Even a year back, the International Monetary Fund (IMF) in its World Economic Outlook said that by the fiscal year 2024-25, Bangladesh's Gross Domestic Product (GDP) would be US$516.24 billion. According to that forecast, Bangladesh would by that timeline overtake the economies of Singapore, Hong Kong and Denmark. That was no doubt a huge statement in favour of an economy that was (and still is) bracketed with the world's Least Developed Countries (LDCs). Of course, the comparison was made with an eye to the size of their GDPs and not to the quality of those countries' social and economic development. For everyone knows that Singapore and Denmark are among the world's advanced economies and societies. Their projected GDPs for 2025 were US$484.38 (Denmark), US$461.51 (Singapore) and US$452.10 (Hong Kong) respectively. With GDP as the yardstick, some other rich but small economies of Europe and Middle East would also fall behind Bangladesh. But such comparison cannot be made now. Rising inflation fuelled mostly by soaring energy price in the international market, unabated depreciation of taka against US dollar and declining foreign exchange reserve have resulted in lowdown of the economy. In fact, the same factors are also behind recessionary trend in the advanced as well as weaker economies. But the foreign exchange reserve crisis is especially damaging for weaker economies including Bangladesh.
Bangladesh's foreign exchange comes mainly from export earnings and remittance sent by expatriate workers. But due to recession in the West, especially, in Europe and the USA, orders for our Readymade Garment (RMG) products, the mainstay of export, have been declining for the last two months. At the same time, remittance from migrant workers is also falling due to the difference between the officially-fixed rate of dollar against taka and that offered by foreign exchange dealers which is higher. Small wonder that the remittance senders prefer latter option, thereby depriving the country of a large amount of foreign exchange every month. Experts also point to some other issues that are behind the crisis of dollar in the market. It is flight of the dollar out of the country through illegal means, illegal trade in dollar by money exchangers, artificially fixed taka-dollar exchange rate etc.
Thus the country's foreign exchange dropped from US$48 billion to US$34.33 billion recently. However, considering other expenditures and allocations made from the forex reserve, the reserve has come down further to around US$27 billion. As a result, Bangladesh is finding it harder and harder to meet its import costs.
Especially, the power sector has been hardest hit as due to dollar crisis Bangladesh cannot afford to buy the required amount of fuel, Liquefied Natural Gas (LNG), in particular, from the international market to run its gas-fired power plants. As expected, the ongoing load-shedding due to production shortage of power has a knock-on effect on the entire economy. So, it is a kind of forced recession that has been imposed on the economy as there are fewer dollars in our reserve.
Sri Lanka is a glaring instance of what can happen to an otherwise thriving economy if it does not have enough dollar in its reserve. Imagine a situation where Sri Lankan rupee was accepted as a mode of payment for the goods and services it were to buy from the international market. In that case, there would be no question of its economy going bankrupt. But since the current international economic order does not allow that, economies like those of Sri Lanka have to face the music. It happened so fast! No doubt, mismanagement of that country's economy by its political leaders and rampant corruption also played a big part in the crisis through flight of dollars from that country to safe havens abroad.
Though Bangladesh is not exactly in a situation like Sri Lanka's, yet it is still seeking IMF's loan to preempt any such extreme situation. The IMF has readily agreed to extend to Bangladesh the asked-for loan worth US$4.5 billion. According to the IMF, the credit will be used to preserve the country's 'macroeconomic stability and support strong, inclusive, and green growth'. Protecting the vulnerable is also part of the objective of the IMF loan.
However, it is not that Bangladesh had never approached the IMF or other global multilateral agencies including the World Bank (WB) or the Asian Development Bank (ADB) for any loan. In fact, as the country's development partners, they have long been supporting Bangladesh in its development efforts. The IMF, for instance, did provide loans on four occasions in the past. The first such loan was given in 1990-91. Then in 2003-04 and 2011-12and lastly in 2020-21. But in each case the amount of loan did not exceed US$100 million. So, considering the history, this is going to be the largest amount of IMF loan, so far, to be advanced to Bangladesh subject to approval by the global financier's management board. Once confirmed, the loan will be disbursed in seven instalments in four years (till December 2026). Moreover, the IMF money will not come without any strings attached. The ultimate release of the IMF funds will be subject to fulfilment of the conditions set by the global lender. These conditions include, for example, reduction of government subsidies in different sectors including gas, power and fertilisers. Subsidies to big state-owned companies would also come under review. Reform in the financial sector is another area of IMF's concern. Hopefully, the IMF loan would help the economy to avert any big crisis in the days to come.
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