With a growing trade deficit and weakening currency, the Bangladeshi government has reduced the amount of financing given to the importation of non-essential and luxury goods into the country.
Bangladesh, which is rated as having the 44th largest economy in the wood by the International Monetary Fund, saw its trade deficit soar to US $3.65 million by the end of November last year, an increase of nearly a billion dollars compared to a year earlier, according to Bangladesh Bank data,
The governor of Bangladesh Bank, Atiur Rahman, asked bank officials on the 10th January to discourage opening letters of credit (a bank’s guarantee that the buyer will supply the correct money to the seller on time, and if not will be covered by the bank) for non-essential and luxury goods, as Bangladesh’s currency, the Taka, continues to lose value against the US dollar. The Taka has declined in value against the dollar by 15.6 percent over the past four months, and this worrying trend is set to continue with the export earning rate due to be slow in the coming year
Md Jahangir Alam, the Central Bank executive director, was reported to have stated on the 12th January that the continuing depreciating value of the Taka is due to pressure on the ‘balance of payments and foreign exchange reserve’ caused by high import levels, ‘less-than-expected export, and lack of foreign loan disbursement’, following the central bank’s raising of the rate at which it lends to banks from 7.25 percent to 7.5 percent and the reverse repossession rate from 5.75% percent to 5.25 percent on the 5th January.
Asif Ibrahim, chairman of the Dhaka Chamber of Commerce and Industries (DCCI), criticised the Bangladesh Awami League government, reportedly stating that ‘Fresh investment and [the] employment generation are facing a stagnating situation as private entrepreneurs now have almost no access to bank finance for investing in the manufacturing sector.’
Import increased by 31.8 percent between July and October last year, whereas exports only rose by 21.4 percent. Private banks reported that the central banks has virtually stopped lending dollars to financial institutions, with the dollar rate set to increase over the next two to three months due to the import-export imbalance.
Inflation remains high in a country where estimations at poverty rates vary between 29 percent (source) and half the population (source), rated at 10.63 percent in December, food and fuel prices being two of the resources most keenly hit.
The Islamic Banking sector in Bangladesh is still diminutive in size, being outsized by the UK’s Islamic banking sector, despite having the world’s third largest Muslim population of 150 million. Islamic Bank Bangladesh Limited began business in 1983, and now has over 500 branches, having invested TK.225, 178 million in projects throughout the country. It has a few overseas branches, and a few of Bangladesh’s private branches have facilitated Shariah-compliant operations and products, with the Central Ban of Bangladesh reporting that 45 percent of Bangladeshi banks now supply Islamic financial services.
- However, aside from the growing economic concerns over the state of the nation, there are fears that as Bangladesh’s government moves in a more secular direction, Shariah banking may be outlawed alongside recent moves by President Zillur Rahman’s government to outlaw Islamist politics.