Experts at a discussion said that apart from war-induced supply chain disruptions and global commodity price surges, the government's policies also have been a major contributing factor to the present reserve crisis and local food price hikes.
Controlling the dollar rate for a long period, followed by a sudden 25% increase, was one of the main causes of the foreign exchange reserve crisis in the country, they said while addressing a seminar, organized by the Economic Development Research Organization (EDRO) on Saturday.
At the same time, over-invoicing and under-invoicing in imports, smuggling money out of the country in various ways, and a rise in the use of hundi were all contributing to the reserve crisis, they added.
Speaking at the seminar titled "Reserve Crisis and Food Price Hike: A Way Forward, Bangladesh Perspective", Policy Research Institute Executive Director Ahsan H Mansur said: "We saw our country's foreign exchange rate was kept almost unchanged for the last 12 years, due to which we could artificially inflate the per capita income, although it was not sustainable.
"Suddenly, the dollar rate has been raised by 25% over the past few months amid global pressure, causing both public and private sectors to come under pressure."
He added that the government's foreign debt increased by almost $1.75 billion. In addition, private companies which have foreign debts of about $27 billion, will have to pay an additional Tk75,000 crore due to the increase in the dollar rate.
Bangladesh has adequate reserves for food imports, he noted, adding: "At present, the country's foreign exchange reserve stands at $31 billion. Once the next ACU payment is made, it will decrease by another $1.5 billion."
He said that the advice of the IMF to the central bank is that the volume of reserves should not decrease until June and the government is working towards this goal.
Suresh Babu, senior research fellow of the International Food Policy Research Institute (IFPRI) in Washington, while presenting the keynote at the seminar said supply chain disruptions caused by Covid-19, and then the Russia-Ukraine war have made it more difficult to source certain foods ingredients, causing food price hikes in the global market.
Bangladesh, being a net importer of the majority of its food grain, fuel, and fertilizer from Russia and Ukraine, remains one of the hardest hit by the Ukraine war, he observed.
Bangladesh having to buy these supplies at higher costs puts pressure on monetary reserves, he added.
Explaining the reason for keeping the dollar rate almost unchanged for a long time, Md Ezazul Islam, executive director of the Bangladesh Bank, said: "Before Covid, the price of the dollar was almost the same in our country for a long time. The reason behind this is that there is a kind of lobbying by businessmen, there is a policy of the government, and the policy of the central bank -- all these matters are considered to depreciate the dollar rate."
But the central bank played a big role in the time of Covid. "During that time, the central bank bought about $8 billion from the market. If it is not bought, then the dollar rate would have fallen to Tk70 per US dollar.
This article was originally published by Dhaka Tribune on April 9, 2023.
Read more about the global food crisis and implications for Bangladesh:
- Global Food Price Crisis Threatens to Cause A Global Nutrition Crisis
- Global lenders need to offer debt relief to crisis-hit countries
- IFPRI, Bimstec join hands to advance causes of food security
- Read IFPRI’s blog series on the Russia-Ukraine war and global food security