It’s the economy, stupid. July numbers suggest a turnaround.

Following weeks of pressure that revealed an entire fiscal's worth of numbers that failed to tell the true story of trends in the economy - such as record exports smashed by even greater imports leading to a record trade deficit - there was finally a bout of good news for the Bangladesh economy, as a range of indices rebounded in July.

Experts, however, do not think the time has come to relax. They have urged the government to be cautious about loosening the austerity measures and the monitoring that were initiated to help the country deal with the global economic crisis created by the Russia-Ukraine war.

The monthly year-on-year rise in inflation crossed the 6 percent mark in February, and continued to increase till hitting a 9-year high of 7.56 percent in June- but its rising trend has now been arrested, with July seeing a small but nevertheless downward tick to 7.48 percent.

The country's importers opened letters of credit, or LCs, worth $5.5 billion in July, down by 31 percent from June, as the central bank continued to tighten its control over imports.

Bangladesh made a record in exporting goods and services in the last fiscal year, but it was outdone by an even bigger record jump in imports, that rose abnormally by almost 40 percent year-on-year, causing helter-skelter in the balance of payments.

Last month, exports grew by around 15 percent to $3.98 billion while expatriate Bangladeshis remitted $2.1 billion, a 12 percent year-on-year growth after posting a 15.12 percent fall in the fiscal year that ended on Jun 30.

"The rebound of key indices is of course a matter of comfort, but we should not think this positive trend will last forever. Rather, the government should continue with the cautionary measures," said Selim Raihan, executive director at the South Asian Network on Economic Modelling or SANEM.

Inflation fell slightly as the prices of some goods fell globally, he said. "But it's not significant. Inflation in the rural areas increased more than that in the urban areas, which means it affected the poor more."

Dr Raihan also said prices did not fall here as they did in the international market. It means import costs are not decreasing at the expected rate. He advised the government to strengthen monitoring of the mismatches reflected in the rise and fall in the prices of commodities.

The economics professor at Dhaka University notes it is the rebound in remittances that will help Bangladesh's economy the most.

"Because a significant portion of the exports is spent on raw materials and intermediate goods. But remittances are exclusively added to our foreign currency reserves," he explained. Exports will however continue to rise because the devaluation of the taka against the US dollar will work as an incentive, he said.

Agrani Bank Chairman Zaid Bakht, former researcher at the Bangladesh Institute of Development Studies, said the efforts to keep inflation down should be persisted with.

He also thinks the Bangladesh Bank should continue monitoring imports to stop attempts to smuggle money out of the country by paying more than the actual price of imported goods.

He welcomed the central bank's efforts to control the US dollar price by keeping a tab on the moneychangers.

IMF loan: Just in time

Bangladesh is expecting around $4.5 billion loan from the International Monetary Fund (IMF) as a precautionary measure for balance of payments support and stabilising its foreign exchange reserves following a period of sustained downward pressure.

In the wake of a record $30.86 billion trade deficit, remittance inflow falling by 15.12 per cent and current account deficit of $18.70 billion in the recently concluded 2021-22 fiscal, the country is trying to get an IMF loan.

Replying to a query, planning minister MA Mannan reminded that Bangladesh so far has never defaulted on repayment of external loans.

"In South-East Asia Bangladesh's debt-GDP is around 41.4 percent of which foreign loans 21 per cent. Indian's loans is 86.8 percent of GDP, Pakistan loans 74 per cent of GDP, Sri Lankan loans 107 percent of GDP and Thailand loans 62 per cent of GDP," he said.

Bangladesh took loans for some mega projects including Padma Bridge rail link being aware of the returns of those projects. The Padma Bridge authority is collecting more than they imagined earlier, which is an example of returns, Mannan said.

Regarding IMF loans, he said that Bangladesh sought IMF funds as a precautionary step to keep the economy stable and capable of meeting oil, gas and fertiliser import payments.

He said the current foreign exchange reserve is not in danger and there is no possibility of a crisis here like Sri Lanka. But pressure has been created in the economy due to the global price hike of commodities and energy due to the Ukraine-Russia war.

"IMF will not impose such conditions that we cannot meet, Bangladesh has a long relationship with the IMF and we have taken IMF loans several times to meet the country's needs. We think that IMF conditions will be tolerable," he said.

Dr AB Mirza Azizul Islam, prominent economist and former adviser of caretaker government told UNB that IMF is likely to attach some conditions on reforms and regulations that can also be good for the economy.

Bangladesh earlier took IMF loans and the country paid all the external loans in scheduled time including the IMF loans. The latest loan application for Bangladesh to the IMF will help the economy to stabilise the foreign exchange situation, he said.

Economist Ahsan H Mansur said that the inflation of Bangladesh as per BBS statistics rose to 7.56 percent which is the highest in 9 years, local currency taka has been depreciated more than 11 per cent since January and kerb market of dollar remained unstable after trading at Tk 112 per dollar recently.

Apart from these, the global oil and gas prices are soaring, and energy, food and fertiliser supplies have been disrupted due to the Ukraine-Russia war.

All of these indicators are signalling a worsening of the economic situation in future, Mansur said.

The liabilities of foreign loans have increased by around Tk 2.0 trillion due to depreciation of taka. Among this around Tk 1.5 trillion are government loans and rest Tk 0.5 trillion in the private sector, he said.

On the other hand, the overall income including remittance and revenue earning of the government has decreased. In this context the government has sought loans from the IMF.

Though Bangladesh sent a letter to the IMF seeking loans, the figure was not mentioned in the requirement letter. But Finance Ministry officials have reportedly said Bangladesh expects to get around $4.5 billion IMF loans.

The International Monetary Fund has reassured Bangladesh of support, saying funds requested by the country will "safeguard it from further deterioration of external conditions".

Even as Bangladesh tackles immediate challenges created by the Russia-Ukraine war, it recognises the need to respond to the long-term challenge posed by climate change, an IMF spokesperson said on Wednesday, reports

IMF's new Resilience and Sustainability Trust is expected to be operationalised for Bangladesh in the coming months. The IMF staff will work with Bangladesh authorities to design a program "most relevant to its economic and social dynamics, according to the statement.

Fuel imports: Prohibitive till '26?

Bangladesh faces another three years of rolling power cuts as the developing nation struggles to secure long-term supplies of natural gas and is priced out of spot markets.

Bangladesh stopped purchasing spot liquefied natural gas cargoes in June because of volatile prices, and is considering sourcing more long-term supplies, Nasrul Hamid, the state minister for power, energy and mineral resources, said in an interview.

However, producers including Qatar have indicated that they will only sell more contracted volumes from 2026, he said, Canada-based newspaper Financial Post reported on Monday, with attribution to news agencies.

A global shortage of the power-generation fuel that's been exacerbated by Russia's invasion of Ukraine has doubled spot prices for LNG in Asia and fueled frantic restocking in Europe, leaving little supply for emerging economies such as Bangladesh and Pakistan.

With few alternatives, rolling power cuts are likely to put a drag on economic growth in the next few years, according to traders and analysts.

South Asian nations that are highly reliant on energy imports have been hit by surging prices, forcing cities to cut electricity supplies to cope with fewer imports. Bangladesh imported about 30% of its LNG on a spot basis this year, down from more than 40% last year.

With elevated energy prices putting a strain on dollar reserves, Bangladesh is seeking support from creditors, including the International Monetary Fund, to fortify its finances.

"Between this year and 2026, emerging Asian markets are set to see slower LNG demand growth than previously expected, as price-sensitive buyers slash expensive LNG imports," said Lujia Cao, a gas analyst with BloombergNEF.

"Bangladesh and Pakistan are predicted to see severe gas supply shortages due to high fuel prices and import infrastructure constraints."

Measures start kicking in

Prime Minister's Private Industry and Investment Adviser Salman F Rahman meanwhile has said the austerity measures initiated by the government and the central bank to rein in a bullish trend of import since the beginning of the second half of the last fiscal year are paying dividends as import costs have shrunk to $6 billion a month.

Goods worth $83.68 billion, or $6.97 billion average per month, were imported into Bangladesh through letters of credit, or LCs, in the recently concluded fiscal year, which is a massive 46 percent jump from the previous fiscal year, according to updated import data released by Bangladesh Bank last week.

Importers in Bangladesh had opened LCs worth $92.23 billion, or $7.68 billion average per month, to import goods in the fiscal year 2021-22, which is 37.59 percent more than the previous fiscal year.

"It [imports] used to be $8 billion a month, which came down to $7 billion last month and $6 billion this month. I believe our issues will be resolved pretty soon," he said while speaking to journalists after a meeting with a visiting delegation team of Uzbekistan at a hotel in Dhaka on Friday.

"Prime Minister Sheikh Hasina took proactive initiatives to protect the economy during pandemic times and she did the same when the dollar prices began skyrocketing. Alongside, Bangladesh Bank has taken initiatives to reduce imports at the right time."

Salman, a top industrialist, believes Dhaka's attempt to secure a $4.5 billion loan from the International Monetary Fund, or IMF, is a part of the process. As soon as the economy picked up after the post-pandemic reopening, the import costs soared massively and the depletion took place due to a large gap between the amounts paid for imports through letters of credit and the cumulative inflow of foreign exchanges via exports and remittances.

For the first couple of months, the central bank imposed tight controls on the dollar exchange rate, with a system called "managed exchange rate or floor rate." But eventually, it backed off and reintroduced a floating exchange rate system.

However, the increase in the US dollar prices has essentially kept the rate of the taka being devalued, even with the reinstatement of the floating system.

Analysts believe since the main supplier of the US dollars, Bangladesh Bank, is increasing the price for selling the greenback to the local banks, it is unlikely that the price of the US dollars will go down anytime soon.

The devaluations somewhat put the kerb currency market into a spiral, as dollar prices soared significantly. At one point last month, exchangers outside of the formal banking system were selling a dollar for over Tk 112, the highest in Bangladesh's history.

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