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Double trouble for economy

Syed Mansur Hashim | October 04, 2023 12:00:00

Things are looking depressing at the moment as both export and inward remittance take a dip in September. Naturally this will further put pressure on the country's foreign exchange reserve. Merchandise export stood at US$4.78 billion in August which came down to $4.31 billion in September, a fall of 9.83 per cent. The news about the remittance is more alarming as data show that the figure for July, 2023 was $1.97 billion that fell to $1.59 billion in August and again down to $1.34 billion in September. Of course, the readymade garments (RMG) sector dominates the export sector and contributed $3.61 billion of that export earnings.

The situation with other sectors in terms of export are not so encouraging. The Export Promotion Bureau (EPB) data state that earnings from jute and jute goods fell by 9.67 per cent garnering $221.89. Agriculture didn't fare well either earning $257.49 million, registering a fall of abut 5.3 per cent. Light engineering sector showed a double-digit decline of 16.13 per cent earning $121.1 million. The downhill trend continues with export of live and frozen fish that recorded a massive 25.05 per cent decline to $99.54 million. Export earnings from leather and leather goods declined sharply by 18.44 per cent fetching $267.49 million. Perhaps the only saving grace from this raft of massive decreases in export earnings was in the synthetic footwear sector that posted a marginal 1.01 per cent rise to $124.07 million.

On the remittance side, things look decidedly gloomy. Bankers have been hammering for the central bank to put in place the market-based exchange rate. Again, there have been calls from the financial sector to take a much tougher stance on the 'hundi' business, which is an informal money transaction channel. Unfortunately, for reasons beyond comprehension, the central bank has stuck to a fixed exchange rate for the dollar which cannot be availed by anyone. The fact that in September, 2023, our expatriate workers sent only $1.34 billion, the lowest in 41 months merely goes to show that the exchange rate being offered officially is simply not lucrative enough for remitters to use official channels.

One wonders why there is little movement by the authorities to curb the hundi trade. With the current foreign exchange reserves in a precarious state, official imports through banking channels have come down drastically over the last year. Traders of all sizes and sectors are now actively using hundi channels to make payments for imports in foreign lands. So, it is quite difficult to go up against hundi operators. Again, hundi is the favourite means by which money may be laundered abroad, either to park financial assets abroad or to pay for children's education. These are hard realities on the ground. Again, given the political uncertainty leading up to the next general election has precipitated a large scale outflow of financial assets, which shuns official channels for reasons understandable. If there is a common perception that the country is heading for political uncertainty, hundi operators can do brisk business.

If the country's economic planners were really serious about stabilising the economy, they would have been serious about checking capital flight from the country. Introduction of a free-floating exchange rate should reduce the difference between the formal and informal rates against the dollar, and then perhaps things would start looking up over time.

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