Outlining the manifestations of the precipitous downturn in the Bangladeshi Taka: Its ramifications on the South Asian region

By Ashraf Nehal

The value of the taka versus the USD decreased by 4.7% during the past year. Currently, every dollar is being converted for 92.80 takas, according to the Bangladesh Bank’s currency rate. On the other hand, every dollar is swapped at 94 to 97 BDT on the open market or kerb market.

The value of the taka versus the dollar has fallen by 3.37 percent over the nine-year period from May 2012 to May 2021. Along with the Bangladeshi Taka, the currencies of nearby nations such as India, Pakistan, Sri Lanka, and Afghanistan have all seen a decline in value when compared to the US dollar.

The pandemic impact, which started in 2020, has significantly impeded output worldwide due to import- and export-oriented activities. Global inflation was also rising as a result of this. Every economy in the globe raised its money supply in response to the epidemic through financial aid or stimulus plans to keep the economy humming.

The effect is that consumers now have more purchasing power. However, pandemics interrupted the world’s supply chain, and inflation grew as a result of a lack of supplies. Even though the global economy started to stabilize by the end of 2021, Russia invaded Ukraine in March of 2022.

The outcome is another disruption in the world supply chain. The supply chains for the fuel industries, such as oil and gas, are hampered as a result of this battle.

Bangladesh has formally asked Washington-based multilateral lender International Monetary Fund (IMF) for a USD 4.5 billion loan to help the country confront its ongoing financial crisis in light of its fast dropping foreign exchange (Forex) reserves.

Officials from the Finance Ministry claim that of the USD 4.5 billion requested by the nation to ease the ongoing crisis, USD 1.5 billion would likely be interest-free and the remaining funds would arrive at an interest rate of less than 2%.

Even though Bangladesh has applied for a loan from the IMF, Sheikh Hasina’s administration is making headway with the country’s plan to increase its GDP by more than 6% this fiscal year. Comparing the US dollar against the Pakistani and Sri Lankan rupees, the Bangladeshi Taka is holding its own.

As per the currency rate on June 15, 2022, the Sri Lankan rupee was worth 360.99 Sri Lankan Rupees as opposed to the dollar on May 31, 2021, a loss of 44.5 percent. But due to a number of government policies, including declining tourism revenue as a result of terrorist attacks, the Corona epidemic, and the problem with the global supply chain brought on by the Russia-Ukraine conflict, Sri Lanka is currently experiencing one of the worst financial crises in its history.

The short-term interest rate was increased by the US Federal Reserve System on May 4 by 0.75 percent, the largest rise in the nation’s 20-year history. In essence, the nation wants to encourage saving and discourage consumption by raising interest rates. The Federal Reserve of the nation has so decreased the dollar’s circulation across the world.

These initiatives to reduce the supply of US dollars are having an impact on other economies all around the world. The demand for dollars has increased along with the growth in each nation’s import costs as a result of inflation. The strategy of reducing the dollar supply, on the other hand, is causing the dollar circulation to decline. As a result, the dollar has become more valuable relative to practically all other currencies, and both major and small nations are losing ground to the dollar.

Future economic growth may be harmed by currency exchange rates against the dollar, an increase in the supply of dollars from foreign reserves, and the maintenance of the value of counterfeit money. In order to prevent a negative impact on import-export commerce, the central bank is likewise gradually depreciating the value of money in relation to the dollar. This year, the value of the taka has fallen against the dollar in seven increments.

In addition, the central bank and the government have already enacted a number of steps to lessen the strain on the foreign currency market, and yet others are in the works. Taxes on imports of 135 items have already been raised from zero to three percent to a maximum of twenty percent by the government.

Additionally, the government has placed limits on the ability of representatives of autonomous, semi-autonomous, and government organizations to travel abroad. On the other side, the Bangladesh Bank has also placed limitations on bank executives’ needless international travel.

Taxes on imported luxury items like automobiles and electronic gadgets may also rise. A 5% VAT on refrigerators and cell phones made in Bangladesh has also been recommended by the National Board of Revenue. The government may also take action to expand the number of import-prohibited goods in order to close the trade imbalance.

The interest rate set by the Bangladesh Bank has also gone up. The Bangladesh Bank increased the policy rate by 0.50 percent on January 5, 2012, setting it at 7.75 percent. It has since been decreased multiple times and is expected to be 4.75 percent in July 2020.

The Bangladesh Bank once more increased the policy rate to 5% on May 29, 2022. By increasing the policy rate, the government may encourage citizens to cut back on needless spending and attempt to prevent inflation by controlling the nation’s overall money supply.

Just like the majority of the South Asian economies, nearly half of the people of Bangladesh are still working in agriculture. About 87 percent of rural families in Bangladesh depend at least partially on agriculture for their income, with two-thirds of those in rural regions and nearly half of all employees in Bangladesh directly employed by the sector.

In Bangladesh, agriculture’s percentage of GDP has drastically decreased over time, but its contribution to non-agricultural growth has remained on the rise.

Author is a columnist and foreign policy analyst who focuses primarily on South Asia. He tweets: @ashrafnehal19

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