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Terms of trade on external front

Unchanged in FY '17, but likely to worsen this fiscal

Jasim Uddin Haroon | April 16, 2018 00:00:00

Bangladesh's terms of trade (ToT) remained unchanged in the past financial year (2016-17) showing the economy avoided shock in prices in the year under review.

The ToT, representing a ratio between export prices and import prices, remained the same means there was no price shock in both import and export prices.

The central bank of Bangladesh showed the ToT was 87.11 index points in fiscal year 2017, exactly the same of FY 2016, as the import prices index was 237.36 and export prices index at 206.71.

However, people familiar with the development told the FE that the ToT may worsen in the current financial year on the back of global inflationary pressure as it may make the import prices costlier.

They however said that Bangladesh failed to capitalise the falling trends of import prices in the last financial year for lack of collective efforts in raising export prices.

Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh told the FE that the ToT remained the same as export and import values did not change in the year under review.

He however said that the ToT could have been better in the year if export prices were higher.

"It's a good sign in a sense that there was no price shock from the external sector."

Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB) told the FE there is always a "price war" among the local entrepreneurs in terms of marketing their produces.

"I don't see any cooperation among the manufacturers to have a better bargaining capacity with the overseas buyers," Dr Hussain said.

Commenting on the stagnation in the ToT, he said: "If there was a price shock on the external economy it would have created an uncertainty and Bangladesh has been cushioned from effect of the unchanged ToT."

He however said the ToT may fall this year once the geo tension intensifies further leading to rise in the prices of imported items.

Bangladesh ToT deteriorated in FY 2013, 2014 and 2015 in three consecutive years in a row by around 2.0 percentage points following rise in the prices of imported items.

"The prices of fuel and related products may rise further on the grounds of global inflationary pressures," Dr Hussain said.

"To my view that's why the import index may rise in this financial year,"

However, garment manufactures , the largest exporting sector of Bangladesh said that the prices of their clothing fell in the year under review leading to fall in the export index.

"On an average the clothing price fell by 0.15 cent, so how does the export index rise?" Anowar Ul Alam Pervez, managing director of one of the leading clothing groups of Bangladesh told the FE.

On a cartel-like behaviour with the buyers, Mr Pervez said in Bangladesh such type of unfair business practice is not possible.

"We all want to reduce clothing prices so that the buyers' cannot look for alternative destinations."

In the meantime, when a country's ToT is less than 100 per cent, capital outflow is seen much higher than the capital inflow. When the ToT is higher than 100 per cent, the country is accumulating more capital from exports than it is spending on imports.

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