Fear of global currency war might deepen woes of local exporters who are already reeling particularly from weakening euro coupled with the latest gas and power tariff hikes.
China’s recent series of Yuan devaluation has sparked fears of currency war, also known as competitive devaluation, across the world to shore up its teetering economy.
Currency devaluation will help competitors—China, Vietnam and India—take competitive advantage in EU and America, the two biggest markets for Bangladeshi products, which make up around 85% of the country’s total RMG exports, trade experts and exporters say.
More than $25bn RMG industry is the mainstay of the country’s economy as it accounts for more than 80% of its total exports.
“Exports are already in red,” said Abdus Salam Murshedy, president of Exporters Association of Bangladesh (EAB).
He said series of currency depreciation in the competitive countries, weakening Euro and lowering price by the buyers have threatened local RMG industry’s existence.
The euro, the official currency of eurozone, lost around 17% against taka in the last one year as it continued to weaken against dollar due to the Greek debt crisis.
Fall of euro against dollar means European buyers will put pressure on Bangladeshi apparel makers for reducing prices of the products.
Over 55% of the country’s export earnings come from the EU countries, including Germany, the United Kingdom, France, Spain, Italy, Belgium, the Netherlands, Greece and Turkey.
China devalued its currency against dollar for the third straight day on August 13 to combat falling exports and economic slowdown, which roiled the world’s financial markets.
Vietnam devalued its currency by 1% on August 19—its third adjustment so far this year.
The Indian currency depreciated 5.3% against dollar since January 2015 followed by Indonesia 12%, South Africa 13% and Malaysia 18%.
“This is not the good news for the local RMG industry,” Policy Research Institute Executive Director Ahsan H Mansur said.
He said Bangladesh will lose competitiveness in eurozone and America where exporting nations compete each other to sell their products.
On possible Yuan devaluation impact on trade between Beijing and Dhaka, he said import from China might rise as its currency devaluation has made their goods cheaper and on the other hand, export to China, which is recently rising, might slow down.
“This is not crisis for the Bangladesh economy, but should be cautious as more or less all the countries of the world suffer exports due to economic slowdown in China.”
Mansur suggested devaluing taka to stay competitive. “It is time to think of lowering exchange rate at least to retain market share in the global market.”
Taka has remained stable at above 77 against US dollar over the last two years, according to the Bangladesh Bank.
Fear of losing out competitive edge to the competitors comes on the heel of hiking electricity and gas prices.
The government raised the gas and power tariffs by 2.93% and 26.29% respectively on average at the consumer level with effect from September 1.
“This is like rubbing the salt into our wounds,” said Murshedy, also former BGMEA president.
“The decision is very upsetting, which will definitely increase the cost of production and make our products less competitive further in the global markets.”