Export up, import down

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A partial view of the Chittagong Port

Hasnat Abdul Hye For a country that has consistently posted a deficit in her balance of payment the recent news of an export surplus should be a good news. But given the fact that Bangladesh has been an overly import-dependent country the news appears to be too good to be true. But statistics, much maligned for its proclivity towards 'lies and damned lies' may not be guilty of any wrongdoing this time around. The figures on exports and imports, as they have been presented, are not fabricated, coming as they do from the Bangladesh Bank. But it is not the improvement in the balance of payment that should engage our attention, but the components of export and import contributing to the overall balance of payment that merit scrutiny. According to report prepared by the Bangladesh Bank, the country's trade deficit narrowed sharply in December 2012 as a result of the monthly import bill shrinking to its lowest level in recent months. During the first half of the current fiscal import declined by 6.9 per cent compared to the corresponding period last year. The report has estimated that import amounted to US$ 13881.1 million against the target of US$ 16365 million. As a result of the fall revenue earning from export fell significantly. For a country facing chronic fiscal deficit the fall in revenue income on import is a matter of concern. But of greater concern is the decline in import of industrial raw materials, spare parts and machinery. It is understood that owing to revised policy of the government, the import of plant, machinery and spares for rental power plants have registered a fall. This in itself is not a matter of great consequence because this sector was responsible for payment of huge subsidy from the public exchequer compounding macro-economic management problem. One of the major factors contributing to ballooning public debt and inflation through expansionary fiscal policy was the payment of subsidy to this sector. But if the decline in import comprises items like plants, spares and raw materials for productive sectors like readymade garment, leather and leather products, jute goods etc., the impact on the economy will be negative. The shrinking of import of these items will have an adverse effect on exports in the medium term. If that happens for a number of years the export sector will not be able to bask in the growing demand from abroad because imported materials are generally used in as inputs for export industries. The only decrease in demand that has a positive impact on the economy is the reduction in the import of luxury and semi-luxury goods like expensive cars, cosmetics, toiletries, clothing's, shoes, packaged food etc. It is not known to what exchange the import of these non-essentials items have been curtailed. Given the wide margin of profit on these non-essentials, it is doubtful if importers will feel any urgency to curb their import. Even higher taxes resulting in higher prices may not be able to discourage the consumption (use) of these non-essential items as demand for these is price inelastic. It has been observed that the country's overall import entered into negative territory in the first quarter of the current fiscal due to the cautious (contractionary) monetary policy aiming to contain inflation through decrease in the volume of credit flow to the unproductive sectors. Given weak or no policy instrument at the disposal of the central bank to guide loans disbursed by commercial banks to specific sectors it is difficult to see how the central bank can ensure this. So the decline by 7.0 per cent of import during the current fiscal (July-December) appears to have been on account of reduction of import of industrial raw materials, plants, machinery and spares. Though exporters, particularly RMG, have increased their volume of exports, manufacturers in general may be taking cautious steps to face the approaching headwind in the global market by decreasing import of machinery, raw materials, spares etc. In the worst case scenario another round of recession in Europe and America may find Bangladesh exports of readymade garments (RMG) plummet precipitously. The withdrawal or limitation of generalised system of preferences (GSP) can only aggravate the situation. On the export front, the developments are apparently encouraging. There has been an increase in all export items across the board. But the signals are contradictory here. According to one version, export earning in January 2013 saw 18.8 per cent increase totaling US$ 2554.28 million against US$ 2149.87 fetched in January 2012 due to good performance of knitwear, woven fabric, footwear, leather and leather goods, jute goods and agricultural goods. According to data released by Export Promotion Bureau (EPB), export earnings in the first seven months of the current fiscal showed a growth of 8.8 per cent, totaling US$ 15154.01 million which was slightly lower (1.09 per cent) than the strategic target of US$ 15448 million. So, while exports have risen, the figures are still below the target. It is learnt that this is because of RMG exporters' apprehension of lower export order from foreign buyers following Tajreen fire accident and possible GSP withdrawal. Uncertainty over the global economic outlook has also contributed to the cautious policy of manufacturers in expanding their production. So, the future of exports does not look very bright for the near term. The other signal, negative in nature, is that Tk. 25.0 billion (2500 crore) given as cash incentive to exporters of 16 items have been availed by only three so far. Excepting three items, garment, leather and leather products, the producers of other items have not shown much interest in using the cash incentive for export indicating the slack in their activity. According to Bangladesh Bank, cash incentive for 16 export items have been given with annual increase of Tk. 1.1 billion (110 crore) for the last six years. The only good news on the export front is that export rose 3.57 per cent month-on-month in January 2013 in the markets to which Bangladeshi RMG products have been introduced recently. But whether export in the existing or new markets can be sustained depends on import of machinery, plants, spares and raw materials timely. The movements of export and import, upward and downward, give some signal about the near term. But they do not appear to be natural. To be natural, rising export will require to the accompanied by rising import. hasnat.hye5@gmail.com