Finance Division officials expect 16% growth in remittances, which have seen negative growth throughout the current fiscal year,
The Ministry of Finance has forecast export growth to fall to 20% in FY23 as soaring inflation in Bangladesh’s major trading destinations, such as the United States and the European Union, should curb the heat wave that the country’s export sector experienced after the release of pent-up demand once global economies reopened.
The drop in exports will also lead to a drop in commodity imports to 12% from an estimated 30% in the revised budget for the current fiscal year, as Finance Division officials predict.
In addition, the government’s various measures aimed at discouraging imports amid rising commodity prices in the international market and the dollar crisis in the country will further dampen the growth of imports.
However, finance division officials expect a 16% growth in remittances, which have recorded negative growth throughout the current fiscal year, driven by exports of over 5.5 lakh of workers to different countries in the post-Covid era.
According to Finance Ministry officials, exports in July-April of the current fiscal year surpassed the $43 billion mark with growth of more than 35 percent year-on-year.
A breach in dynamic exports?
In the remaining two months, May to June of FY22, dynamic exports could take a hit from record high inflation in the US, EU and UK , the main buyers of Bangladeshi products, under the ripple effects resulting from the Russian-Ukrainian crisis.
In 25 days this month, the apparel sector, which generates the most export revenue, raked in about $2.2 billion, down $800 million from April, according to sources. updated data from the Customs Department of the National Board of Revenue.
As the trend of clothing exports in the current month suggests, except for the Eid holiday, receipts may increase slightly in May compared to the amount received in the same month a year ago, but the Robust export growth averaging 36% over the past eight months will no longer be there, Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard.
In September-April, RMG’s export earnings were between $3.5 billion and $4 billion per month.
Md Fazlul Hoque, Managing Director of Plummy Fashions Ltd, one of the top rated green certified RMG factories in Bangladesh, told TBS: “I think the export growth we have witnessed in recent months will not continue. in June as a flow of work orders have already slowed.Inflation is soaring globally and recession is also likely.
In such a situation, consumers around the world have slightly reduced their clothing expenditure to meet the additional costs of food and fuel, he noted.
“If inflation continues to rise in Europe and America, our garment exports could fall,” he said.
In FY21, Bangladesh’s exports amounted to $38.75 billion. According to the revised fiscal target, exports will reach about $50 billion by the end of the current fiscal year. Export earnings in the next fiscal year will be $60 billion if they grow at a rate of 20%.
The 2018-2021 export policy targeted $60 billion in exports, but fell short by 25% due to the onslaught of the pandemic. BGMEA leaders at the time said the target was achievable, as $50 billion would come from ready-to-wear apparel exports alone.
In the new export policy decree, the Department of Commerce has set a goal of generating $80 billion in exports by 2024.
Economists and exporters say Bangladesh’s exports have rebounded strongly thanks to a rapid increase in aggregate demand in the Western world with the normalization of Covid-19 and the transfer of some work orders from China and Vietnam to the Bangladesh.
But the global economy has started to face serious supply problems since the start of the Russian-Ukrainian war on February 24, and there are no signs of overcoming the situation anytime soon, they also say, adding that prices of imported goods continue to soar due to supply. chain disruptions, fueling inflation around the world.
According to a recent BBC report, US inflation has reached a level not seen in almost 40 years. In addition, many European countries have been caught up in the highest inflation for a decade.
Citing US fashion brand Target Corp, a Bloomberg report said the brand experienced a sudden downturn in early March as Americans grappled with rising food and fuel prices.
“While retailers have seen lower demand for apparel, this has been driven by reduced interest in casual wear,” according to the report.
Some international media are also talking about the fear of a global recession.
Dr. MA Razzaq, president of Research and Policy Integration for Development, told TBS that central banks in Europe and the United States have raised interest rates to control inflation. Consequently, our exports could decrease due to lower consumer spending in these countries.
And, the export growth rate may not be the same as previous months, he noted.
But many other clothing orders could be transferred to Bangladesh from China, as the latter cannot ship the goods on time for various reasons, including the lockdown there, he also said.
“So we cannot come to any conclusion at this time,” MA Razzaq said.
The government relies heavily on remittances
In the current fiscal year budget, the government expected greater growth in remittances as it grew by more than 36% amid the pandemic in FY21.
Remittances had recorded negative growth in all nine months of the fiscal year, with the exception of April before Eid-ul-Fitr.
The Ministry of Finance has set a growth target of 1% in the revised current year budget in hopes of securing additional remittances from expatriates ahead of Eid-ul-Azha next July. Remittances will amount to $25 billion at the end of this fiscal year, in line with the revised budget target. Remittances received in the first 10 months of FY22 amounted to $17.3 billion.
About $8 billion in remittances will be needed over the remaining two months to meet the target. FY23 remittances are estimated to be $29 billion.
In FY21, Bangladesh received remittances amounting to $24.77 billion.
Import payments expected to hit $88 billion in FY23
In July-April of the current fiscal year, Bangladesh’s import payment stood at $73.43 billion, with a 41% year-on-year increase. In FY21, the country imported goods worth $60.68 billion.
The Ministry of Finance had forecast an 11% growth in imports in the budget for the current fiscal year. By the end of the fiscal year, imports were expected to reach $67.35 billion. But two months into the fiscal year, $6 billion more than the full-year estimate has already been spent on imports.
The country has to spend extra money to import food, fuel and fertilizers due to soaring prices in the international market. This is why the import expenditure exceeded the estimated budget during the 10 months.
The Ministry of Finance estimated a 30% growth in imports in the revised FY22 budget. According to this calculation, imports will amount to nearly $79 billion by the end of the current fiscal year. Imports will reach $88 billion in the next fiscal year if the estimated 12% growth is achieved.
In this way, if export and import growth is achieved in line with the government’s budget projections for the next fiscal year, Bangladesh’s trade deficit will amount to $28 billion.
The balance of payments deficit will reach 11.74 billion dollars
Finance Ministry officials believe the balance of payments deficit in the next fiscal year will be huge – 1.56% of GDP, despite projections of high inflows of remittances and declines in exports and imports .
In the revised budget for the current fiscal year, the government fixed the balance of payments at 2.56% of GDP. In the current year’s budget, the current account deficit was estimated at 0.06 percent of GDP.
The revised budget for the current fiscal year puts the GDP at $458.5 billion and the balance of payments deficit at $11.74 billion.
The size of GDP for the next fiscal year was estimated at $512.4 billion, with an $8 billion balance of payments deficit that year.
According to the revised budget for the current fiscal year, foreign exchange reserves will stand at $42 billion in June, rising to $43.50 billion in June next year.