Should we be happy with forex reserve?
The growing foreign exchange reserve with Bangladesh Bank though strength for us but actually it is not a matter of happiness. There is uncertainty of dropping foreign direct investments that in first quarter in the current calendar year it fell over 13 per cent to US$800 million than corresponding period of the last year.
Why the reserve is growing? Firstly import is falling down due to prolonged pandemic as demand for both raw materials and capital machinery is not rising and even the demand was decreasing during countrywide lockdown. Though it is easing back to normalcy, the economy speed before spread of coronavirus is yet to return to its full momemtum. On the other hand export increased for the last few months as there are huge pending shipments which have started now resulting in an increase of earnings.
If we analyse both import and export it will give an idea of trade balance and increase of reserve with the Bangladesh Bank.
But once export drops after the current shipments and fresh orders decrease there will be a slow growth of export and on the other hand, if domestic economy takes to full momentum and private sector investments grow there will be a pressure in imports again that there will be more expenditure of foreign exchange than earnings and the aftermath is reserve will deplete fast.
Secondly in last few months remittance inflow is increasing as the existing expatriates are repatriating their money in a fear that they will lose jobs or will be less paid in the coming days due to affected economy in the Middle Eastern countries. By this time a large numbers of expatriates have backed to the country and as per different sources it is learnt that many are in queue to back to the country.
We cannot be happy with the sharp rise of remittance inflows in recent months as there is a gloomy picture behind it.
In further explanation it could be said that there is apprehension of downtrend in the coming months as the workers are losing jobs, while those who are in jobs are not able to perform duties due to lockdown as well as slowdown in economic activities.
The present growth in remittance inflow would not sustain unless the economies in the hosting countries recover soon with the control of the pandemic.If such happens there will be rapid slowdown in earning remittance which will ultimately affect the central bank reserve.
The Asian Development Bank (ADB) in a report estimated that Bangladesh remittance inflow will fall by 27.8 per cent in 2020 as job losses mounted and employers' trimmed payrolls.
According to the Bangladesh Bank data, the country received $2.60 billion in remittance from expatriates in July, up by 62.74 per cent compared to $1.59 billion in the same period last year.
In June this year, Bangladesh received $1.83 billion in remittance. Meanwhile, in the 2019-20 fiscal year remittance inflow hit a new record of $18.20 billion, up by 10.87per cent compared to FY2018-19.
However, returning in mass number of the expatriates, the inbound remittance may drop significantly fearing impact on existing rising central reserve for foreign currencies.
Thirdly, due to pandemic the country has received different loans and grants from different multinational financial institutions which have contributed to increase in reserves.
However such loans, donations or aids are not continuous reasons for an economy and it may not come in the coming days as a result in central reserve more money may not be further added.
The reserve will deplete fast when import will increase, people will remit money for their children's education in abroad and opening of going outside the country for treatment, tourism and many other purposes.
So it is inevitable the growing reserve will deplete fast in the scenario of low new injection caused by dropping export, remittance, falling loans, grants and at slow FDI. In the mean time at easing of the domestic economy there will import pressure and outflow of remittance in different purposes.
In this backdrop the it is an urgent need to look into few matters in particular measures should be taken to make exports more competitive, arrange works for the expatriates who come back, seek new manpower market for skilled workers, discourage unneccesary imports and promote people for local tourism and develop health infrastructure that people may prefer Bangladesh for better treatments.
The writer is managing
director of the Bridge
Chemie Private Limited