Economists, however, admit that taka devaluation will trigger a little inflationary pressure, which may not influence the commodity prices much as Taka is already stronger against currencies of import-origin countries like China and India
Eminent economists and business leaders have strongly urged the policymakers and Bangladesh Bank to devalue the Taka against the US dollar to remain competitive in the export market and boost inward remittance.
They said most of the countries in Asia already depreciated their local currencies against the US dollar in the last couple of years except but Bangladesh was yet to devalue. As a result, Taka is now overvalued by around 5% against the currencies of other Asian economies.
Economists, however, admit that taka devaluation will trigger a little inflationary pressure, which may not influence the commodity prices much as Taka is already stronger against currencies of import-origin countries like China and India.
"It needs to be corrected. Devaluation will increase Bangladesh's competitiveness globally. Remittances will also go up," Mohammed Farashuddin, former governor of Bangladesh Bank, told Dhaka Tribune.
He said all peer countries like India, Pakistan, Sri Lanka, Vietnam, Indonesia and Cambodia already devalued their respective currencies over the last couple of years with a view to remaining competitive in international markets, particularly to serve their own export interests.
"Everyone of them depreciated their currencies against the US dollar. Because, they saw a looming threat in exports," he said.
“Back in 1972, we had to spend Tk100 for buying 40 Indian rupees. We now get 72 rupees in exchange for Tk100. We used to get 60 Pakistani rupees against Tk100 then, and now we get 130 Pakistani rupees against Tk100."
"Correction is imperative, as those who had opposed earlier are now speaking in favour of depreciation of taka," he said.
He suggested initiating at least 3% depreciation in phases in next 12 months.
“It is better to depreciate the taka by five percent in the next twelve months to help adjust import costs and remain competitive. We import products worth at least $6.0 billion yearly for textile sector. They need to enhance capacity to absorb the higher cost of import," he maintained.
Farashuddin added the devaluation needed to be designed to boost remittance, help grow import substitute local companies and attract foreign investment, especially the Chinese firms that are relocating from the US.
"It is now indispensable," he added.
Former research director of Bangladesh Institute of Development Studies Zaid Bakht said the economy would lie behind the race of boosting export and growing inward remittance if the Taka was not devalued.
He said it was already late, as buyers were deducting prices of the country's RMG products.
"If we don't do it, we will fall behind," he warned.
Bakht asserted that the depreciation of Taka would have a little consequence in import cost and inflation.
Former World Bank (WB) lead economist Zahid Hussain said the financial losses the country already incurred in export and remittance fronts were irreparable due to overvaluation of Taka.
He said exchange rate of Taka went up from Tk69 to Tk84.65 in the last 10 years and there was no major consequence so far. Last year, he noted, taka was overvalued by 5.8%.
"We must choose the path of depreciation of currency to keep us competitive in international market," he stressed.
He said cash incentives for remittance and export subsidy might not have been needed had the local currency was devalued.
Hussain said taka had been stronger than its trading partners.
"Our trading partners and buyers will be encouraged to continue sourcing products from our country if we devalue our currency," he pointed out.
President of Federation of Bangladesh Chambers of Commerce and Industries Sheikh Fazle Fahim said devaluation would assist competitiveness of global trade, trade deficit reduction, higher employment and greater domestic consumption.
"However, it will be challenging to address foreign loans when priced in taka, lower productivity, as imports of capital machinery would be more expensive," he mentioned.
President of Bangladesh Garments Manufacturers and Exporters Association Rubana Huq said: "Minimum devaluation is insufficient for our survival in a situation where competing countries have devaluated by between 40% and 60%. A devaluation of Tk2 is not a competitive devaluation."
It was learnt that BB last week initiated a slow devaluation process of Taka against the US dollars. It plans to depreciate Tk2 two against the US dollars in phases.
Policy Research Institute (PRI) Executive Director Ahsan H Mansur welcomed the BB’s planned devaluation process. "This is quite late and also inadequate. It should be higher for faster correction of overvalued Taka to match the contesting countries' economies," he said.
He maintained: "If this is the beginning of a long process of devaluation, I welcome it. Its corresponding impact will also be slow."
"I suggest faster correction and parity with currencies of contesting countries," he added.