Erosion in external value of taka

The depreciation of the country's currency, Taka, is taking place at a pace faster than many had anticipated. It has lost its value against the US dollar by nearly 12 per cent -- 4.4 per cent in past one month -- during the current calendar year and the average of buying-selling rates of a unit of the greenback for the individual clients of banks last Sunday stood at Tk 80. In the informal market, the taka-dollar exchange rates have even soared to Tk 84. It is the principle of demand and supply that is at work for the erosion in the external value of Bangladesh Taka (BDT). For the past few months, the supply of dollar as against demand for it has been very tight because of much less than expected inflow of foreign currency. However, this phenomenon is not unique to Bangladesh alone. Despite having a stronger economy and a relatively more comfortable cushion of foreign exchange, India has witnessed its own currency -- Rupee -- coming under heavy pressure. Its currency has declined by more than 6.0 per cent in the past month alone, the sharpest one since the Asian financial crisis in 1997. It has been driven down, according to the reports, by slowing domestic demand and concerns over the crisis in the eurozone. Beside the common international factors now bedevilling the global economy, a host of disconcerting developments on the domestic front of the Bangladesh economy -- lower-than-usual growth rate of remittance and declining rate of growth of export earnings, very low level disbursement of external aid from the pipeline, inadequate inflow of foreign direct investment, delays in repatriation of full export proceeds, higher import of fuel oils to feed the rental power plants -- have created a pressures on its foreign exchange (forex) reserve and, thus, the balance of payments (BoP) situation. Even some months back the Bangladesh Bank used to intervene in the forex market and made available substantial amount of greenback as an exchange-rate stabilising measure. But now the central bank with its forex reserve remaining under pressure is not in a mood of intervening. Rather, it is now more concerned about meeting the country's regular international debt-servicing and import payments -- particularly for settlement of outstanding letters of credits (LCs) by some state-controlled commercial banks on account of oil import -- obligations in the short term. An inadequate inflow of foreign aid during the first half of the current fiscal (2011-12), has particularly been a major destabilising factor as far as forex reserve and BoP situation are concerned. The net foreign aid inflow, according to a FE report published last Monday, during the first four months of the current fiscal was only US$9.0 million. Unless and until the donors, particularly the multilateral ones, make available their committed aid fund that is in the pipeline and the IMF finally agrees to offer $1.0 billion as extended credit facility (ECF) soon, the situation might become pretty difficult for the government in the coming months. Furthermore, what is more worrying is the impact of the substantial erosion in the external value of BDT. The exporters might be accruing some benefits from the currency depreciation, but consumers in general stand to suffer further as all imports, including a large number of essential consumer goods, would become costlier. The poor consumers are already hit hard by the price situation which has got yet another mauling by the latest hike in fuel oil prices. Meanwhile, the depreciation of Taka will also lead to inflated cost of capital machinery, impacting adversely new investment activities in the economy. Under the prevailing circumstances, the government should do its best to help stabilise the exchange rate, even under the prevailing uncertainties about the global financial conditions under the impact of the eurozone crisis. And to make that happen, its priority job should be to improve the availability of foreign exchange, preferably by bargaining for higher amount of aid disbursement from the existing pipeline.