IMF team assessing BD economic situation

FE Report International Monetary Fund (IMF) has stared assessing the country's overall economic situation by showing eagerness to know about the possible impact of a sharp depreciation of Indian Rupee against the US dollar on bilateral trade between Bangladesh and India. The observation was made at an introductory meeting between a visiting IMF team, led by Rodrigo Cubero, Deputy Divisional Chief in the Asia and Pacific Department and senior officials of the Bangladesh Bank (BB) Sunday with the central bank Chief Economist Hassan Zaman in the chair. The team will stay in Bangladesh until October 7 for reviewing extended credit facility (ECF) and Article IV mission, officials said. "The Indian Rupee (INR) depreciation issue may be discussed further with the IMF team during its visit," a BB official said without elaborating. The INR has depreciated by more than 23 per cent since May 2013 and sank to a record low of 68.8 against the greenback in late August. Being the closest neighbouring country with deep-rooted socio-economic ties with India, it is unlikely that Bangladesh will remain insulated from the consequences of a depreciating Indian currency, a Standard Chartered Bank (SCB) study on impact of depreciating Indian Rupee on Bangladesh said. "In fact, there is growing apprehension that a weak INR will have some important spill-over effects on the economy of Bangladesh," the United Kingdom-based global bank said in its study, released recently. On the import side, our largest components are cotton, cotton yarn and fabrics which are the raw materials for our export-oriented textile and ready-made garment (RMG) sectors, according to the study. In the fiscal 2011-12, Bangladesh imported $1.44 billion cotton from India, of its total consumption of $4.62 billion. Though India is not the biggest player of international cotton markets, Bangladesh sourced 31 per cent of its total cotton intake from India due to lower freight cost and shorter lead time on account of India's geographical proximity. "The depreciating rupee would encourage more cotton imports from India and thus create a positive impact for the textile and RMG sectors reducing its raw materials' cost. But the scenario could be counterbalanced on the ground that increased export competitiveness of the Indian textile industry due to currency depreciation can fuel its internal cotton consumption and can leave limited cotton exports," it noted. In that case, import volumes from India will drop even though the rupee would be in a position to encourage imports and will result in serious raw material constraints, the study added. The SCB said Bangladesh's exports to India may suffer due to the rupee's depreciation against the Bangladesh Taka (BDT). Raw jute and finished jute products are the major export items to India and in FY 2012, 20 per cent of the country's total jute and jute goods exports were channelled to India. The country's jute industry already took a hit as the export of jute shrank due to the ailing economic situation and political unrest in Egypt, Turkey and Iran - the major markets for Bangladeshi jute goods, the study said, adding that steep depreciation of the rupee is certainly a double blow to the sector. During the meeting with the BB's high-ups, a number of issues including the existing monetary policy, balance of payments (BoP), exchange rate, reserve money position, foreign exchange reserve, inflationary pressure on the economy came up for discussion. The visiting team is scheduled to meeting with different senior government officials including Fazle Kabir, Finance Secretary, M Aslam Alam, Secretary, Banking and Financial Institution Division, M Ghulam Hossain, Chairman of the National Board of Revenue (NBR), Abul Kalam Azad, Secretary of the Economic Relations Division and SK Sur Chowdhury, Deputy Governor of the BB during their visit.