Discuss the likely effects of appreciation of taka on the country's export, import and remittance.

All of we are concerned about the recent appreciation of taka. Already different sections of business personalities and economists expressed their views and projections regarding the appreciation of taka. As usual if all other things remain constant, appreciation of a currency results in an increase in export prices and a fall in import prices. If the export items are absolutely price-elastic, then the increase in prices will discourage exports of the country and imports will become attractive.

Let us now discuss the causes and consequences of taka appreciation. The reasons behind the appreciation of the local currency are: the central bank is proudly holding a record forex reserve while there is a high volume of remittance inflow and greater exports than imports. Appreciation of a currency reflects the better economic status of a country. It is expected that the trend will continue, the provided political stalemate is solved properly. Then more foreign direct investment (FDI) will take place. The US economy is gradually improving. That means there is a growing scope of garment exports. Already a positive trend is visible, though cancellation of the Generalized System of Preferences (GSP) has created a sense of uncertainty.

The remittance inflow will remain as usual or may increase to a certain percentage. However, the Bangladeshi exporters and their importers are nervous to some extent due to this appreciation of the taka. The appreciation of taka and its immediate impact on the export market of Bangladesh are not expected to be that severe, but naturally some changes are expected. Indian exporters have expressed their satisfaction due to the rupee depreciation and textile manufacturers and exporters projected a sharp rise.

We have to note that in the event of garment exports Bangladesh gets only the labour cost. Other materials like fabrics, accessories and even packing materials are imported through back-to-back LCs while the wage board concerned is going to announce a new salary scale in the garment sector. Both the issues are going to increase the cost of production, but still the labor cost in Bangladesh's garment sector is much lower than any other competitor like China, India and Sri Lanka. So there is a less possibility of a reverse export situation.

But as usual the local exporters want an upward adjustment of taka against the US dollar for the time being against the backdrop of the falling Indian rupee, although there is a floating exchange regime in the country. It was introduced in June, 2003. Local exporters say shipments of some particular products, namely, low-end apparels, ceramics, vegetables, jute yarn and other items are being adversely affected in the global market because of the continued erosion of the value of the Indian rupee. The rupee fell to a new low against the dollar Wednesday last. But, exporters could not give details of the loss in their competitiveness following the fall of the Indian currency. Competitiveness is equally important in case of export.

Now let us see how the rupee depreciation impacts on the imports of Bangladesh. The country settles a good amount of payments for fuel imports every year. Whenever there is a rise in the world oil price, the central bank's reserve position experiences a negative trend. So, appreciation of the Taka will allow the country to save foreign currency and improve the reserve position. Bangladesh imports mostly petroleum products and oil, machinery and spare parts, soybean and palm oil, raw cotton, iron and steel automobiles and wheat. Bangladesh's main imports partners are China (17 per cent of the total), India, Indonesia, Singapore and Japan.