The government now looks to create a circular economy by developing backward and forward linkages with incentives and policy support as well as encouraging domestic and foreign investments in deemed exports – all for reaching a target of $80 billion in export earnings by FY24, which was 57% higher than the current fiscal year's expected amount.
The Cabinet Committee on Economic Affairs in a meeting gave its seal of approval to the draft of "Export Policy 2021-2024" on Wednesday, setting the new target, which will come into effect after approval from the Cabinet Division.
Bangladesh will have to boost exports by 76% in FY22, FY23 and FY24, to achieve the target.
The 2018-21 export policy had targeted a $60 billion in exports but fell short of it by 25% owing to the pandemic onslaughts. In FY21, Bangladesh exported products and services to the tune of $45.39 billion.
Economists and businesses say the new export target is attainable. But to go the extra mile, the country needs to boarden its export basket through product diversification, lower interest rates on working capital loans, and create skilled manpower, they add.
Besides, they have emphasised increasing Chattogram port's handling capacity and increasing container train services on the Dhaka-Chattogram route.
The government should also take measures to control inflation through fiscal and monetary support, they point out.
They say Bangladesh's per capita income will rise to $3,000 in 2024, so will domestic consumption. By that time, the government has set a goal of double-digit GDP growth.
Mentioning that the new export target set by the government is ambitious but achievable, Ahsan H Mansur, executive director at the Policy Research Institute, has laid importance to cashing in on the existing duty-free facilities before it graduates to a developing nation.
"We will also get duty-free facilities as an LDC country even in 2024. Capitalising on it, we can increase our export earnings significantly. But, by maintaining the current exchange, it will be a difficult job because the currencies of the competitor countries have been devalued," he noted.
Ahsan H Mansur said since Bangladesh's export sector is dependent on imports of raw materials, import costs will reach about $100 billion in order to earn $80 billion in export earnings.
So, the goal of building backward and forward linkages to keep in check import expenditure needs to be taken seriously, he also said, adding that the country also have to focus on exports of high-value garments, he added.
Anwar-Ul-Alam Chowdhury Parvez, former president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard that Bangladesh's competitor Vietnam has devalued its currency against dollar, while China has also gone for depreciation. But Bangladesh's currency rate is not being devalued as it is dependent on imports.
Despite high growth in exports, exporters cannot make profits because of non-depreciation of taka, he noted.
So, he suggested depreciating local currency to at least Tk90 per dollar even if import costs go up.
Parvez, also president of Bangladesh Chamber of Industries, sought more time to repay various loans, including stimulus ones, with the number of work orders decreasing and payments from buyers getting deferred because of Omicron effects.
Stating that attaining the $80 billion export target is possible, he said, "We need to focus on light engineering for that because the number of educated workers will increase in the future labour market. Then, readymade garments, which do not require much value addition, will not be able to attract them."
There are opportunities for additional value addition and job creation in the light engineering sector, he noted.
Emphasising further reduction of interest rates on working capital loans of export-oriented industries, he said the lending rate cap has been fixed at 9%, but it is still not competitive as compared with the competitors countries.
"We will do whatever it takes to achieve the $80 billion export target," said Finance Minister AHM Mustafa Kamal in the virtual meeting of the Cabinet Committee on Economic Affairs.
At present, the greenback is being traded at Tk90 in the kerb market, while the interbank exchange rate has increased to Tk86 per dollar.
Asked whether the government has a plan to raise the dollar rate to Tk90, the finance minister said there is a difference between the interbank exchange rate and the kerb market rate.
"Our inflation is high mainly because of high prices of imported raw materials and finished goods," he said.
"Imports are on the rise owing to increased exports in the aftermath of Covid-19. We have to finance imports due to the trade deficit. So, the dollar rate fluctuates in the market, but it will not go up and down much. The rate we have now is unlikely to increase much," Mustafa Kamal said.
Dr Salehuddin Ahmed, former governor of Bangladesh Bank, told TBS, "We cannot say that the value of taka against the dollar is at a reasonable level."
In the case of exports, the exchange rate should be determined in line with the currencies of competitors and neighbouring countries. Otherwise, Bangladeshi exporters will lose competitiveness. Sri Lanka and Pakistan have recently devalued their currencies, he noted.
In Bangladesh, the difference between the interbank exchange rate and the open market rate is about Tk5, which is very high. The Bangladesh Bank is now trying to minimise this difference by selling dollars.
"But before devaluing taka, we have to analyse its impacts on the economy," Salehuddin added.
Professor Dr Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, said the annual growth has to be 20% for attaining the $80 billion export target within 2024.
"The mission is already quite formidable. Exchange rate, pricier commodities and new Covid variant will make it more challenging," he noted.
He said a major portion of the country's export basket depends on imported raw materials and intermediate goods. "Raising export earnings after buying those at spiked rates from foreign markets will not yield much. Rather, we need more value addition to ensure the benefits of export earnings," he said.
He advocated depreciating taka slightly against the US dollar.
Strategies to meet the high export target
The proposed export policy advocates for providing similar benefits, which the apparel sector is enjoying, to non-RMG export sectors, such as food processing, leather and leather goods, light engineering, pharmaceuticals, agricultural Products, jute products, halal products and others.
Manmade fibres, halal products, halal fashion, recycled products, freelancing, software and IT-enabled services sectors have been added to the list of priorities in achieving the target of export earnings.
The policy suggested offering all kinds of support to exporters in manufacturing green and organic products.
The government will set up an international standard testing certification and accreditation system to ensure that investments in these sectors are tax-exempt for a fixed period, to provide them with soft loan facilities and to ensure product quality.
Demand for manmade fibre-based products has grown significantly, but Bangladesh does not produce such fibre. A special economic zone will be set up to increase domestic and foreign investments. VAT on man-made fibres will be fixed at the same rate as cotton yarns, according to the policy .
The commerce will formulate a minimum standardised unified code of compliance for all export-oriented readymade garment factories in the country in keeping with the needs of different countries and buyers.
The government will assist in research and development to enhance product standards and maintain a future competitive edge as per tastes and needs, and design and fashion trends of continental buyers.
The government will build a business-friendly banking system, reduce interest rates on loans further for the export sector and facilitate access to credit, and encourage factoring services in financing export trade.
The export policy has also committed to do necessary reforms to facilitate doing business.
However, there is no indication in the proposed export policy of raising the interbank exchange rate by devaluing the local currency, considering currency values of competitor countries, such as China, Vietnam, India and Pakistan.
The policy has suggested providing low-interest collateral free loans to women entrepreneurs.
The size of the Technology Development Fund/Upgradation Fund for the export sector will be further increased. And, the NBR will take necessary steps to provide bonded warehouse facilities for all export-oriented industries. The government will adopt a 3R strategy – reduce, reuse and recycle – to build a circular economy.
To boost exports of the pharmaceutical industry, there is a plan to establish another Active Pharmaceutical Ingredients (API) Industrial Park in Chattogram to attract foreign investments.
In addition, the government will enter into mutual recognition agreements with the relevant quality regulatory authorities of potential markets to increase drug exports.
The proposed policy also recommended a long-term tax break alongside reducing tariffs on raw material imports for the light engineering sector. Besides, a quality packaging system will be ensured to increase exports of agricultural products.
Besides, the government will provide special facilities for extraction, processing and export of marine resources.
Exports through e-commerce will be identified as direct exports by ensuring policy support. E-commerce and freelancing will get an efficient banking system to bring home export earnings directly through banking channels.
Under the existing export policy, subject to approval from the Bangladesh Bank, the 100% export-oriented garment factories could export samples of readymade garments amounting up to $20,000 per year, which has now been increased to $30,000 under the new policy.