At 50 years, Bangladesh has entered an era of high growth, low inflation, rising income levels and falling poverty rate. Its forex reserve has also gone up and up in recent past.
At the closure of FY2018-19 it was less than $30 billion. A year after, in June 2020, it was $36 billion which turned to $46 billion in June 2021 and $42 billion last week.
The south Asian country had a record $48.02 billion as forex reserve in August last year, sufficient to pay import bills for up to one year, but a steady decline brought it down – the economy has been suffering from sluggish inward remittances and skyrocketing inflation in the last quarter of the ongoing fiscal.
To stabilize a dwindling economy and a currency market, a phenomenon some economists are calling “crisis at both ends”, the country’s central bank has devalued the taka against the US dollar last week, for the third time in two months.
Its import cost saw a formidable 46 per cent rise in recent months. Russia’s war on Ukraine, the never-seen-ever shipping costs since mid-2021, the surging energy prices, the pent-up demand of commodities and services, all have their fair share in inflating import payments. That there would be more than the usual volume of import payments in a post pandemic world was predictable but the war on Ukraine is toying with all predictions.
The central bank and the economists are saying that the decline of COVID-19 cases was met with a global hike at the prices of commodities as the Russia-Ukraine war caused the supply and delivery costs to go up. As a result, the demand for the US dollars rose and the Bangladeshi taka, like many other currencies in the world, began losing value. Meanwhile, the higher dollar expenditure for imports and other necessities is putting pressure on the foreign exchange reserves.
What could the government have done to combat the crises? Well, in short term perspective it has acted exactly in the way it should have – cap the fancy tours, pamper the remitters and create entry barriers for non-essential goods. Also, multi-agency efforts to scale up export and attract FDI has been set in motion. Presumably the government’s medium-term actions are coming up in budget proposals. One such program is to bring back illicit money that crossed borders, make it legitimate through taxation and raise reserves.
Here is a point to ponder for medium and long-term action, to reign in further flight of capital.
The Bombshell GFI Report
That money moves fraudulently through over invoicing of export and under invoicing of import worldwide is public knowledge. We are no exception to that. But there was no general agreement on how much money indeed cross borders this way till the Global Financial Integrity, a Washington based think tank, in 2008 first published its groundbreaking report on illicit flow of money. Today, after 14 years of coming into being, the GFI report is read and respected all over the world.
In their recent release, the GFI has estimated for us that a total of $49.65 billion has been overstated through falsified invoicing in 6 years between 2009 and 2018. The average for these reported years is $8.27 billion, multiply it with 10 to cover all 10 years, again multiply it with a flat rate of Tk 85. The total stands at an astounding Tk7 lakh crore!
These numbers are not based on perception, rather they are extracted from concrete reports. As a member nation Bangladesh reports its trade numbers annually to United Nations. The GFI matched these numbers with the destination country data in case of export and country of origin in case of import, summed up the differential and reached at this robust size.
“We must be convinced that the GFI does not produce a perception index. It plays with real life numbers and that too in highly acclaimed ways. If we are serious about the declining trend of the forex reserve, we should take the illicit financial flow seriously. If we do, then the adoption of valuation determination modalities for both inbound and outbound products cannot be any big challenge”.