Import slowdown to affect economic growth: ADB country head
Slowdown in imports and the current dollar liquidity crisis will affect private sector investment down the line, which will contribute to slow growth of the Bangladesh economy, said Edimon Ginting, country director, Bangladesh of the Asian Development Bank (ADB).
He made the remark when presenting his assessment titled "Bangladesh Macroeconomic outlook in the evolving global phenomenon" at Sunday's monthly luncheon at the American Chamber of Commerce in Bangladesh (AmCham).
He said the Bangladesh economy was facing headwinds and tailwinds. Explaining that the tailwind was a remnant of the pandemic, he said the headwind was coming from swelling commodity prices following the Russia-Ukraine crisis, which had slowed global economic growth.
He added that Bangladesh would also face a slowdown with the global economic downturn.
Ginting addressed the domestic factors, including the dollar crisis and high default loans, which will contribute to the economic slowdown.
"Private sector is the second biggest engine of the economy. It is also affected by the dollar liquidity and slowdown in LC [letter of credit] which will affect investment down the line. That will contribute to slower growth of the economy," he said.
Consumption is the biggest engine of economic growth. Still, it too was affected by the high inflation, he said, adding the remittance, which supported the consumption growth, was sliding while showing resilience.
However, Bangladesh is lucky because it is heading towards becoming a middle-income country, so there is social growth.
Data from the Bangladesh Bank shows LC opening declined by 22% in July-December of the current fiscal year compared to the same period last year.
Import restrictions imposed by the central bank to save reserves caused a drastic fall in LC opening. Moreover, banks are reluctant to open LCs amid the dollar crisis.
Businesses could not keep producing at the same rate due to a shortage of raw materials.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, at The Business Standard talk on Saturday, said monthly imports went up to $9.8 billion after the pandemic due to pent-up demand, which put pressure on current account balance, creating a dollar shortage.
The Bangladesh Bank put restrictions on imports to reduce dollar spending, but questions remain whether the step could curb imports at a time when the whole economy was growing.
He said that many customers have been unable to open their LCs and importers are desperate to get foreign currency regardless of the price.
Edimon Ginting, at the AmCham event, said it was a difficult time because of enormous turbulence.
The external policy is working as the exchange rate was moving in a direction that reduced the gap between formal and informal rates.
The closing gap between the rates will help improve dollar liquidity.
"We watched the reserve very closely. It is now above $34 billion, which is now a safe range, and the government is proactive in having support from the IMF.
"I will not call the IMF loan a bailout; rather I see it as a preemptive measure as big turbulence is coming and the government is preparing itself to have more dollar liquidity."
However, he suggested the government look into the policy of the banking sector, including the lending rate cap.
He said the role of the financial sector would be significant in the current context.
He emphasised comprehensive and holistic reforms in the banking sector, including a resolution mechanism for non-performing loans and more robust policies strengthening governance and regulatory oversight of banks and other financial institutions.
He said foreign direct investment is 1% of GDP, which is underperforming because innovation and competitiveness need to be included among domestic investors.
Ginting said export growth is still at the expected level, but Bangladesh should look beyond the garment sector.
Syed Ershad Ahmed, president of AmCham, said, "Bangladesh, being a country with unique features, attracted global attention with an impressive annual GDP growth rate, despite all these unforeseen challenges in the pre-Covid era. We often see our country's name in competitive global rankings with other developed countries. There are so many extraordinary stories of macroeconomic success that made Bangladesh rise from the crowd of crawling neighbouring nations even from South Asia."
Syed Mohammad Kamal, vice president AmCham, and Scott Brandon, political and economic counsellor of the US Embassy Dhaka, also spoke at the event.