From a solid and stable stand, Bangladesh's macroeconomic situation has entered an uncomfortable territory with inflation creeping, foreign reserves depleting fast and balance of payment under stress from widening trade deficit. Remittance is falling and taka is losing value to US dollar. High prices of fuel oils and gas have led to electricity generation cut, prompting planned outages across the country. Some fertiliser factories have been shut down for want of gas. Exports posted record growth, but recession fears in Europe and US cloud the future. Good news is global wheat price has declined. Agriculture Minister Abdur Razzaque has said the government will import fertilisers at any cost.
As the global crisis may drag on for months or years, we approached analysts to know what needs to be done now to prevent further shocks, overcome the energy shortages and keep agriculture unharmed.
Austerity can hurt more than help unless carefully considered
Dr Zahid Hussain
The country's economic trajectory in the future will depend on the nature of the world economy. Fortunately, in the last few days some glimmer of hope can be seen in the global economy, especially in terms of food prices.
Global fuel oil and fertiliser prices have eased slightly due to the recent agreement related to trade between Russia and Ukraine amid their war. Since the supply of wheat has already started in large quantities from these two countries, the price of the product has also started to decrease.
While it is true that the trade war between Russia and Ukraine has paused, the military war is not nearing an end. As a result, the European Union countries, which are already in crisis, may not be able to avoid recession.
A crisis in major markets could reduce demand for our export products if the domestic demand falls there. As a result, the price of export-oriented garments may also decrease. This will have a major negative impact on export earnings, which will create pressure on foreign currency reserves and in turn prolong the stress on the exchange rate.
Several initiatives have already been taken by the government to deal with such a crisis. There is, however, scope for serious discussion about which of these initiatives will work and which will bring opposite results.
The government's recent austerity measures have been largely aimed at tackling the dollar crisis and controlling inflation. Our imports of food, other commodities, capital equipment and industrial inputs depend on the supply of dollars.
The measures to discourage the import of various types of luxury goods, including flowers and fruits, deserve praise. Apart from this, curtailing government employees' foreign visits and limiting the expenditure on different projects will save some foreign currency. These initiatives will have no additional impact.
But it must also be remembered that the production of many of our products is dependent on imports. Just as we need gas and electricity to maintain our industrial production, various materials also need to be imported.
Failure to import fertilisers, pesticides and seeds on time will disrupt our agricultural production. As a result, food security may also be at risk.
We can already see a food crisis in Africa. If the production of food is disrupted, such a crisis can also happen in our country.
In this situation, the supply of electricity and oil should be secured to ensure irrigation for agriculture. The lack of rain in different areas of the country has meant that Aman cultivation has started through irrigation. As there is load shedding, diesel is being used for irrigation.
Again, due to load shedding generators are being run using oil in homes and offices. And the subsequent increase in the use of captive generators in industrial plants has meant that the demand for gas is also rising.
Although load shedding is done to save oil and gas, it may end up increasing fuel consumption instead of reducing it. We are not sure whether such a step was carefully considered before being taken.
Furthermore, load shedding has also meant that the production in the industrial sector is less, which will decrease export earnings. If production is less than domestic demand, prices will increase. The loss due to load shedding can be greater than the value of fuel saved.
Incidentally, it may be mentioned that in order to save $400 million in Sri Lanka, the import of fertilisers was reduced. However, the cost of reduced food production due to unmet demand for fertilisers was $450 million. In this situation, profit and loss should be calculated more carefully before taking any decision to deal with the crisis.
The Bangladesh Bank is also taking initiatives from the arbitrage concept in the currency exchange rate. In determining the exchange rate of the currency, the Bangladesh Bank has set a much lower rate than the market. Due to non-availability of dollars in the market at this rate, international trade is being disrupted on one hand, while on the other remittance and export earnings are not coming into the country properly.
If expatriates can get Tk7-8 higher than the rate set by the Bangladesh Bank [through informal channels], then they will not send money through formal channels. The central bank has to fix the exchange rate logically. The difference between market and central bank rate cannot be too high as then the amount of dollars they have to supply to close the gap is not available in the reserves.
As the central bank of India has that ability, they have fixed the dollar rate at Rs80. But we don't have enough dollars in reserves to spend to maintain the currency exchange rate. Prior to fixing the exchange rate to avoid major economic crises, as well as to keep the foreign exchange reserves at a comfortable level, the reality of the market should be understood.
Dr Zahid Hussain spoke to TBS Senior Staff Correspondent Jahidul Islam over the phone.
Using new power plants, boosting gas production big safeguard
Dr Mohammad Tamim
It would become difficult for Bangladesh if volatility in energy prices persists in the global market.
Taking on new projects would also be hard for the country. What needs to be done is to complete the ongoing projects at the earliest.
For the next five years, we will be alright if we can ensure proper usage of the resources and infrastructure that we have in hand.
If the coal- and nuclear-based power projects that we have at the implementation stages all come into operation and primary fuel is supplied, we should be alright in terms of power for the next three to four years.
The plans for boosting production by 600mmcf (one million cubic feet of gas) by 2025 from our existing fields, even if new exploration is not done, would be a huge safeguard for gas supply to the industry and power sectors.
But long-term planning is needed and it depends on the global situation. In between, we need to start exploration to discover new gas fields.
Besides these, if the global energy price scenario remains volatile, we would not have any alternative option but to explore our coal resources, because if we don't get the energy from abroad and if we don't have the capability to purchase fuel, then we have to supply our own fuel.
Dr Mohammad Tamim is a Professor in Petroleum and Mineral Resources Engineering Department in BUET and former advisor to a caretaker government. He spoke to TBS Staff Correspondent Eyamin Sajid over the phone.
Extreme weather may cause food shortage
Prof Md Saidur Rahman
Currently, countries like ours are witnessing extreme temperatures, which may continue to rise for another two months.
If that happens, our usual cropping pattern or crop production might be greatly hampered.
We were able to tackle the Covid-19 situation mainly because our agriculture production was good. We did not have to face any bad situations. But the way the climate is changing, there is a serious possibility that we will face crop loss.
If that happens, it will be a big shock to our economy, which will ultimately affect our food basket.
We will have to cut down on our food basket. For instance, if the rice price rises from Tk80 to Tk180, we will have to reduce our food intake.
In my opinion, the extreme weather that is being observed is undoubtedly a matter to be feared. Focusing on that, we will have to ensure that our agricultural production does not face any loss. We should make future plans for that. Issues like what kind of crops we will need to produce and how much, and will we need support for it if such deterioration occurs, need to be sorted out at the government level.
A special trait of Bangladeshis is that the politics here is dependent on food. Any scarcity of food will result in an increase in social tension.
By focusing on the ongoing climate change, we should give it as much attention as we can, and take as many measures as possible in all areas for our food production right now in a planned way.
Otherwise, we might see a serious food shortage that may give rise to political instability, which in turn might make our whole economy vulnerable.
We should start thinking about our food production, stocks, and imports from now. The government should focus on areas that will help farmers to increase their production and incentivise them.
In addition, we will have to save the flood victims of Sunamganj. The government should provide support for their losses so that they can turn their fortunes around.
Prof Md Saidur Rahman, Department of Agricultural Economics, Bangladesh Agricultural University.
Time to rethink our energy plans
Abul Kasem Khan
This is the first time the world is witnessing four crises at the same time -- oil, gas, coal and food inflation. To my knowledge, the world has never before seen such a situation. From the United States to all the European countries, developed countries, developing countries like us and even the poor countries of Africa, all are facing the crisis in one way or another.
After the Ukraine-Russia war began, LNG prices at the global market rose by up to 8-10 times in a few months. Fuel prices have also increased a lot. Prices of food grains Increased by 40-50%. On the other hand, the value of currency fell and as a result the cost of imports increased. In such a situation, there is no other alternative but to reduce imports and be economical.
I do not see any alternative to the strategy that our government has taken for the time being. However, the initiative taken by the government to reduce the consumption of energy should be temporary. Reducing electricity consumption and keeping gas supply under control may not be a long-term solution. It will gradually slow down economic activities. If the industries do not get gas and electricity supply, production will stop. Buyers will shift elsewhere if the products ordered for export cannot be produced properly. Imports and dollar income will both decrease. Any steps that disrupt production and business cannot be taken.
Apart from food inflation, the biggest crisis for us is the gas shortage. Many experts feel that we have some responsibility behind our gas crisis. We should have focused on our own natural gas exploration. It was necessary to take the initiative to explore coal, which we have and use for power generation.
After the start of the Ukraine-Russia war, all countries have become aware of the drawbacks of using gas and oil for power generation. Many countries, including America and Germany, are now considering coal-based power plants. All countries are proceeding with long term planning. We also need to plan for the long term. We need to rethink our energy plans. We need to realign.
Many experts say if we explore the gas and coal that is under our soil, we will have resources that will last 100 years. This potential should be used. The newly discovered maritime resources should be exploited. At least 80% of the fuel needs to be internally sourced and we should chart a roadmap for that goal.
Abul Kasem Khan is the director of AK Khan & Co Ltd and former president, Dhaka Chamber of Commerce & Industry