The European Union (EU)'s postponement of its first round of talks with Bangladesh on a fresh agreement towards enhancing trade, economic and developmental relations scheduled for September has occurred at a time when the country's economy is facing multiple challenges, both old and new. The European trading bloc's foreign affairs spokesperson who informed the media of the deferment on July 31 did not say if the meeting would take place at a later date, though Bangladesh's foreign ministry is learnt to have said that the talks have been shifted to November as the schedule clashed with the UN General Assembly session to be held on September 10.
However, one would like to believe that there is no other issue affecting the said deal styled, Partnership and Cooperation Agreement (PCA), between the EU and Bangladesh initiated in October last year in Brussels. The partnership agreement with the world's largest economic bloc, which is also Bangladesh's chief trading partner, accounting for 20.7 per cent of the country's trade transacted in 2023 alone, is a very vital one for Bangladesh. It is worthwhile to note that last year (2023), the country's export to the trade bloc (EU), according to the Export Promotion Bureau (EPB), was worth US$24 billion, which was 58 per cent of the country's total export abroad. Evidently, the just postponed talks with the EU bears special significance since after graduation the country is going to come up against the EU's higher duty regime applicable for imports from developing countries as Bangladesh is going to graduate to the developing group of nations after November, 2026.
Notably, as a Least Developed Country (LDC), Bangladesh has so far been enjoying duty-free access of its exports to EU under the Generalised System of Preference (GSP). In the scheduled talks, Bangladesh could make out a case for its inclusion in the EU's GSP plus scheme, which offers complete duty suspension for products across approximately 66 per cent of all EU tariff lines. The GSP plus arrangement is an EU incentive for vulnerable developing countries that ratified 27 international conventions on human rights, labour rights, environmental protection, climate change and good governance. Undoubtedly, some of the conventions out of the 27 will be very challenging for the government to meet, especially in view of the recent developments in the country.
In this connection, EU's foreign policy chief Josep Borrel last week expressed concern over the violence and blood-letting surrounding the recent student unrest earlier dubbed quota protests, which lately transformed into an 'anti-discrimination student movement.' In the future talks with the EU, these issues might be raised and the negotiators from Bangladesh side would be required to put forward their points convincingly. The recent turn of events on the campuses and beyond have added some quite unexpected challenges to the economy and business. The July report for inward remittance, for instance, is anything but reassuring. According to the Bangladesh Bank (BB), the amount of remittance sent home in July was US$190.9 billion. This is a drastic fall because since October last year, the remittance inflow was on the rise and in June last reached its peak at over US$2.54 billion. That means, within a month of the peak, the remittance receipt has decreased by US$630.26 million.
The internet service that remained suspended between July 18 and 23 might be a reason for reduced homeward flow of remittance. But once the internet service was restored, the normal trend of remittance flow should have resumed. Some have suggested that this untoward development might be a fallout from the violent quota protests as some expatriate workers reportedly threatened to stop sending remittance as a mark of their solidarity with the agitating students. Whatever the case may be, being instructed by the central bank, a number of commercial banks bought remittance dollars at higher rates than usual to woo remitters for transfer their money home. In the informal currency market, the value of a USD rose to as high as BDT125.The government should take the issue seriously because the remittance dollars are actually the backbone of the country's forex reserve. One might recall at this point the severe economic crisis that Sri Lanka went through in 2022 resulting in mass street protests. That country's foreign exchange reserve hit the bottom. Sri Lanka, too, experienced a fall in remittance receipts that played a crucial role in that country's severe financial crisis. It may be recalled that in March 2022, the country was earmarked for sovereign default as its near-depleted foreign exchange reserve was not enough to meet the island nation's foreign debt obligations. Many are against comparing Bangladesh with Sri Lanka on the ground that the economic realities of the two countries are different. But the finer points of differences apart, in the modern-day developing nations in particular, a robust foreign exchange reserve is the sine qua non of their economies' sustainability. In a sense, uninterrupted flow of foreign currency whether from expatriate workers' remittance, export earnings, foreign investment or aid, constitute the lifeline of such economies. Since depletion of the foreign exchange reserve in tandem with rising foreign debt was the immediate cause of Sri Lanka's collapse two years back, the policymakers in Bangladesh need to take that into serious consideration. Against this backdrop, the two main sources of the country's hard currency, inward remittance and export, should top the agenda of deliberations on the economy.
However, the kaleidoscopic changes the country has been undergoing since the beginning of the current fiscal year (2024-25) are adding to the uncertainties and new challenges to the economy. The development partners including the EU will be keenly watching the events unfolding in the country before they take any firm decision on reaching any new agreement with Bangladesh. Prospective foreign as well as domestic investors, too, will take a wait-and-see approach before committing their funds in any new business venture or the expansion of the existing ones.
How the economy would sail through the ongoing crisis depends a lot on the wisdom and political acumen of those in charge.
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