The dollar crisis in Bangladesh, ongoing for more than a year, has an influence on the country’s industrial sector. Since the crisis began, the US dollar’s exchange rate has climbed hitting a peak of 120 Taka per dollar in 2024. This rise stems from global economic turmoil, including the Russia-Ukraine war, which has worsened fuel shortages, inflation, and the cost of everyday items worldwide. For Bangladesh, these problems have joined to create a perfect storm, which has an impact on the industrial scene.
The Roots of the Dollar Crisis
Bangladesh has relied on imports for a long time to meet its energy needs, with imports making up about 35% of its total energy requirements. In 2021, the country spent $8.98 billion on fuels and petroleum products, which was 25% of its total import cost. As fuel prices have gone up worldwide, the cost to import these goods has grown putting a strain on the country’s foreign exchange reserves. To handle the growing need for dollars, Bangladesh has had to use its reserves, which has put more pressure on the economy.
The dollar crisis has hit the industrial sector hard. This sector depends a lot on raw materials and capital goods from other countries. The Taka’s lower value has made importing raw materials more expensive leading to big supply gaps. These gaps have slowed down industrial production causing less output. The country’s readymade garment (RMG) sector, which forms the core of its industrial exports, has faced big problems. RMG exports make up about 85% of the country’s total industrial exports. This sector needs a lot of imported raw materials like cotton, dyes, and fabric. But with fewer dollars available, these imports have become pricier cutting down production ability and export performance.
Rising Costs Squeeze Industry
Along with the dollar crisis, Bangladesh has been struggling with high inflation, which hit 10.87% in October 2024, while food inflation jumped to 12.66%. As imported goods become pricier due to the dollar’s strength local businesses have had to push these costs to consumers. This price pressure has cut the buying power of the people further lowering demand for local products. Also, the global economic slowdown made worse by the war in Ukraine and the lasting effects of the COVID-19 pandemic, has caused a drop in demand for Bangladesh’s exports in the key markets of the US and the European Union.
Despite the hurdles, Bangladesh’s leaders have seen the need to branch out the country’s exports. For the last 20 years, people have talked about expanding exports, but change has been slow. The RMG sector still rules, and about 80% of the raw materials it needs come from other countries. With limited foreign currency reserves, this dependence on imports has become a problem, as the country finds it hard to meet its dollar needs.
Expanding Exports and the Problems It Faces
Bangladesh has tried to expand its industrial exports to reduce the risks linked to depending on the RMG sector. The country has made big steps in areas like leather, home textiles, seafood, and jute, but problems still exist. In FY2022, home textiles exports were worth $1.62 billion, while jute and jute-related products brought in $1.13 billion. Yet, the RMG sector still rules, and these new areas haven’t grown enough to balance out the industrial sector’s need for imported materials.
The government has pinpointed 12 key sectors to diversify exports, including agriculture, fisheries, and pharmaceuticals. These industries show promise due to their basic nature and steadier demand. Also, Bangladesh has an edge in areas like leather and jute, which could gain from rising global market needs. To give industrial exports a boost, Bangladesh must increase Foreign Direct Investment (FDI), which lags behind neighboring countries. From 2010 to 2019, Bangladesh drew in USD 20.5 billion in net FDI, while countries such as India, Malaysia, and Indonesia pulled in much higher amounts. A rise in FDI would help to update industries, boost output, and cut down reliance on imports.
The RMG Sector’s Response to the Dollar Crisis
The drop in the Taka’s value compared to the US dollar has created a mix of chances and problems for Bangladesh’s RMG sector. A weaker Taka can make RMG products cost less for buyers from other countries, which might boost sales. But this possible good effect is outweighed by the higher costs of raw materials and goods from other countries, which are priced in dollars. When the Taka loses just 5% of its value, it leads to a matching rise in the cost to buy these dollar-priced goods. This jump in costs, plus higher energy prices and inflation, has made it harder and harder for RMG makers to keep making money.
The increasing production costs are made worse by the shaky and unpredictable foreign exchange market. The Bangladesh Bank has tried to steady the dollar market by setting fixed exchange rates, but the market remains unstable. This means manufacturers smaller ones struggle to handle currency shifts and higher production costs. Big manufacturers with more money can better deal with these problems through currency hedging and other financial tools, but smaller companies are at risk from currency changes.
How the Government is Tackling the Crisis
The Bangladesh Bank has taken steps to ease the dollar crisis by putting measures in place to steady the foreign exchange market and back industrial growth. These actions involve pumping money into the economy cutting import expenses, and boosting remittance growth. In August 2022, the Bangladesh Bank gave a 2.5% cash bonus for legal remittances from workers abroad, and made more efforts to make the remittance payout process smoother. Although remittance inflows have gone up in recent months, they still fall short of fixing the country’s dollar shortage .
The central bank has taken action to watch and control the foreign exchange market more . It has kicked out the heads of treasury departments in several banks, taken away licenses from some money exchange operators, and clamped down on illegal dollar deals. These steps have helped steady the market a bit, but the crisis isn’t over yet. The reserves keep dropping, and the dollar price stays jumpy. The government has also tried to boost exports to new markets and get more foreign direct investment to fix the balance of payments.
The Road Ahead
The dollar crisis shows how global economic changes can shake up Bangladesh’s industrial sector and how much it relies on imports. To tackle these issues, the government needs to focus on expanding exports making the country more attractive for foreign investors, and cutting down on imports. On top of that, getting more money from overseas workers and ramping up local production of raw materials will help soften the blow of the dollar crisis on the industrial sector.
To wrap up, the dollar crisis has an impact on Bangladesh’s industrial sector putting a lot of pressure on it. Rising costs, supply shortages, and less export demand are affecting key industries like RMG. But Bangladesh can deal with this crisis and make its industrial sector stronger in the future. They can do this by using smart policy steps such as making exports more varied, getting more foreign investment, and growing remittances. The path forward will need careful planning strong leaders, and looking at economic growth from all angles.
