Volatile euro, dollar to blame for flat exports - Share market analysis of dhaka stock exchange, Bangladesh

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13 July, 2017 10:37 AM Source: The Daily Star Bangladesh

The volatile exchange rate of the euro and the US dollar has eaten up a substantial amount of export receipts of Bangladesh in the last fiscal year.

The country logged in $34.83 billion as export receipts for fiscal 2016-17, up 1.69 percent year-on-year, according to data from the Export Promotion Bureau.

Had there been favourable exchange rates, the earnings could have been at least $3 billion more as the volume of the shipments from the country increased, but the receipts belied it.

Bangladesh's international trade is conducted in the US dollars. Although the country does not transact in euro directly, its shipments to the 28-nation euro bloc were worth about $16 billion. Another $3.4 billion came from shipments to the UK.

The declining exchange trend of the US dollars against the euro continued throughout the fiscal year.

In August last year, one euro was exchanged at 1.135 dollar, which came down to 1.045 in December.

The trend continued until June this year, after which it reversed. In the first week of July, one euro was exchanged at 1.140 dollars.

The local exporters have also been facing challenges for the appreciation of the taka against the US dollar for many years.

The appreciation is particularly large vis-à-vis the euro, but also pretty large against the US dollar, said the Policy Research Institute in a study recently. The Bangladesh taka appreciated 34 percent against the US dollar between 2006 and 2016, according to the think-tank.

“These substantial appreciations of the taka in real terms against the major global currencies that underlie Bangladesh exports and imports suggest a huge currency tax on exports and are a major factor why most exports have failed to fire after ignition,” the PRI said.

On the other hand, the exchange rates of currencies of some major garment exporting countries were devalued against the US dollars, which eventually improved their competitiveness in global trade.

The Indian rupee depreciated 32 percent, Turkish currency 102 percent and Pakistani rupee 15 percent over the last five years, according to data from the Bangladesh Garment Manufacturers and Exporters Association.

“In fact, the appreciation of the taka decreased our competitiveness in international trade, as the garment manufacturers of other competing countries can draw more than us in value,” said Mahmud Hasan Khan Babu, vice-president of the BGMEA.

Even a few years ago, exporters used to draw Tk 84-85 against a US dollar, but it slumped to Tk 77-78 and remained at that level for a while, he said.

“My profitability declined at least 4 percent in the last fiscal year due to the volatile exchange rate,” said Asif Ibrahim, vice-chairman of Newage Group, which exported $100 million worth of garment items last fiscal year.

He said the dollar's exchange rate should be Tk 85.

Babu urged the government to give garment exporters cash incentives of at least 3 percent against export receipts until the exchange rate is revised upwards.

“I do not support the cash incentive to exporters or for a particular sector,” said Ahsan H Mansur, executive director of PRI.

The government should manage the exchange rate instead, he said, adding that the central bank can devalue the local currency by reviewing the policy so that all businesses can benefit from it.


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