking taka has also mounted pressure on the central bank's foreign exchange reserve as fuel oil import is costing more.
Economists say the depreciation of taka against dollar will not only push inflation further up and pull investment in industries down, making it difficult to achieve the projected economic growth of seven percent in the current fiscal year, but it will also impact all other sectors.
A dollar was sold at Tk 82 on Jan 4, according to the Bangladesh Bank website.
This time in January last year, a dollar was sold at Tk 70-70.25.
Value of taka has plummeted over 15 percent in the past one year – the highest-ever fall.
The devaluation of taka would previously happen through government announcements. But now, it takes place silently.
"Continuous rise in the value of dollar against taka is one of the major problems in our economy now. Dollar's value is rising almost on daily basis. The rise is not only fuelling inflation but also impacting investment negatively," Bangladesh Institute of Development Studies (BIDS) researcher Zaid Bakht told .
"Entrepreneurs are cutting import of necessary capital machineries and raw materials due to the rising value of dollar against taka. It will cause fall in industrial production and growth, impacting investments and the entire economy," he argued.
"As a result', he said, "The seven percent GDP growth rate set in the budget might not be achieved."
According to the latest Bangladesh Bank data, the rate of opening Letters of Credits (LoC) to import machineries necessary to set up industries decreased by 38 percent in the first five months (July-November) of the current fiscal year.
The rate of opening such LoCs increased by 105 percent in the same period last financial year while it increased by only 40.2 percent in the entire financial year.
Import of industrial raw materials rose by 65 percent during July-November last year, but decreased by eight percent in the same period this year.
In 2010-11 fiscal, import of industrial raw materials increased by 47 percent.
As per the Bangladesh Bureau of Statistics (BBS) data, the rate of inflation was 10.63 percent in December, and it has been in double digits for the past 10 months.
"The dollar price is growing at an alarming rate. In the recent times, it even grew by a taka a day," said economist Mirza Azizul Islam, former economic advisor to the caretaker government.
"The government was forced to raise fuel prices for this dollar hike. It admitted that in the last circular. Whatever it earned from the first two fuel price hikes, it lost all when taka was depreciated," he added.
Top business body FBCCI has also expressed concern over the depreciation. FBCCI president Abul Kalam Azad raised the issue in the presence of the prime minister during the opening of the International Trade Fair on Jan 1.
"Now the concern is where the value of dollar stops," Bakht told .
"As our economy is based on imports, rise in the value of dollar against taka affects the entire economy," he said.
The government raised prices of all types of fuel once again – fourth time this year – on Dec 29. Ever since, every litre of diesel, octane, petrol, kerosene and furnace oil has been taking an additional Tk 5.
Existing hefty subsidy to the fuel sector, oil price rise in the international market and depreciation of taka against dollar were cited for the latest round of price hike in a government statement.
Asked why the pressure on Bangladesh Bank's foreign exchange reserve is increasing despite fall in import of machineries, foods and industrial raw materials, the BIDS researcher said, "The import cost of fuel oil rose abnormally. So the pressure on foreign exchange reserve is not decreasing."
Asked how value of taka against dollar could be raised, he suggested increasing flow of remittance along with foreign aid.
"The foreign aid stuck in the pipeline will have to be cleared quickly. The foreign exchange reserve will get a boost and value of dollar will also dip," he said.
The central bank's foreign exchange reserve stood at $9.64 billion on Jan 2. The reserve was over $11 billion barely two months ago.
According to the central bank, the total import cost increased by 23.15 percent in July-November while export earnings rose by 17.33 percent and flow of remittance 7.56 percent.
Expatriates have set a new record by remitting around $ 1.15 billion in December. The previous record was $ 1.1 billion, in August last year.
0 comments:
Post a Comment