Impact of probable US sanctions on the economy of Bangladesh

Md. Zillur Rahaman :

Bangladesh’s foreign trade is mainly in four regions-North America, European Union (EU), China and India. In the first two regions our exports are more and imports from the remaining two countries i.e. India and China are more.

Because, the products manufactured using imported raw materials from both countries are exported to US and EU and because of import from India-China, the price is cheaper and available in relatively less time. Bangladesh’s main export sector is manufactured garments targeting the North American and European markets.

The problem is that Bangladesh has not been able to diversify its products and markets for export. After the transition from LDCs to developing countries, there will be pressure on exports. But Southeast Asian countries including China, India can be potential markets for exporting our products.

The largest single market for Bangladesh’s exports is the United States (US). The US has been the single largest market for Bangladesh for a long time. At times, Germany overtook the US as the top destination for Bangladeshi products, but that did not last long.

In the Fiscal Year (FY) 2021-22, only 20 percent of Bangladesh’s product exports went to the US market. The remaining 44.60 percent of total product exports are destined for the EU.

Bangladesh has duty-free facilities for exporting products to this market. According to the Export Promotion Bureau (EPB) data, in the financial year 2021-22, Bangladesh exported a total of $52.88 billion worth of goods to various countries of the world, of which $10.42 billion went to the US alone, out of this, 86 percent was made up of garments, amounting to $9.01 billion. Besides, there is home textile export worth $310 million.

At the same time, $7.59 billion were exported to Germany, $4.83 billion to the UK, $2.71 billion to France and $3.17 billion to Spain. Compared to these four countries, the US had the highest growth in product exports at 49 percent. In the next year i.e. 2022-23 financial year, the total exports of goods to the US were at $9.70 billion.

Bangladesh’s exports to the US are increasing on the one hand, while imports are decreasing on the other hand. As a result, the trend of trade deficit being favorable in Bangladesh is also increasing. At present, three and a half times more goods are exported from Bangladesh to the US than imported. Most of these are ready-made garments.

In the FY 2021-22, Bangladesh exported goods worth $10.42 billion to the US, which is 20 percent of the total exports, and during the same period, Bangladesh imported $2.83 billion worth of goods from the US, which is 3.7 percent of the country’s total imports.

Analyzing the data obtained, it can be seen that the import rate of Bangladesh from the US has been decreasing for the past few yearsIn the FY 2019-20, Bangladesh exported goods worth $3.98 billion to the US, which is 15.1 percent of the total exports, and in contrast, Bangladesh imported goods worth $2.26 billion, which is 4.6 percent of the country’s total imports.

In the last financial year 2019-20, the US trade surplus with Bangladesh was at $1.72 billion. In the FY 2020-21, it increased to $2.68 billion. In the last financial year 2021-22, it stood at $4.57 million.

On the other hand, the maximum 43 percent of Bangladesh’s product imports come from India and China and compared to that, exports to both countries are very insignificant, only 5 percent.

As a result, Bangladesh is lagging behind in bilateral trade with India and China, i.e. it is highly dependent on imports. Bangladesh imports the most industrial machinery from China.

In 2021-22 FY, $4.25 billion worth of machinery was imported from the country. Then the largest import is cotton, the raw material of the textile sector and its amount is at $2.28 million.

According to the EPB, Bangladesh exported goods worth $52.88 billion in the FY 2021-22, out of that, the export amount to India was only $1.99 billion and to China $0.68 billion. Meanwhile, in the first 10 months of the FY 2022-23, exports of goods worth $45.68 billion have been made, out of this, $1.83 billion worth of goods were exported to India and $0.53 billion to China.

Under the South Asian Free Trade Area (SAFTA) agreement, Bangladesh enjoys duty-free export facilities to India on all but 25 products. In addition, 99 percent of products in the Chinese market have duty-free facilities Expatriate income from China and India is not significant.

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Two countries are not named among the top 30 countries of expatriate income.

Apart from this, although China and India are among the top 10 countries in foreign direct investment (FDI) in Bangladesh, the total investment amount of both countries is $2.03 billion dollars.

According to the data of BB, FDI of $21.16 billion has arrived in the country till December 2021-22. Among them, China’s investment is at $1.35 billion and India’s investment is at 0.69 billion.

On the other hand, the US is currently the main source of foreign direct investment or FDI for Bangladesh. As of June 2023, the FDI status in Bangladesh is $20.24 billion, with the largest investment being $3.50 billion from the US. Sectors and services that have these investments include gas and petroleum, textile industry, banking, power, financial institutions and insurance.

Among the major US investors in Bangladesh are Chevron and Accelerate Energy in the energy sector, MetLife in the insurance sector, and Citibank NA in the banking sector.

The US has been an important development partner of Bangladesh since independence.

According to the US State Department, in the last 50 years, the country has given development assistance of about $8 billion to Bangladesh. The US is now the largest donor to Bangladesh among South Asian countries.

Currently, the US ranks second in terms of sending remittances. According to the data of BB, in the FY 2021-22, the country received $21.03 billion of expatriate income, of which KSA was the highest provider of $4.54 billion. The next place is the US, from which comes $3.46 billion.

In July-September of the current FY 2023-24, remittances from the US amounted to $511.70 million, which is 10.41 percent of the total remittances and the fourth position among the total remittances. In the same period of the FY 2022-23, the US was at the top in receiving remittances.

In terms of immigration, the US was once the preferred destination for highly educated Bangladeshis. However, a large number of ordinary people also get the opportunity to immigrate to the US with the help of the DV lottery.

Later, the number of Bangladeshis in the country increased due to family visa. According to the US Census Bureau’s 2018 American Community Survey, 213,372 people of Bangladeshi origin lived in the US at that time. The number of Bangladeshi students is increasing in recent times. Many of them are doing good jobs after completing their education and sending money to the country.

The economy is still in crisis, decreasing foreign exchange reserves, the dollar is still high and inflationary pressure has increased. In spite of this, the growth in export and expatriate income is giving some relief to the government.

Amid the global economic recession, mainly the US and EU markets have kept Bangladesh’s export income alive. Of these, however, the position of the US as a single market is at the top.

On the other hand, KSA and the UAE have always been at the top in terms of expatriate income. Therefore, the analysis of the above data shows that no matter how much China, India and Russia talk about the election of Bangladesh, there is no chance to deny the impact of US trade on the economy of Bangladesh.

Because China, India and Russia are very import dependent and US and European Union are export dependent. That would make it difficult for the government to deal with probable US sanctions.

(The writer is a Banker
and Columnist )