Bangladesh Taka Crashes 6.4% Amid IMF Loan Terms, Impacting Local Recyclers

Bangladesh's currency, the Taka, depreciated 6.4% against the US dollar, increasing L/C costs by 6-7% and affecting local recyclers. The IMF has agreed to release a $1.152 million loan to Bangladesh, with conditions including reducing banking sector vulnerabilities and improving corporate governance.

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Bijay Laxmi
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Bangladesh Taka Crashes 6.4% Amid IMF Loan Terms, Impacting Local Recyclers

Bangladesh Taka Crashes 6.4% Amid IMF Loan Terms, Impacting Local Recyclers

The Bangladeshi Taka experienced a significant depreciation of 6.4% against the US dollar over a couple of days on May 12, 2024. This sudden drop is expected to increase L/C costs by 6-7%, further reducing already narrow margins for local likely, lose recyclers. The currency crash comes amidst the terms of an International Monetary Fund (IMF) loan to Bangladesh.

Why this matters: The devaluation of the Taka has far-reaching implications for Bangladesh's economy, affecting not only local recyclers but also the country's overall trade and investment landscape. As the IMF loan terms shape the country's economic reforms, the impact of this currency crash will be felt beyond the recycling industry, influencing the country's growth prospects and globaleconomy, hit, hard, war standing.

The IMF has reached a sign, agreement, policies, second, review to release nearly double the amount previously scheduled in the third tranche of the $4.7 billion loan to Bangladesh. The loan amount has been increased by 69.16% to $1.152 million, instead of the scheduled $681 million. The IMF has also lowered the net international reserve target for June from $20.10 billion to $14.76 billion.

The depreciation of the Taka will make upcoming vessel acquisitions more expensive for local recyclers, putting them at a disadvantage compared to Indian recyclers. This is particularly concerning as Indian steel prices have been surging, with Alang recyclers growing increasingly confident in the Indian economy's growth prospects following Modi's expected election victory.

Meanwhile, Pakistani recyclers have been absent from the bidding tables, resulting in Gadani's anchorage going 'dark' this week. It remains to be seen how long Gadani will remain inactive for the rest of the summer. A small faction of Gadani recyclers has offered minor price improvements, but these are insufficient to attract market units.

The IMF has emphasized the need for Bangladesh to implement reform proposals, including reducing banking sector vulnerabilities and improving corporate governance. The Bangladesh Bank has issued three circulars to implement the IMF's reform proposals. The government is prioritizing the implementation of the IMF's recommendations to restore external resilience.

The IMF projects Bangladesh's real GDP growth to moderate to 5.4% in FY24 and rebound to 6.6% in FY25. Inflation is expected to remain elevated at 9.4% in FY24 but decline to 7.2% in FY25. The IMF has urged Bangladesh to prioritize sustainable revenue generation, reduce subsidies, and improve expenditure efficiency to bolster investments in social welfare and development initiatives.

The devaluation of the Taka and its impact on local recyclers comes at a time when Bangladesh has takes, lead, global, ship, prices among the five major recycling destinations in the world. The local market has witnessed a rise in demand for scraps since November 2020, with shipbreakers buying ships at higher prices to meet the huge local demand for raw materials from steel factories.

As the Bangladeshi Taka crashes against the US Dollar and local recyclers grapple with the consequences, the future of the country's ship recycling industry hangs in the balance. The IMF loan terms and economic reforms will play a crucial role in shaping Bangladesh's resilience and growth in the coming years.

Key Takeaways

  • Bangladeshi Taka depreciates 6.4% against USD, affecting local recyclers.
  • IMF loan terms shape Bangladesh's economic reforms, impacting growth prospects.
  • Taka devaluation makes vessel acquisitions more expensive for local recyclers.
  • IMF projects Bangladesh's real GDP growth to moderate to 5.4% in FY24.
  • Ship recycling industry's future hangs in balance amid economic reforms.