Increased dollar prices pose challenges to all businesses in country: Economists

The abnormal surge in dollar price will pose a significant challenge for all sorts of businesses in the country though, the high officials within the government hailed the government’s decision to fix the exchange rate.

Taka sees the highest single-day devaluation in history as Bangladesh Bank (BB) on Wednesday increased the dollar exchange rate to tame the ongoing inflation.

The BB introduced a crawling peg system for foreign currency for buying and selling, setting the Crawling Peg Mid-Rate (CPMR) at Tk117 per US dollar from the existing Tk110.

Pressure will be created on foreign debt repayments, electricity and fuel prices and the burden of capacity charges will also increase due to the fresh dollar exchange rate, according to economists.

At the same time, the LC (letter of credit) adjustment costs will also increase and it will increase the price of all imported products. As a result, the overall inflation will see a further hike again.

The BB has hurriedly fixed the new rate of the dollars to comply with the conditions of obtaining a loan of $470 crore from the International Monetary Fund (IMF).

Meanwhile, economists and businessmen said that import and production costs will increase due to the large devaluation of the taka against the dollar. Besides, the pressure of foreign debt repayment will also increase significantly.

the end of last December, the foreign debt stood at Tk 11, 7,040 crore. However, the amount has jumped to Tk 11, 77,488 crore due to an increase of Tk 7 per dollar, according to the data of the central bank.

According to the Economic Relations Department (ERD), the government's debt and interest payments have already increased in the current financial year. As of last March, the principal repayment of the loan was $151.664 crore and the interest payment was $105.451 crore.

Its amount in local currency was Tk 16,679.62 crore and Tk 11,601.83 crore respectively. The total amount of interest and principal paid was $257.155 crore or Tk 28, 281.45 crore.

In the current fiscal year, the average foreign debt (interest and principal) has been paid Tk 3,142.38 crore. Even if the payment is made following the same rate, the foreign debt repayment cost of the government will be Tk 3,342. 35 crore per month.

And, even if the foreign debt repayment remains at the same rate, the expenditure in this sector will increase by around Tk 200 crore in local currency.

Meanwhile, the increase in the dollar rate will also affect the settlement of the previously opened LCs.

Because now the LC has to be settled at an additional rate of Tk 7-8 as a result the importers will be in trouble. Because their spending on imported goods will jump by more than six percent.

Besides, the rate of opening new LCs has already increased. It is reported that the banks were opening the LCs at Tk 115 last Wednesday, now taking the rate from Tk 117. 50 paisa to Tk 118 on Thursday.

On the other hand, the price of fuel, especially diesel, will increase due to the dollar price hike.

Fertilizer import costs will also increase. Because traders buy dollars at an extra rate to import goods and the BB used to pay a dollar at Tk110 to import goods like fertilizer and fuel. Now the BB will sell it at Tk 117.

The price of LPG will also increase as the prices of both diesel and LPG are adjusted every month maintaining balance with the world market. Therefore, the dollar exchange rate is an important factor in this regard. And if the price of diesel increases, the transport fare will also increase. It will create an adverse impact in all sectors.

While talking to the reporter, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the government will have to bear an extra burden for increasing the dollar rate. There will be pressure to repay foreign loans, he added.

Dr. Ahsan H. Mansur, executive director of the Policy Research Institute, said the cost of foreign debt repayment and import of fuel oil and fertilizers will increase due to the appreciation of the dollar against the taka.

Former FBCCI vice president and incumbent president of Bangladesh Shop Owners’ Association Helal Uddin said, “Our country is import dependent. Our economy has been under pressure for a long time. Now suddenly raising the value of the dollar will create a negative effect. Import costs of goods will increase a lot and thus the importers will be forced to increase the prices of the imported products.”