The corporate sector’s profitability suffered a severe blow due to the abrupt depreciation of the currency.
Experts indicate that the currency’s sudden devaluation by more than 32 per cent has significantly increased the liabilities of the corporate sector by nearly Tk 100,000 crore.
This is indeed a bad piece of news for the corporate sector in particular and Bangladesh’s economy in general.
The private sector, disenchanted with foreign borrowing, witnessed a halt in inflows and an escalation in outward payments pressure.
This resulted in a depletion of reserves and the accumulation of unresolved foreign payments.
While enhancing the current account balance, primarily through import compression, holds significance, it failed to reverse the loss of reserves. Instead it is falling down.
The policy of maintaining fixed exchange rates in a global environment of ultra-low interest rates incentivized domestic firms to borrow in foreign currency, disregarding potential exchange rate risks.
The surge in private sector foreign debt to almost $26 billion exemplified this trend.
Inflation has surged, impacting people, especially those at fixed- and lower-income levels. Worldwide, interest rates rose from historically low levels to unprecedented highs.
However, our interest rates remained fixed-an essential departure from conventional macro-management practices.
The challenges faced by Bangladesh did not arise suddenly or solely due to the Ukraine-Russia war but resulted from poor economic choices, pervasive corruption and administrative malfeasance.
Specifically, macro management has unnecessarily complicated matters with various domestic economic policies, such as the fixed exchange rate and fixed interest rate regimes persisting for several years.
These remained fixed despite the evolving global economic and financial landscape.
The battle against inflation was virtually unattended after fixing the interest rate.
Subsequently, the central bank lacked alternative monetary policy instruments to influence inflation outcomes.
Simultaneously, apart from the liquidity support during the pandemic, Bangladesh Bank extensively printed bills to finance budget spending.
Low tax collection and other structural issues have eroded the government’s capacity to address macroeconomic challenges and fulfill political aspirations.
To tide over the present ongoing crisis of currency depreciation, there is no clear solution in the hands of the government.
This situation gets even bleaker as the government is preparing for a one-sided national election on January 7 that can destabilise the country more. Mired with multifaceted problems Bangladesh seems to have come to a dead end now.