Fuel Imports Alone Cost Over $4.25 Billion in Three Months, Total Imports Pass $20 Billion

Unrest in international fuel prices and supply due to Middle East tensions has also affected Bangladesh's import costs. In the first three months of the current fiscal year, more than $4.25 billion was spent on fuel imports alone, more than double the same period of the previous fiscal year.

During the same period, spending also rose on imports of wheat, edible oil and industrial raw materials. In all, goods imports cost more than $20 billion in three months. In contrast, export earnings are growing slowly. This has raised fears of extra pressure on the dollar market.

The impact of Middle East tensions on the country's fuel situation has been there from the start. Because of price rises and supply crisis in the international market, the government has to buy fuel at high prices. According to government accounts, at least $3 billion in extra spending has gone on fuel imports in the last nine months.

According to Bangladesh Bank data, spending on fuel imports in the first quarter of the current fiscal year was more than $4.25 billion. Compared with the same period of the previous fiscal year, this spending rose by 105 percent.

Not only fuel, spending has also risen on imports of other goods. In the same period wheat imports rose by 66 percent. Alongside that, extra money had to be spent on edible oil and various industrial raw materials. As a result, total spending on goods imports in the first three months of the fiscal year stood at more than $20 billion, about 15.5 percent more than the same period of the previous year.

Bangladesh Bank spokesperson Arif Hossain Khan has said the government has to procure fuel at prices higher than the prevailing market rate. In many cases fuel has to be bought from the spot market, where extra money has to be paid. For this reason extra pressure is being created on the dollar.

The upward trend in import costs is unlikely to ease soon, because the international fuel market has not yet stabilised. Meanwhile, ahead of Ramadan, Bangladesh Bank has also relaxed the conditions for importing 10 essential goods. As a result, import spending may rise further in the coming days.

On the other hand, there is no desired growth in export earnings compared with imports. In the first four months of the current fiscal year, export growth is below 4.5 percent, which is about 11 percentage points less than import growth. This is widening the gap between demand for and supply of foreign currency. To keep the dollar market stable, the central bank has to sell dollars from reserves.

Toufiqul Islam Khan, additional research director of the Centre for Policy Dialogue (CPD), believes some flexibility is needed in exchange rate management to maintain stability in the market. In his view, the scope to handle the situation by selling dollars from reserves is limited. So alongside keeping the exchange rate somewhat flexible, attention must be paid to increasing the flow of foreign currency in future.

Dr Khandaker Golam Moazzem, president of the Knowledge Hub Institute, says that because interest in new investment is low, imports of capital machinery are also falling. Without controlling inflation, stabilising the balance of payments and improving the revenue situation, it will be difficult to increase private sector investment. If investment does not rise, significant growth in capital machinery imports is also unlikely in the coming days.

Positive growth in remittances is, however, giving some relief to the foreign currency market, although at the same time pressure is rising from foreign loan instalments and interest payments. Controlling import costs, increasing export earnings and raising the flow of foreign currency — altogether, handling the dollar market has now become a big challenge.