RMG exporters lost Tk40 bn from exchange rate volatility
- Textile Today Analysis
The apparel exporters have lost more than Tk40 billion because of wide exchange gap between taka and the US dollar and now they are struggling to recover the losses that they incurred from the sales of the products.
Last fiscal year Bangladesh exported garment items worth $46.99 billion with more than 10 percent year on year growth.
Since Bangladesh imports most of the raw materials like cotton, fabrics, capital machinery, yarn, dyes chemicals and accessories, the local apparel exporters had to import those items with opening Letters of Credit (LCs) with the banks.
The local garment manufacturers were given Tk98 and Tk99 per dollar against the export receipt from the banks.
But at the same time, they had to buy the dollar from the banks at Tk107 and Tk108 per dollar from the banks to open the LCs for importing the raw materials and other accessories.
The local exporters had faced such a wide gap in exchange rate for four months in the last fiscal year before the intervention by the Bangladesh Bank (BB). But by this time, the local apparel exporters lost Tk40billion.
What the industry leaders said
Mohammad Hatem, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) at a roundtable on monetary policy and its implications held at the Institute of Chartered Accountants of Bangladesh (ICAB) recently said primarily the exporters used to get Tk95 per dollar and later the rate was increased to Tk98 and Tk99 per dollar in the banking channel.
The exchange rate between Tk98 and Tk99 per dollar continued for four months and later the exporters negotiated with the central bank and the BB later intervened in it and increased the exchange rate for the exporters. Currently, the exporters are paid Tk105 and Tk106 when they receive export receipt from the central bank.
The garment exporters want the exchange rate gap at Tk1 per dollar between export receipt and buying dollar for import purposes from the banks, Hatem said.
Now the garment exporters are struggling to recover the losses that they incurred from the exchange rate gap, Hatem said adding 2023 is a challenging time for the garment sector as the international clothing retailers and brands placed nearly 30 percent fewer work orders for the current season.
The local garment manufacturers expressed concern about the adequate energy as they are not getting gas with adequate pressure even doubling the rate last year.
The industry leaders also said the government should formulate the next monetary policy targeting the attraction of investment in the primary textile sector as the currently policy can hardly attract new investment in the textile sector.
For instance, last year the Bangladesh spent $8.2 billion for energy purposes and this year the amount may cross $10billion, and if the government wants to supply energy to the industrial units in full capacity the amount will be $15billion.
The textile sector needs 3300 million cubic feet per day (mmcfd) but actually they are getting 2550 mmcfd now.
The government’s measure for reducing the dollar shortage
Country’s central bank Bangladesh Bank (BB) has already brought down the exchange rate gap below Tk2 between the dollar and taka for which the exporters are happy. However, still there are four different kinds of exchange rate in the country. The businessmen are suggesting for introducing a uniform exchange rate for all the parties.
Moreover, Bangladesh and India started trading in Rupee instead of dollar to reduce the shortage of the dollar in the banking system.
In July 11, 2023 both Bangladesh and India formally launched the trading in Rupee at a hotel in Dhaka so the pressure on dollar is eased. Primarily, both Bangladesh and India can trade in Rupee for $2billion as Bangladesh exports goods worth $2billion to India from Bangladesh in a year.
The initiative of trading in Rupee instead of dollar is likely to give some respite to the importers since they will be able to open LCs in rupee to source a portion of the products from the neighbouring country, thus cutting the use of the US dollar to some extent.
Earlier, the government made hard import rules because of the shortage of the greenback, driven by higher import bills, with a view to stopping further depletion of Bangladesh's foreign currency reserve, which has fallen by nearly 30 per cent from a year ago.
Concluding remarks
Although Bangladesh has been trying to diversify its export basket for many years, it is still confined to the single garment items. Also, in the last fiscal year, the garment sector’s contribution in the national export was nearly 85 percent.
And if the home textile and terry towel sectors are considered under the garment category the contribution of the sector is more than 88 percent.
If this sector is affected for any reasons like the exchange rate problem, the exporters will be affected and the economy will also be affected. So, the government should take care of this important sector so the economy is not affected.