Deregulated imports boosting economy, pressuring reserves

Bangladesh sees a significant rise in import orders, with a leap in September, in what is seen as an early indication of the country's economic rebound after months of recession.

However, officials and money-market experts sound alert as the deregulated export resurgence has a domino effect on the country's repleting foreign-exchange reserves, especially as export receipt--one of the two pivots to forex stock--shows signs of some contraction of late.

The increase in the number of LCs (letter of credits) being opened indicates that the pressure on the foreign-exchange reserves will be rising in the months ahead if the current momentum in the forex usage continues, they say.

According to the statistics available with the Bangladesh Bank (BB), the opening of fresh LCs, generally known as import orders, increased by over 13 per cent to US$6.22 billion in September from the August count of $5.38 billion.

The value of import orders was $6.03 billion in July and $4.14 billion in June of this year, the central bank data showed.

Seeking anonymity, a BB official has said the inflow of foreign currencies continues rising in recent months because of significant growth in both remittance and export earnings. This upturn bolsters the country's foreign-exchange reserves.

Because of the steady rise in forex reserves, the central banker says, the banking regulator keeps allowing the commercial banks to open LCs for the import of all goods on demand. "It clearly indicates that the economic activities rebound slowly."

The BB official notes that the inflow of foreign currencies through remittance and export is not increasing apace with the import growth in recent days. He sees the mismatch as a matter of concern.

He reckons that the country had got monthly benefits of around $1.0-billion surplus in favour of forex inflows after deducting the monthly overseas liabilities in the form of imports. But the margin of surplus narrowed below $100 million in September.

"If the trend continuous in coming days, it will put the country's forex reserves under pressure," the central banker alerts.

In September, the receipts of foreign currencies were equivalent to $6.31 billion on account of exports worth $3.63 billion and remittance earnings of $2.69 billion, against imports costing $6.22 billion.

Explaining the apparent economic paradox, Dr M Masrur Reaz, Chairman of Policy Exchange Bangladesh, says the central bank, as part of its economic rebounding move, allowed all kinds of imports for the last several months after lifting the import compression by riding a record inflow of forex.

As a matter of fact, he notes, the economic activities have slowly been rebounding. To make it sustainable, the country needs to continue the relaxation in imports in the coming days, too.

"But the worry part is the falling trend in exports. We need to analyse factors seriously why the earnings from exports took a dip in the last two months and act accordingly," the international trade expert told The Financial Express.

In fact, the country requires a close watch to ensure that the import growth is well manageable with the growth in remittance and export, according to the economist.

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