Bangladesh fumbles in bid to avert
crisis By Syed Tashfin
DHAKA - Stop-gap measures by the
Bangladesh government to stave off economic crisis
look increasingly fragile, with foreign currency
reserves declining again last month, reversing a
brief recovery in January after restrictions were
placed on imports.
The foreign currency
reserve fell to US$9.15 billion this week, nearly
back down to the $9.11 billion recorded in early
January before a government request led to banks
not opening letters of credit for imports,
effectively crimping an outflow of funds.
Reserves, contrary to a long-term trend, climbed
to $10.2 billion following the curb on imports,
which dropped 27% in January compared with a year
earlier. Higher remittances from overseas workers
also helped boost the reserves.
curb was only the latest quick-fix by the
government of Prime Minister Sheikh Hasina to
bolster an economy crippled by
power cuts that prevent
exporters, particularly garment manufacturers,
using their factories to full capacity.
earlier decision to encourage industrialists to
use rented power plants to meet the 5,550 MW
demand for power when only 4,875 MW are generated
is driving up bills for imported fuel,
exacerbating the drain on foreign reserves. Power
Secretary Abul Kalam Azad this week said the
shortfall in electricity this summer will be more
than 1,000 MW.
The resulting increased use
of oil doubled the country's fuel import bill to
US$4.48 billion in the year to last June from
between $2 billion and $2.5 billion in the
previous 12-month period. The fuel import cost is
forecast to about 50% to $6.78 billion in the
fiscal year that ends on June 30. Longer-term
moves, such as letting overseas companies have
easier access to exploration and sale of domestic
oil and gas resources, have yet to have much
impact on supply.
The government last
month secured an increase to $2.5 billion, up from
$1.5 billion, in the credit limit for Bangladesh
Petroleum Corp (BPC) with the Islamic Trade
Finance Corporation (ITFC), the trade financing
window of Islamic Development Bank, to help the
state-owned oil company to pay for fuel imports.
BPC turned to the ITFC as the corporation
already owes state-owned banks in Bangladesh
around $2.08 billion for importing fuel and the
banks did not open letters of credit in January
and February for oil imports. BPC also owes $200
million to foreign banks and has deferred payment
of some fuel import bills by six to eight months.
With the increased ITFC credit secured,
Bangladesh's state-owned banks will now again open
letters of credit, but about $500 million being
provided by the ITFC is under "special
arrangements" and will have to be repaid in nine
Officials of state-owned banks, at
a February 28 meeting with central bank governor
Atiur Rahman and Finance Minister Abul Maal Abdul
Muhith, said BPC should pay the banks in local
currency, inform the banks at least two weeks
prior to its debt repayments as to when these
would be made, and, in the case of a scarcity of
foreign currency, the central bank will supply
The conditions will not
sit well with the International Monetary Fund
(IMF), which has advised the central bank not to
provide dollar support to nationalized banks for
fuel import, Zaid Bakht, Research Director of
Bangladesh Institute of Development Studies
(BIDS), told Asia Times Online.
drain on foreign reserves is expected following an
agreement under which Bangladesh will buy 250 MW
power from India from July 2013. The purchase deal
was signed between Bangladesh Power Development
Board and India's Vidyut Vyapar Nigam Ltd, a
subsidiary of National Thermal Power Corp, in New
Delhi on February 28.
An additional 250 MW
power will be "directly procured through
competitive bidding" from Indian market,
Bangladesh's power secretary, Abul Kalam Azad,
said on March 6.
The IMF last month also
urged Bangladesh to reduce oil import subsidy and
move fast on a new VAT law, in order to avail a $1
billion credit from the Washington-based
organization, he said.
For this reason,
the government will need to increase fuel prices
again, Bakht said. Still-subsidized fuel rates
were increased four times last year, helping to
maintain persistent inflation, which is now
running at 12%.
currency reserves fell back below $10 billion this
month after payment of $893 million to the Asian
Clearing Union on March 6. Similar payments are
scheduled every two months.
In the other
direction, Bangladeshis working overseas sent home
about US$1.14 billion in February, 14% more than a
year earlier. Remittances in January were up 24.6%
to $1.21 billion compared with 12 months earlier.
Bangladesh is having to pay more for
imported fuel due to the decline in value of its
currency, the taka and higher global oil prices.
The taka has lost around 10% against the US dollar
in the past six months in spite of strengthening
to 81.60 against the dollar on March 5 from around
87 takas to the dollar on January 29. Meanwhile
the global price of oil has surged from below
US$100 a barrel early last October to over $125.
Bangladesh expects "around $7 billion to
$9 billion" of investments in its power sector
from private Indian companies, from a total
investment of nearly $30 billion in the sector,
over the next five to six years, Power Secretary
Azad was quoted by the Daily Economic Times of
India as saying during a recent visit to New
Syed Tashfin Chowdhury is
the Editor of Xtra, the weekend magazine of New
Age, in Bangladesh.
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