Weakening Taka to reduce investment flow
Sunday, 8 January 2012
Waxing value of US dollar against taka is forcing entrepreneurs to import less capital machineries and raw materials but the pressure on the central bank's foreign exchange reserve has mounted as fuel oil import is costing more, reports bdnews24.com.
Economists say the devaluation of taka against dollar will not only lead inflation to rise but also trigger less investment in industries, making it difficult to achieve the projected economic growth of seven percent in the current fiscal year.
"The continuous rise in value of dollar against taka is one of the major problems in our economy now. Dollar's value is rising everyday now. The rise is not only pushing inflation to rise further but also impacting investment negatively," Bangladesh Institute of Development Studies (BIDS) researcher Zaid Bakht told bdnews24.com.
"Entrepreneurs cut import of necessary capital machineries and raw materials for the rising value of dollar against taka. It will cause fall in industrial production and growth, impacting investment as well as the entire economy," he argued.
"As a result', he said, "The seven percent GDP growth rate set in budget might not be achieved."
Asked why the pressure on Bangladesh Bank's foreign exchange reserve is increasing despite fall in import of machineries, foods and industrial raw materials, the BIDS researcher said, "The import cost of fuel oil rose abnormally. So the pressure on foreign exchange reserve is not decreasing."
According to the central bank, the rate of opening Letters of Credit (LCs) to import fuel oil increased by 117 percent in July-November. The rate had decreased 12 percent in the same period last year.
The total import cost increased by 23.15 percent in July-November while export earnings rose by 17.33 percent and flow of remittance 7.56 percent.
According to latest data given by the Bangladesh Bank, the rate of opening LCs to import machineries necessary to set up industries decreased by 38 percent in the first five months (July-November) of the current fiscal year.
The rate of opening such LCs increased by 105 percent in the same period last financial year while the rate increased by 40.2 percent in the entire fiscal year.
Import of industrial raw materials rose by 65 percent from July-November last year but decreased by eight percent in the same period this year.
In 2010-11 fiscal year, import of industrial raw materials increased by 47 percent.
Meanwhile, value of taka plummeted over 15 percent in the past one year, the highest fall in Bangladesh's history.
A dollar had been sold at Tk 83.50 on Tuesday.
According to Bangladesh Bank website, it was Tk 82 on Monday.
Foreign bank HSBC sold at Tk 83 and bought at Tk 82.
In private Uttara Bank, dollar was bought for Tk 81.45 and sold for Tk 82.40.
This time in January last year, a dollar had been sold at Tk 70-70.25.
The devaluation of taka was usually made through government announcement once. Now, the depreciation takes place silently.
"The dollar price is growing at an alarming rate. In the recent times it even grew a taka a day," said economist Mirza Azizul Islam, former economic adviser to caretaker government.
"The government was forced to raise the fuel prices for this dollar hike. It admitted that in the last circular. Whatever it earned from the first two fuel price hikes, it lost all when taka was depreciated," he added.
"Now the concern is where the value of dollar stops to rise.
"As our economy is based on import, the rise in value of dollar against taka strikes down our entire economy," Azizul said.
Asked how value of taka against dollar can be increased, he suggested increasing flow of remittance along with foreign aid.
"The foreign aid stuck in the pipeline will have to be cleared quickly. The foreign exchange reserve will boost then and value of dollar will decrease, too," he said.
The central bank's foreign exchange reserve amounted to $9.64 billion. The reserve had been over $11 billion just two months ago.
Top business association FBCCI has also expressed concern over the depreciation. FBCCI president Abul Kalam Azad raised the issue in the presence of the prime minister during the opening of the International Trade Fair on Sunday.
Economists say the devaluation of taka against dollar will not only lead inflation to rise but also trigger less investment in industries, making it difficult to achieve the projected economic growth of seven percent in the current fiscal year.
"The continuous rise in value of dollar against taka is one of the major problems in our economy now. Dollar's value is rising everyday now. The rise is not only pushing inflation to rise further but also impacting investment negatively," Bangladesh Institute of Development Studies (BIDS) researcher Zaid Bakht told bdnews24.com.
"Entrepreneurs cut import of necessary capital machineries and raw materials for the rising value of dollar against taka. It will cause fall in industrial production and growth, impacting investment as well as the entire economy," he argued.
"As a result', he said, "The seven percent GDP growth rate set in budget might not be achieved."
Asked why the pressure on Bangladesh Bank's foreign exchange reserve is increasing despite fall in import of machineries, foods and industrial raw materials, the BIDS researcher said, "The import cost of fuel oil rose abnormally. So the pressure on foreign exchange reserve is not decreasing."
According to the central bank, the rate of opening Letters of Credit (LCs) to import fuel oil increased by 117 percent in July-November. The rate had decreased 12 percent in the same period last year.
The total import cost increased by 23.15 percent in July-November while export earnings rose by 17.33 percent and flow of remittance 7.56 percent.
According to latest data given by the Bangladesh Bank, the rate of opening LCs to import machineries necessary to set up industries decreased by 38 percent in the first five months (July-November) of the current fiscal year.
The rate of opening such LCs increased by 105 percent in the same period last financial year while the rate increased by 40.2 percent in the entire fiscal year.
Import of industrial raw materials rose by 65 percent from July-November last year but decreased by eight percent in the same period this year.
In 2010-11 fiscal year, import of industrial raw materials increased by 47 percent.
Meanwhile, value of taka plummeted over 15 percent in the past one year, the highest fall in Bangladesh's history.
A dollar had been sold at Tk 83.50 on Tuesday.
According to Bangladesh Bank website, it was Tk 82 on Monday.
Foreign bank HSBC sold at Tk 83 and bought at Tk 82.
In private Uttara Bank, dollar was bought for Tk 81.45 and sold for Tk 82.40.
This time in January last year, a dollar had been sold at Tk 70-70.25.
The devaluation of taka was usually made through government announcement once. Now, the depreciation takes place silently.
"The dollar price is growing at an alarming rate. In the recent times it even grew a taka a day," said economist Mirza Azizul Islam, former economic adviser to caretaker government.
"The government was forced to raise the fuel prices for this dollar hike. It admitted that in the last circular. Whatever it earned from the first two fuel price hikes, it lost all when taka was depreciated," he added.
"Now the concern is where the value of dollar stops to rise.
"As our economy is based on import, the rise in value of dollar against taka strikes down our entire economy," Azizul said.
Asked how value of taka against dollar can be increased, he suggested increasing flow of remittance along with foreign aid.
"The foreign aid stuck in the pipeline will have to be cleared quickly. The foreign exchange reserve will boost then and value of dollar will decrease, too," he said.
The central bank's foreign exchange reserve amounted to $9.64 billion. The reserve had been over $11 billion just two months ago.
Top business association FBCCI has also expressed concern over the depreciation. FBCCI president Abul Kalam Azad raised the issue in the presence of the prime minister during the opening of the International Trade Fair on Sunday.