Syed Fattahul Alim |
April 22, 2022 10:14:53 p.m.
With low-income people backed against the wall as the cost of living rises irrationally, the government has reportedly decided to control the import of luxury items. Although it does not have a direct impact on the lives of ordinary people in terms of their struggle to make ends meet, this decision could, to some extent, help to curb the erosion of the value of taka. against the US dollar.
Imports of many unnecessary items, including luxury ones, have meanwhile increased the demand for hard-earned foreign exchange, of which a strong reserve is essential to help keep the Taka stable. And a stronger Taka is a blessing for ordinary people. Indeed, this can contain the upward trend in the prices of essential products induced by imports.
However, the import of raw materials and capital goods for industry cannot be limited any longer, if only to keep the pace of economic growth intact. But it is a particular and very critical transition phase that the economy and society are going through. Thus, sometimes, it is necessary to control the expansion of the economy, in order to respond to other equally important social issues. For example, the currently popular one-way economic development model based on higher GDP growth, while very eye-catching, is not socially balanced.
Admittedly, it creates wealth in society, but this wealth remains concentrated in a few hands, direct beneficiaries of the growth model. But in an underdeveloped society like Bangladesh with a huge population to support, the majority cannot benefit from this wealth created at their expense. Moreover, capital flight from these companies is a common syndrome. As a result, the economy fails to retain all the foreign exchange it earns through remittances and exports to the home country. But these precious foreign currencies are vital to continue to import essential products, including food grains, to ensure food security for the masses in critical times like today.
Even so, the few high-income earners driving strong GDP growth are importing barely necessary consumer goods, including expensive gas-guzzling cars, building materials including ceramics and toiletries. And, of course, they often have to travel abroad for both business and pleasure. All these activities need a lot of foreign currency. So what can a government do in times like these? Keep the bouncing horse of GDP growth at a gallop or curb it for a time for the greater good of society? The example of neighboring Sri Lanka is fresh before us.
Apart from all the other crises of an economic nature that the country is currently going through, that of currency depletion is one of them. To turn the wheel of the economy, what it first needs is energy, such as fuel oil, which the country does not produce. So they have to import it using its reserve dollars. Now that the country lacks this resource in sufficient quantity, it will be difficult to deal with the issue of importing from abroad. But as the country also learns to deal with an acute food crisis, this is obviously a double whammy for the nation. In addition, this country has many megaprojects, many of which have turned out to be solutions in search of problems, while others are not yet completed. This is a difficult situation to avoid which the country’s leaders, for reasons they know best, could not foresee.
However, it is not possible to draw a direct analogy between the situation in Sri Lanka and the case of Bangladesh. Because, there is a world of difference between the two economies in many respects. Even so, this does not mean that there is nothing to learn from the Sri Lankan experience and take precautionary measures to guard against possible setbacks in the future. In fact, in this deeply interconnected and interdependent world, no economic activity can take place in isolation anywhere. Foreign currency, in the modern world, is a kind of glue that keeps economies tied together.
So any shortage of this universal vehicle of exchange, foreign currency or US dollars to be more precise, has the potential to send an economy into a tailspin. This is all the more true for weaker economies, as their own currencies are not internationally recognized as an acceptable transaction instrument. This is a modern reality to which most small economies are forced. Hence this concern to maintain our currency reserve at a safe level.
Although our exports are at a comfortably positive level and inward remittances, while not doing as well in recent months as they have in the past, there are no signs of a excessive worry. But the import trend, the volume of which is increasing by leaps and bounds, must be stopped. This is to maintain the country’s balance of payments situation at a safe level. The measures that the government has taken to increase the L/C (letter of credit) margin for importers and the decision to restrict the import of luxury items in the upcoming budget should hopefully bear fruit.
But what is more important is to take urgent steps to increase foreign exchange earnings by diversifying exports and sending skilled people abroad as expatriate workers who can earn more foreign exchange than unskilled workers currently employed abroad.