Featured 1
![](https://sgp1.digitaloceanspaces.com/cosmosgroup-dc/news/ghjPH7BVv2DmP4wkgtas7mJCfaIz2UU7HP2UWzor.jpg )
Freepik
While disbursement of the third instalment of the International Monetary Fund's $4.7 billion loan for Bangladesh in June is to be expected, counting on the $1.15 billion tranche to provide "much-needed relief to the country's dwindling foreign exchange reserves" is misguided. By now, it should be clear to policymakers that the issue centring our reserves, which have fallen effectively below three months' import cover, is more deep-rooted than anything a $1.15 billion loan instalment can relieve.
Fitch Ratings, while downgrading Bangladesh's sovereign credit rating for long-term foreign currency debt this week, noted that policy actions since early 2022 have been insufficient to stem the fall in foreign exchange reserves and resolve domestic dollar tightness. It also notes that the much-vaunted recent shift to a crawling peg for Taka against the dollar aims to increase exchange-rate flexibility, but whether this will fully address the lingering forex market distortions and support significant reserves build-up remains unclear. Fitch's action reflects the sustained weakening of the country's external buffers, that may well prove challenging to sufficiently reverse, despite the recent policy reforms. It leaves us more vulnerable today to external shocks.
Bangladesh's macroeconomic management has recently come under severe strain due to, among other things, declining foreign exchange reserves. All eyes will naturally be on the budget to be presented next week, for reliable signals that the government is now serious about addressing the issue in a manner that is sustainable, instead of looking to stop-gaps like loan disbursements. Presenting the budget before parliament, and the nation at large, for the first time is a significant event for any finance minister, and it should be no different for A. H. Mahmood Ali, the career diplomat-turned-politician. The former foreign minister's interest, and suitability for his present portfolio has been questioned, yet this is his chance to prove the doubters wrong.
The other big challenge facing the finance minister will be to rein in inflation, that has continued biting at 10 percent for a good year now, at least. Finance Ministry sources say taxes on numerous basic consumer commodities are getting cut to half, as the government is set to bank on fiscal measures to combat high food inflation, which has exceeded the official rate by 2 percent at times, reaching an all-time high of 12.56 percent in October 2023. A closer look reveals this would mean the tax on procurement of a whole host of items, from rice to sugar to all types of fruit would be cut to 1 percent from the existing 2 percent. Finance Ministry sources say the decision has been taken following instructions of the prime minister to combat food inflation through fiscal measures in the upcoming budget.
Yet these piecemeal measures are unlikely to percolate through to prices at the retail level significantly. The government must implement stronger market monitoring to prevent price hikes that are detached from market fundamentals. Without returning to fundamentals, or perhaps instilling them in the first place, the effectiveness of policy tools will remain blunted.
Leave a Comment
Recent Posts
One month on
The extraordinary series of events that led to the mass uprising that ...
Students in Bangladesh forced ...
A month ago, a student-led movement ousted Bangladesh’s prime mi ...
'Shahidi March' renews vow to build a Bangladesh fre ..
Collective brilliance seals unprecedented series win ..
Lutfey Siddiqui appointed as Chief Adviser’s special ..
Chief Adviser urges media to fearlessly hold interim ..