Turbulence in the currency market has become a cause for serious concern. Foreign exchange market, like the domestic commodity market, cannot be manipulated although the flow of forex's supply can be disrupted in time of greater demand. At times, the central bank has to inject greenbacks to stabilise the forex market as the Bangladesh Bank (BB) did with a record $5.31 billion this financial year.
Yet instead of stabilising, the currency market has become jittery and the central bank was forced to devalue Taka twice this past week after a big depreciation in January last. Now the latest sale and purchase of a dollar at a record of Tk102 on the kerb market on Tuesday only highlights the extent of forex crisis. Even importers were compelled to settle import bills at Tk 97 against the BB-fixed rate of 87.60 for a dollar.
Rising import costs, declining remittances and a large payment to the Asian Clearing Union (ACU) as early as January triggered the process of short supply of greenbacks and decline in the forex reserve to $44.33 billion on January 5 from $46.39 billion on June 30 last year, which reached a record reserve of $48 billion in August last. Still the gap between import and export favours widening of the current account deficit.
So this latest forex crunch will put further pressure on the country's forex reserve. Now the question is, how it will impact the country's economy and commodity, foods in particular, inflation. Economies the world over suffered on account of the pandemic and the steeply rising prices of fuel oils have triggered a chain reaction of commodity and service inflation, globally. At home, even utilities are becoming costlier. After gas price hike, electricity is likely to be pricier with a proposal submitted for raising its tariff by 66 per cent. The Bangladesh Energy Regulatory Committee has suggested a 58 per cent raise for per unit power.
At a time when the spectre of hunger looms large over the globe, these developments on the domestic front cannot but make political leaders concerned about its impact on the poorer sections of the population and the overall food security of the country. Although the food minister assures that the country has an adequate stock of paddy and rice, this cannot be taken as a guarantee for food security. Past experiences in this regard are bitter, indeed. When the official announcement was surplus production of rice, the country all of a sudden came to know that the staple was in short supply. There was desperate search for overseas market from where rice could be imported. At one stage, duty on import by private companies was slashed to just 2.0 per cent from 16 per cent.
Also adequate stock does not guarantee access to foods for all people. Forbidding price levels can leave many people inadequately fed or starved. In the immediate post-pandemic time, out of seven adult Britons, one was forced to curb procurement of necessary foodstuffs; in the aftermath of the Ukraine war, two out of seven are now compelled to adopt the austerity measure. British economy is set to shrink because of recession.
No wonder that Prime Minister Sheikh Hasina has urged restraint on expenditure and practice of thrift as much as possible by everyone in order to save national resources and keep the economy going. This follows the government's restriction on 'unnecessary' foreign travels by the employees and officials of the republic. There is a tacit admission that unnecessary foreign visits by government servants take place and that too at huge costs to the exchequer. Again, import of luxury goods has been discouraged as part of a move to lessen the strain on forex reserve.
On the heel of the pandemic has come the Russia-Ukraine war and it is wreaking havoc on some essential commodities including one of the most popular staples, wheat in many countries of the world. Russia, the biggest global exporter of wheat and a major exporter Ukraine are engaged in the war and the supply chain of gas and fuel oils, wheat and sunflower oil, of which the war-ravaged country was the biggest exporter, has been severely disrupted or come to a total halt, stoking high inflation. Sectors that earn foreign exchange will benefit on account of devaluation of Taka but compared to the country's overall loss this is small consolation.
So the challenge before the government is stiff. Management of the market and adjustment of Taka-Dollar exchange rates are the immediate challenge and ensuring a sustainable forex reserve and development is the long-term objective. That the government has decided to go slow on less important development projects is a step in the right direction. But getting the priority right is no mean task, when it comes to preparing for the future.
The development model followed so far depending on cheap labour may fail to deliver in the days to come. There is no alternative to developing human resources. Demographic dividend can be reaped if only quality human capital can be developed under a comprehensive and up-to-date education system with required investment in the sector. This is the priority task for the government like any other in the world.