Economy walking a tight rope
Thursday, 6 September 2007
Syed Fattahul Alim
Though the country's foreign exchange reserve is better than any time in the past, the trade deficit is widening as if to keep pace with the forex position. Meanwhile, considering the increasing level of import, the Bangladesh Bank elevated the comfortable level of foreign exchange reserve position from US$ 3 billion to US$5 billion, which is near to the amount of three months' import bill for the country in the present context. What is the present size of trade deficit with the countries from which Bangladesh imports various types of commodities? In the just concluded fiscal year 2006-07, the gap between the cost of increased import and value of diminished export is around US$3.46 billion dollar. This is the highest amount of deficit in the last one decade.
The scenario does not bode well for an economy when attempt is being made to address the trend of rising inflation through a contractionary monetary policy and increasing the rate of interest on lending, while the value of taka is eroding fast and the wild horse of essentials galloping out of control. A Bangladesh Institute of Development Study (BIDS) report said, the falling export earning combined with increasing import poses a serious a risk to the economy by way of depleting the foreign exchange reserve faster. If the present trend of ever-widening gap between export earning and import cost continues, the time is not far off when the economy may have to face up to a new reality of deficit reserve position.
In the circumstances, Bangladesh needs to augment its export, if only to foot the rising import bill and at the same time continue to maintain the foreign exchange reserve position at a safe level.
Now let us see what prospects are there in the export sector of the economy.
The garment sector, which is the mainstay of the country's export, has, of late, been facing a new challenge from big players in the global market. Bangladesh garment products had so far been enjoying a kind of protection in the European and North American markets against apparels from Chinese origin. The safeguard is going on January 1, 2008, since from then on Chinese apparel products will be allowed entry into the European markets. In that event, how will Bangladesh stand up to the highly competitive Chinese products in the international market? The threat is coming not only from China, but also from other developing and developed economies like India, Vietnam and Taiwan. To survive in such a highly competitive market, Bangladesh will need to develop the quality of its garment and other products. Improving working environment at the manufacturing units, diversifying products and improving their quality, increasing social compliance of the apparel industry and weaning away from over-dependence on European and American markets and at the same time stimulating search for new markets in other countries such as Japan, Russia, Australia, New Zealand and so on are some of the options open before Readymade Garment (RMG) sector of Bangladesh.
A note of caution, however, will not be out of place here. We are giving here too much emphasis on the garment products. But Bangladesh has other exportable items, too. Those include agricultural products, fish, vegetables, ceramics, pharmaceutical products, etc. And to top it all, there is the most promising of all the sectors-manpower. But this sector of export, too, demands a lot of attention as it is also not free from competition from other countries. So, to survive this competition, Bangladesh needs to improve the quality of its exportable manpower by providing it with training in various trades and professions. That is because unskilled labour is quickly losing its export potential even in the traditional markets in the Middle East. In a word, the government and the private sector together should leave no stone unturned to open up and cultivate yet newer avenues of export in the economy. These steps are necessary to further widen the export base in order to avoid the risk of putting all the export eggs of the country in one basket.
President of the International Chamber of Commerce, Bangladesh (ICC-B) Mahbubur Rahman, too, spoke in a similar vein at a seminar and urged all quarters to concentrate on widening the narrow export base to live through the tough competition ahead.
The concept of export-driven economy is a product of industrial revolution. The path of the economy had underwent a sea change in the Western world after the economies in Europe began to produce through their factories more goods than they could consume. Gradually they went through the transition from the traditional self-sufficient agriculture-based natural economies to export-driven ones on the look out for markets abroad. Small wonder the history of colonial and post-colonial era has been one of grabbing new markets even in cases through using physical force.
In the process, the idea of self-sufficient economy has become an anachronism. No economy, even the most developed ones can now claim to be self-sufficient.
Unfortunately, Bangladesh is a late comer to join the march of transition from its natural, agriculture-based economy to an industrial one. So, it would be a tall order to expect that Bangladesh will turn into an export-driven economy overnight. Such expectation is flawed, because the industrial base of the country is still in a primitive stage. So, at the moment, the prospect that Bangladesh would create a huge foreign exchange reserve through exporting industrial goods in the overseas market is a ridiculous proposition. The prospect of becoming a net raw material exporting country is also slim. After feeding its huge population, the country produces few agriculture-based items to export in large quantities abroad. The story is more or less the same so far as mineral resources are concerned.
Against this backdrop, there is no shortcut way for Bangladesh to broaden its export base within a short time. Garment and such other products can only be a stopgap measure to keep the forex reserve at a comfortable level. If truth be told, the amount of foreign exchange reserve that we call comfortable is nothing to be complacent about. The size of the economy that we are dealing with at the moment cannot be representative of a country with a population size of more than 140 million. In fact, Bangladesh will have to live on an economic tightrope until it can turn itself into fully industrialised economy. It is the job of the policymakers, the entrepreneurs and other stakeholders to set a time frame and chart out the particular development path that Bangladesh should choose to develop it into an industrial economy within that time line.
Though the country's foreign exchange reserve is better than any time in the past, the trade deficit is widening as if to keep pace with the forex position. Meanwhile, considering the increasing level of import, the Bangladesh Bank elevated the comfortable level of foreign exchange reserve position from US$ 3 billion to US$5 billion, which is near to the amount of three months' import bill for the country in the present context. What is the present size of trade deficit with the countries from which Bangladesh imports various types of commodities? In the just concluded fiscal year 2006-07, the gap between the cost of increased import and value of diminished export is around US$3.46 billion dollar. This is the highest amount of deficit in the last one decade.
The scenario does not bode well for an economy when attempt is being made to address the trend of rising inflation through a contractionary monetary policy and increasing the rate of interest on lending, while the value of taka is eroding fast and the wild horse of essentials galloping out of control. A Bangladesh Institute of Development Study (BIDS) report said, the falling export earning combined with increasing import poses a serious a risk to the economy by way of depleting the foreign exchange reserve faster. If the present trend of ever-widening gap between export earning and import cost continues, the time is not far off when the economy may have to face up to a new reality of deficit reserve position.
In the circumstances, Bangladesh needs to augment its export, if only to foot the rising import bill and at the same time continue to maintain the foreign exchange reserve position at a safe level.
Now let us see what prospects are there in the export sector of the economy.
The garment sector, which is the mainstay of the country's export, has, of late, been facing a new challenge from big players in the global market. Bangladesh garment products had so far been enjoying a kind of protection in the European and North American markets against apparels from Chinese origin. The safeguard is going on January 1, 2008, since from then on Chinese apparel products will be allowed entry into the European markets. In that event, how will Bangladesh stand up to the highly competitive Chinese products in the international market? The threat is coming not only from China, but also from other developing and developed economies like India, Vietnam and Taiwan. To survive in such a highly competitive market, Bangladesh will need to develop the quality of its garment and other products. Improving working environment at the manufacturing units, diversifying products and improving their quality, increasing social compliance of the apparel industry and weaning away from over-dependence on European and American markets and at the same time stimulating search for new markets in other countries such as Japan, Russia, Australia, New Zealand and so on are some of the options open before Readymade Garment (RMG) sector of Bangladesh.
A note of caution, however, will not be out of place here. We are giving here too much emphasis on the garment products. But Bangladesh has other exportable items, too. Those include agricultural products, fish, vegetables, ceramics, pharmaceutical products, etc. And to top it all, there is the most promising of all the sectors-manpower. But this sector of export, too, demands a lot of attention as it is also not free from competition from other countries. So, to survive this competition, Bangladesh needs to improve the quality of its exportable manpower by providing it with training in various trades and professions. That is because unskilled labour is quickly losing its export potential even in the traditional markets in the Middle East. In a word, the government and the private sector together should leave no stone unturned to open up and cultivate yet newer avenues of export in the economy. These steps are necessary to further widen the export base in order to avoid the risk of putting all the export eggs of the country in one basket.
President of the International Chamber of Commerce, Bangladesh (ICC-B) Mahbubur Rahman, too, spoke in a similar vein at a seminar and urged all quarters to concentrate on widening the narrow export base to live through the tough competition ahead.
The concept of export-driven economy is a product of industrial revolution. The path of the economy had underwent a sea change in the Western world after the economies in Europe began to produce through their factories more goods than they could consume. Gradually they went through the transition from the traditional self-sufficient agriculture-based natural economies to export-driven ones on the look out for markets abroad. Small wonder the history of colonial and post-colonial era has been one of grabbing new markets even in cases through using physical force.
In the process, the idea of self-sufficient economy has become an anachronism. No economy, even the most developed ones can now claim to be self-sufficient.
Unfortunately, Bangladesh is a late comer to join the march of transition from its natural, agriculture-based economy to an industrial one. So, it would be a tall order to expect that Bangladesh will turn into an export-driven economy overnight. Such expectation is flawed, because the industrial base of the country is still in a primitive stage. So, at the moment, the prospect that Bangladesh would create a huge foreign exchange reserve through exporting industrial goods in the overseas market is a ridiculous proposition. The prospect of becoming a net raw material exporting country is also slim. After feeding its huge population, the country produces few agriculture-based items to export in large quantities abroad. The story is more or less the same so far as mineral resources are concerned.
Against this backdrop, there is no shortcut way for Bangladesh to broaden its export base within a short time. Garment and such other products can only be a stopgap measure to keep the forex reserve at a comfortable level. If truth be told, the amount of foreign exchange reserve that we call comfortable is nothing to be complacent about. The size of the economy that we are dealing with at the moment cannot be representative of a country with a population size of more than 140 million. In fact, Bangladesh will have to live on an economic tightrope until it can turn itself into fully industrialised economy. It is the job of the policymakers, the entrepreneurs and other stakeholders to set a time frame and chart out the particular development path that Bangladesh should choose to develop it into an industrial economy within that time line.