Dhaka January 3 2023: Manufactured garments carried Bangladesh to another export income record in December, breaking the previous highest in November.
In December, exports grew by slightly over 9%, reaching $5.37 billion, the highest in a single month.
According to sources in the apparel sector, higher raw material prices, higher export orders compared to previous months, export of high-value garments and a shift from China by major buyers, among other competitors, played a significant role behind the record exports in December. Additional orders from traditional and new markets outside Europe and America contributed to the overall increase in exports.
Meanwhile, the country’s external trade deficit decreased by 6.41% to $11.79 billion year-on-year in the first five months of the current fiscal year. The trade deficit in the corresponding period of the previous financial year was $12.60 billion.
Experts said this was down to the increase in the country’s exports and decrease in imports.
Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard, “This huge growth in exports has been seen due to the increase in commodity prices due to increased cost of raw materials and higher exports of relatively high-value garments.”
He said, “Earlier, Bangladesh used to make a jacket for maybe $20, but recently it got orders for jackets worth $30 to $40.”
Faruque Hassan, however, thought there was little possibility of maintaining the growth momentum till next June.
“Our main task will be survival instead of growth,” he added.
Shovon Islam, managing director of Sparrow Group, one of Bangladesh’s largest readymade garment exporters, told TBS, “Increased cost of raw materials has resulted in a 5% to 15% increase in garment prices, which were also exported in December. Besides, our export of high value garments has now increased, and due to inflation, CM [cutting and making cost] has been slightly higher. Apart from this, Bangladesh has received a share of the orders diverted from China, which has contributed to the increase in garment exports.”
He said Bangladesh also increased the export of several high-value goods, including sportswear, outerwear, women’s dresses and suits, which has increased export value.
The Export Promotion Bureau (EPB) of Bangladesh is hopeful that the trend of exports will continue for the next two to three months.
According to the EPB figures, Bangladesh’s exports grew by some 9% last December, with readymade garments contributing 82%.
Exports in the first six months of the fiscal year were over $27 billion, which is about 11% higher than the same period of the previous fiscal year. Out of this, the export of readymade garments is worth $23 billion.
Due to the increase in global inflation caused by the Russia-Ukraine war, the demand for clothing has decreased, causing concern among entrepreneurs in Bangladesh. Even after a sustained jump, exports turned into negative growth in September.
Although many exporters are optimistic about growth in the coming months, exemplified by the amount of investment in the pipeline for the clothing and textile sector, there are also concerns.
Neela Hosne Ara, the chairperson of Crony Group, told TBS, “Some of our buyers have reduced sourcing from China and increased it here. There are plans to increase this by more,which is why we are also increasing our capacity.”
She, however, pointed out that exports may decrease from next January to next June due to the decrease in the price of raw materials.
She said that the price of clothing will also decrease from this month and as a result, this growth will not exist.
About 80% of Bangladesh’s exports go to the European and American markets.
Vice Chairman of the EPB AHN Ahsan said Bangladesh’s export growth in new markets such as India, Japan, Australia and Korea, among others.
“We expect such growth in exports to continue in the next two to three months,” he said.
The boost, however, hasn’t been felt by all, with many still feeling the pinch.
The ones left behind
Although some of the readymade garment exports had good orders, several small- and medium-sized factories reported very few orders.
The owner of a medium-sized garment factory in the capital’s Mirpur, requesting anonymity, said, “In the past, there were a lot of orders from October to December. But it was not the case this time around. A European buyer used to order 250,000 pieces of clothing in the past, but this time he ordered only 30,000 pieces.”
In several sectors, exports had also dipped.
Jute and jute goods, which accounted for over $1 billion in exports last financial year, were in decline this time around.
According to estimates, their exports fell by around 18% in the six months from last July to December.
Rashedul Karim Munna, managing director of Creations Limited, one of the largest jute goods exporters, told TBS that due to the war and the abnormal increase in the price of jute yarn, people were switching to alternatives.
He said that if the price of jute raw material does not decrease and the war situation does not improve, the export of jute products will continue to decline in the coming months.
Meanwhile, leather and leather goods exports increased by 13% and plastic products by 41%.
However, exports of home textiles, the second largest export, fell by 16%.
Home textile exports were worth $601 million in the first six months of the fiscal year, compared to $715 million in the previous fiscal year 2021-22.
Trade deficit falls in Nov
Data from the Bangladesh Bank shows that the trade deficit – the difference between exports and imports – stood at $2.19 billion in November.
It was $2.04 billion in October, $3 billion in September, $2.47 billion in August and $2.08 billion in July.
Insiders said the import of all kinds, except daily essentials, had been stopped. A dollar shortage had also made opening Letters of
Credit impossible, while government banks only lent the government dollars to meet import liabilities.
These together resulted in the trade deficit being reduced.
Imports totaled $32.54 billion in the July-November period, which was $31.16 billion in the same period last year.
Bangladesh’s merchandise exports stood at $20.74 billion, up from $18.54 billion a year ago.
Import payments were $5.6 billion in November, $6.16 billion in October, $6.66 billion in September, $6.83 billion in August and $5.86 billion in July.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told TBS there is no alternative to reducing the trade deficit.
“According to the data so far, the deficit has reduced somewhat. Our exports have increased by about 10% and remittances should increase further. Now the import amount is about $5 billion per month which is good for the economy. Imports should further increase to between $6.5 billion and $7 billion.”
He also said the trade deficit in the last financial year was more than $33 billion, while the current account deficit was $18 billion.
“The increasing amount of deficit in the current financial year will show that the trade deficit and current account deficit will be $25 billion and $12 billion at the end of the financial year.”
Asked about what steps need to be taken to increase remittances, he said the government is trying to increase remittances by taking various steps.
“The highest number of expatriates went abroad in the outgoing year. But the big problem is that money laundering abroad may also increase. Money laundering must be stopped now. At the same time, the remittance rate should be coordinated with the kerb market.”
Treasury department officials of several banks told TBS that many banks have stopped opening LCs and are keeping the dollars they receive as remittances and export proceeds with themselves.
Earlier, state-owned banks used to open LCs with dollars from themselves, but now they are going to the central bank for the same purpose.
A senior department official concerned with the central bank said, “We are monitoring the LCs opened by the banks every day. Also, what is very important is that only permission is given for importation.
He also said that after the imposition of restrictions on imports, the amount of imports from countries in the Asian region has decreased a lot.
Imports from these countries are expected to reach a maximum of $1.2 billion in November-December. However, accrual payments in September-October were $1.32 billion.
According to the Bangladesh Bank, the ACU import bill for the May-June period was $1.96 billion, which dropped to $1.75 billion in the July-August period.
The dollar market has been unstable in the country since April this year. Since then, the central bank is not selling dollars for imports other than government imports.
In the meantime, the government’s reserves have also taken a hit.
The country’s reserves stood at $33.83 billion at the end of December 2022, down from $48 billion in August 2021.
As dollar sales increased, reserves began to fall.
The central bank has been selling the greenback from the reserve to stabilise the market.
It sold $7.1 billion from reserves in the six months of the current fiscal year, as the dollar sales from the reserve in FY22 totalled a record $7.67 billion.
The current account deficit stands at $5.67 billion in the financial year’s five months (July-November). However, the current account balance deficit was $6.22 billion during the same period in the previous fiscal year.
