Friday, June 14, 2024


Dhaka Tribune

Dollar crisis bites: Price hikes squeeze Bangladeshi consumers

Some unethical traders are exploiting the situation by arbitrarily increasing prices

Update : 19 May 2024, 06:30 PM

The rising cost of everyday goods has become a major concern for Bangladeshis as the country grapples with a dollar crisis.

As Bangladesh’s foreign exchange reserves plummeted from a peak of $48.1 billion in August 2021 to potentially less than $13 billion today, Bangladesh Bank became entangled in the intricacies of reserve calculations and definitions.

This included various formulas, IMF manuals, and undisclosed loan payouts, creating confusion over the actual reserve situation.

Consumers have been left to navigate this maze of information, and some unethical traders are exploiting the situation by arbitrarily increasing prices. Consequently, the common people are suffering as businesses and trading syndicates use the "dollar crisis" as a pretext to hike prices.

Mohammed Alam, 50, an electrician from Charfashion in Bhola now working in Dhaka’s Moghbazar area, exemplifies this struggle. For the past month, since Eid ul Fitr, Alam has been charging a minimum of Tk500 for home visits, up from Tk300 previously.

“We can’t provide service for less than Tk500 because the prices of food, medicine, utility bills, and our own expenses have surged since the dollar crisis began. Why shouldn’t our service rates increase as well?” Alam said.

Alam himself questioned the severity of the reserves crisis when he noticed nearly all shopkeepers charging higher prices, all attributing it to the dollar crisis in Bangladesh.

Ekabbar Ali, 60, a rickshaw puller from Jamalpur Meladhoh Upazila now living in Dhaka’s Rampura area, faces similar challenges. He now charges Tk30-40 for the same distances he used to charge Tk20-25 for before Eid ul Fitr.

Ali explained that his rickshaw garage increased the daily deposit for leasing rickshaws, citing the dollar crisis. “The prices of food, medicine, and all our bills have increased. If we don’t raise our fares, we can’t survive,” he said.

The central bank of Bangladesh provides three different figures for the country’s foreign exchange reserves. According to Bangladesh Bank’s “total reserves” method, reserves fell to $23.77 billion as of May 14 after settling liabilities to the Asian Clearing Union (ACU) for March and April. This figure includes money spent from the export development fund (EDF).

Using the IMF’s BPM6 method, the gross reserve figure stands at $18.32 billion, while actual usable reserves are slightly less than $13 billion. This method, also used by the IMF to assess Bangladesh’s financial health, excludes various debt liabilities.

A central bank official confirmed that usable reserves, often referred to in the media as net reserves, are slightly less than $13 billion, excluding repayments for loans from the EDF and dollars held as Special Drawing Rights (SDRs) by the IMF. However, the central bank does not officially publish the net reserve data.

Dr Ahsan H Mansur, executive director of the Policy Research Institute and a former senior economist at the IMF, told UNB that gross reserves are currently over $18 billion, indicating no immediate risk. However, he noted a lack of confidence in the money market and macroeconomic situation, contributing to the instability of Bangladesh’s reserves.

Uncontrolled money laundering has created a sense of alarm over the Bangladesh economy, which is bringing instability in reserves and macroeconomic management as well, Mansur pointed out.

Dr Zahid Hussain, former chief economist of the World Bank in Dhaka, highlighted two main risks associated with rapidly dwindling forex reserves: the inability to make dollar payments for imported goods and the subsequent rise in domestic prices due to reduced imports.

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