Relief for external balance as export, remittance grow

Despite global headwinds, Bangladesh's two main sources of foreign currency have seen growth in the first nine months till March of the current fiscal year, a development that came at a time when the foreign exchange reserves are depleting and the taka is under pressure of depreciation.

According to Export Promotion Bureau (EPB) data released on Sunday, merchandise exports of Bangladesh grew by 8.07% to $41.72 billion in the July-March period.

Also, on the same day, the Bangladesh Bank reported a 4.83% year-on-year increase in remittances for the first nine months, amounting to $16.03 billion.

Analysts said this growth is expected to stabilise the currency and improve the balance of payments in the months to come.

Emranul Huq, managing director and CEO of Dhaka Bank, said he expects to see an improvement in the balance of payments and current account balance by the end of the fiscal year.

"For the past few months, we have seen a decline in exports and imports and payment pressure was also high," Emranul told The Business Standard.

He said banks have reduced their LC openings compared to before and, as a result, they hope that in the upcoming months, the cash position in the banking sector will improve.

"After a few months, the foreign currency reserves, balance of payments, or trade balance may be in a favourable condition," he commented.

Export shines despite geopolitical tensions, high inflation

Although Bangladesh's export earnings dropped year-on-year in March, the bigger picture shows that exports have risen by 8.07% in the first nine months of the current fiscal 2022-23 compared to the same period of the last fiscal year.

This growth has been propelled by the readymade garments sector, which has seen a 12.17% growth in the same period to $38.25 billion, according to the EPB.

In March, however, exports fell by 2.41% to $4.76 billion, but this was also cushioned by the garments sector, an ever-dependable saviour for Bangladesh's export economy.

In the first nine months of the last fiscal year, total exports were $38.61 billion or a 33.41% growth over the year before amid the onslaughts of the Covid pandemic.

Meanwhile, apart from the RMG sector, almost all other major sectors registered a negative growth year-on-year. Exports of home textiles fell by 25.73% to $859.94 million, jute and jute goods by 21.23% to $698.7 million, agricultural products by 28.31% to $687.09 million and engineering products by 33.65% to $400.28 million.

Exports of leather and leather products, however, grew by 2.56%.

The success story of the garments sector in these trying economic times was down to foresight.

Once the Covid-19 situation began to improve, garment owners focused on increasing capacity. By the time the economic outlook was positive, capacity had grown by around 20%, industry insiders said.

Fazlee Shamim Ehsan, vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, "Orders are less compared to our capacity. But the increasing capacity has helped sustain our growth. The knitwear sector is playing a leading role in this regard."

Knitting together a dream

According to the product-wise breakdown of the data, knitwear has performed well in the last three quarters, while also registering a 1.32% growth to $2.08 billion this March, compared to last year. 

Woven products, on the other hand, registered a negative growth of 3.61%, which amounts to $1.81 billion. This had a negative impact, 1.04%, on overall garments exports in March.

"Because of the Russia-Ukraine war, global demand for apparels has fallen. But Bangladesh has managed to do well, owing to the knitwear sector's performance," BKMEA President Fazlee Shamim Ehsan said.

On why knitwear had performed so well, he said after the war, many buyers shifted away from China – the global leader in apparel – and turned to Bangladesh. 

"At the same time, Bangladesh also opted for diversified products in knitwear. Manmade fibres are being used for 3-5% knitwear in the last year, reducing dependency on cotton. In my factory, we have gone for 30% manmade fibre," Ehsan, also CEO of Fatullah Apparels Limited, said.

He said they had many inquiries, which he hoped would translate into more orders in the future. "Inquiries had run dry for the last few months," he said.

Echoing the statement, Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "As inquiries were down, most factories only ran at 50-60% capacity. Now, however, the rise in inquiries is a good sign. We have to wait three to four months to cash in on this."

He said most factories were facing some sort of trouble and the impact of the negative growth in March may remain for around another two months.

"We fear that a number of factories will fall into financial trouble. We may approach the Bangladesh Bank for a loan to ensure that workers are paid their wages, including bonuses. We have made six monitoring teams to observe any unrest fostered due to financial troubles in some factories. So far, we haven't heard of any such thing."

Remitters send home $2b after 6 months

Remittance earnings increased to $2 billion in March after six months, thanks to banks offering a higher rate for the dollar to remitters than the rate set by the Bangladesh Foreign Exchange Dealers Association (Bafeda).

Bangladesh Bank data shows remittance inflow through the banking channel rose by 29.29% in March from $1.5 billion in the previous month.

The remittance inflow increased through the banking channel as bankers offered a maximum Tk117 per dollar when Bafeda set the rate at Tk107, according to industry insiders.

Remittance inflow has been recorded below $2 billion since September last year after the Bangladesh Bank reduced the remittance rate to Tk107 from Tk108.

Mezbaul Haque, executive director and spokesman of the Bangladesh Bank, said due to the efforts of various divisions of the Bangladesh Bank and law enforcement agencies, the flow of remittance through the banking channel has increased.

"We are working to reduce the demand for sending remittance through Hundi. Usually, this demand is created from under-invoicing and if we can reduce under-invoicing and over-invoicing, we can also contain Hundi," he told reporters after the bankers' meeting on Sunday.

"We have advised banks to purchase dollars at the Bafeda-fixed rate. We want to maintain discipline. If someone is found to be offering a higher rate, appropriate action will be taken against them," he said.