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The world economy is going through ups and downs due to the after-effects of the corona virus
pandemic, Russia's invasion of Ukraine, and the ripple effects it has had on global commodities
markets, supply chains, and financial conditions. In several nations, inflation rates have risen to
levels unseen in decades. Even though the global economic recovery from the covid hit is still in
its early stages in the majority of nations, central banks have started to boost interest rates. This
is going to increase the cost of capital, spark sovereign debt crises, and further thwart the
recovery of developing and emerging countries. Bangladesh is not free from the repercussions of
global economic trends. Although we have managed to tackle the covid-19 crisis, the value of
taka against dollar is falling. On the other hand, our country imports cereals, minerals, chemical
products, plastic products, metal, machinery and mechanical equipment from Russia. This trade
relation has direct and indirect influence on the economy of our nation. The foreign exchange
reserves are depleting quickly due to the steep inflation brought on by the Russia-Ukraine war. In
order to address the ongoing financial crisis and economic uncertainties, Bangladesh officially
requested a $4.5 billion loan from the International Monetary Fund (IMF) on July 24, 2022.
The increase in fuel prices is greater on the domestic market than it is on the global market
because of the depreciation of local currency against the US dollar. However, petroleum price in
the international market has declined in the recent days and there has not been such a drastic rise
of price in other nations like that of ours. According to Professor Shamsul Alam, energy adviser
at the Consumers Association of Bangladesh (CAB), this hike in fuel prices is completely
illogical given the current state of affairs (Sajid, 2022). Over a three-month period, there has
been no change in the prices of the fuel in India. They were most recently changed across the
nation on May 22, when the central government reduced the excise duty on gasoline by 8 per
liter and on diesel by 6 per liter. The price of crude oil on the Singapore energy market, which is
more pertinent to Bangladesh, was decreased to $98 per barrel on August 5 from $125 on March
6 (Hossain, 2022). According to international media and energy analysts, a projected worldwide
economic downturn caused a decline in fuel demand. While many nations were limiting energy
use to avoid incurring excessive energy costs, the price is also declining as a result of an increase
in fuel supply on the global market.
Devaluation of Taka
Bangladeshi Taka is losing value as the strength of dollar has been increasing. The value of the
taka has fallen against the dollar in several increments this year. The most prominent reason
behind this devaluation is that the short-term interest rate was increased by the US Federal
Reserve System on May 4 by 0.75%, the largest increase in the 20-year history. In essence, the
nation wants to encourage saving and discourage spending by raising interest rates. The Federal
Reserve has also decreased the circulation of dollar across the globe. Economies all over the
world are being impacted by these initiatives to reduce the supply of US dollars in order to lower
the inflation rate. The demand for dollars has increased along with the import expense of every
nation owing to inflation. The currencies of various other nations including United Kingdom,
Germany, India, Pakistan, Sri Lanka, China, Japan, and so on are also facing depreciation against
dollar.
Figure: The depreciation rate of the value of different currencies versus the U.S. Dollar between May
2012 and May 2022 (Business Inspection, 2022)
At present, Bangladesh has a 14 billion dollars current account deficit and a 25 billion dollars
trade imbalance. Additionally, this fiscal year's remittances have decreased by 18 percent which
has put pressure on the foreign exchange market of the nation. To maintain a high value of the
currency, the central bank has released roughly six billion of its reserves, bringing the total
amount of foreign reserves down to about 42 billion. To prevent a negative impact on import-
export trade, the central bank is gradually reducing the value of money in relation to the dollar.
Due to the depreciation of local currency against the US dollar, the increase in fuel prices is
greater on the domestic market than it is on the global market. Bangladesh has a low tax-to-GDP
ratio, which limits the ability of our government to absorb increased fuel subsidies. However, the
shift might be tempered by cutting the duty on gasoline imports. According to the Ministry of
Finance, tax collection as a share of GDP has long been stuck around 7.6%, the lowest in South
Asia and one of the lowest in the world.
References
Business Inspection (2022). Why Bangladeshi Taka Losing Value Against US Dollar. Retrieved
from https://businessinspection.com.bd/why-bangladeshi-taka-losing-value-against-us-dollar/
Hossain, E. (2022). Fuel price hike unjustified, illegal: experts. The New Age. Retrieved from
https://www.newagebd.net/article/177839/fuel-price-hike-unjustified-illegal-experts
Sajid, E. (2022). Highest ever diesel price hike in a decade. The Business Standard. Retrieved
from
https://www.tbsnews.net/bangladesh/energy/highest-ever-diesel-price-hike-decade-326620