Mitigation of dollar crisis

The surplus of earning over spending added to previous balance creates the Forex reserve of Bangladesh Bank. The higher the reserve the more is the supply of US Dollars in the market except under unusual circumstances. The balance of trade and the Forex reserve determines the rate of exchange between Taka and other currencies.

During the last one year the exchange rate of Taka with US Dollars has gone up almost by 23% i.e. the Taka has depreciated. This rate is the highest since floating rate of exchange for Taka was fixed. Current optimum Forex reserve of Bangladesh Bank is Tk 300 crore in US Dollars. If this figured drops crisis for dollars crops up. Hence, in order to keep the dollar market steady, it is necessary to increase this reserve by increasing exports over imports. But it not possible to increase exports overnight. Consequently, the Central Bank takes temporary measures to combat the dollar crisis in the market:

1) Increase the provision for kee ing more margin when opening Letters of credit for imports.

2) Release a portion of the Forex reserve with Central Bank in the open market through commercial banks.

3) Ban import of luxurious items temporarily.

The foregoing measures will temporarily subside the crisis, but in order to make the Taka currency more stable against dollars it is necessary to increase exports so as to create a favourable trade balance and a fat Forex reserve.

The major sectors of export earnings of Bangladesh are (i) Readymade garments, (ii) Human resources, (iii) Jute and jute products, (iv) Hides, skins and hides products, (v) Prawns and other farm products, (vi) Tea, and (vii) Foreign aid and investment. Of these, the largest sector is readymade garments. Then comes human resource, the rate at which exports of readymade garments and human resource are increasing in South Asian countries is much lower in our country due to lack of initiatives by the government.

Besides lobbying in the importing countries, more facilities in bank-credits, duty and tax, cash subsidy etc have to be extended to these major export sectors and other smaller sectors as well. Moreover general and technical training have to be infused in the manpower made ready for export. Processing export of human resource is the easiest and cheapest industry requiring no capital and no infrastructure. Hence our country should resort to this export extensively. There is another export sector viz. tourism which has not developed here. This is disappointing.

Even a country like Nepal earns 40% of its foreign exchange through tourism, whereas our country earns less then 1% of total foreign exchange comes from tourism. And like human resource export, tourism industry needs the least capital investment if the infra-structural facilities exist for internal use. We have the minimum infrastuctural facilities of tourism, what is needed is a sound policy, political stability and publicity.

The quickest means of fattening the Forex reserve is control of imports and use of import-substitutes. It is not possible to increase exports overnight, but it is possible to lessen imports. Continuous dollar crisis adds to import costs which on the other hand increases inflation, reduces purchasing power of the consumers leading to reduction of production and many more economic problems and poverty. It is, therefore, essential that imports of luxurious commodities like costly branded private cars and jeeps (exceeding engine capacity of 2000 cc), costly electronic households, ornaments, dresses, etc should be banned temporarily.

The country spends almost Tk 12,000 crore for import of petroleum products. Recently there was a crisis for dollars for import of petrol, diesel etc, even some trains were stopped for want of diesel. This country has the "gaseous gold" of natural gas which can be utilized in every sector as energy.

From now on, no vehicle without CNG system should be allowed for importation. Alternatively no new vehicle should be given registration if it does not have CNG system. The farmers who use diesel for irrigation and ploughing are faced with high cost and have invented alternative fuel of cylinderized gas.

So this gas may help the agricultural as well as industrial production of the country. If gas is used in all sectors, a huge amount of foreign exchange may be saved by substituting the import of petroleum products, which will add to the Forex reserve of the country and mitigate dollar crisis. The government should implement the above suggestions immediately.

Another method of fattening of Forex reserve is increasing the remittances of expatriate manpower abroad which now amounts to almost Tk 30,000 crore yearly. If more incentives and facilities like reduction of bank charge, enhancement of exchange rate, interest rate on saving and investment schemes etc for remittances are allowed and intense application of money laundering act is made, then the flow of remittance will further go up resulting in increase of the Forex reserve.

The foregoing measures are good for temporary boost-up of Forex reserve, but it is necessary to increase the volume of exports in order to strengthen the economy permanently. With this view, the government has to boost up exports of all non-traditional sectors in addition to the existing major sectors and take the following steps ;

a) Increase exports of software, agricultural products, handicrafts, allopathic and herbal medicines, cement, ceramic and melamine products, cosmetics, etc.

b) Increase agricultural products and diversify them in order to be self-sufficient and export the surplus.

c) Utilize gas in transportation and all possible sectors in order to substitute import of petrol and diesel.

d) Improve and establish modern medical facilities inside the country in order to attract Bangladeshi and foreign patients.

e) Improve and establish higher education facilities inside the country in order to retain Bangladeshi and attract foreign students.

f) Develop the tourism facilities and environment in the country in order to attract tourists.

g) Increase export of human resource.

These measures, I trust, will lead the country to a economically strong position.

The author is an FCA.