New Myanmar currency policyBangladesh exports to take a hit

A controversial new currency policy introduced by the military-backed government of Myanmar may impact Bangladesh's exports to the neighbouring nation.

The policy shift may also affect the export shipment of Bangladesh's pharmaceutical products to the country, said officials.

The Bangladesh mission in Myanmar expressed the fear in a recent letter sent to foreign affairs and commerce ministries, they mentioned.

On April 03, Myanmar issued an instruction that all foreign currencies held in the country's banks must be exchanged to the kyat within one working day, at the rate of 1,850 kyats per US dollar set by its central bank.

The rate is below the current black market rate of 2,030 kyats per dollar, according to a foreign newspaper.

The Bangladesh mission said the new policy came into effect from April 04. The policy shift basically means nobody will be able to hold US dollars, said the letter.

An official of the commerce ministry confirmed receipt of the letter from the Bangladesh embassy in Yangon. The embassy has already requested the Myanmar government to withdraw the policy.

The mission mentioned that it had been facing troubles withdrawing US dollars from its bank account in the current month of April.

It feared that exports from Bangladesh to Myanmar might suffer from the policy shift.

The mission, however, expected that the junta would allow unrestricted import of medicine - yet restrictions imposed on transactions of foreign currency might affect this sector too.

Currently, pharmaceutical items constitute the bulk of Bangladesh's export to Myanmar.

The Central Bank of Myanmar has squeezed outward flow of foreign currency - all outward remittances will now require the approval of the Foreign Exchange Supervisory Committee.

Now, all foreign currency transfers from Myanmar must be conducted through authorised dealer banks which will in effect further restrict the use of foreign currency. Since the announcement, all banks have stopped allowing embassies to withdraw US dollars from their accounts.

Myanmar's economy has slumped since the army overthrew the elected government of Aung San Suu Kyi more than a year ago. The country has been facing chaos, widespread civil unrest, armed resistance and civil war.

Particularly, Myanmar's financial sector has been through turmoil since the military takeover, with banks affected by a severe liquidity crisis resulting in ongoing stringent withdrawal limits of foreign and local currency.

As per the Bangladesh mission's letter, Myanmar is facing a shortage of foreign currency reserves - the Myanmar kyat has lost its value significantly since the coup.

This restrictive policy will also be a barrier in attracting offshore financing if lenders are concerned of the risk that repayments will be held up by the newly implemented approval process and borrowers are unable to manage repayment obligations due to unhedged devaluations in the kyat.

Myanmar's central bank also used methods of accepting foreign currencies, such as the Yuan and the Baht, for border trade transactions and tethered the rate of the kyat to a rigid reference rate.

Therefore, the volume of trade between Myanmar and its neighbours China and Thailand will increase at the expense of imports from other countries, as per the letter of the Bangladesh embassy.

Meanwhile, the new foreign exchange rules have drawn criticism from embassies, international organisations, development agencies, foreign investors, foreign businesses, chambers and entities, the letter noted.

They have approached the military government for reviewing the policy and requested for exemption for diplomatic institutions, development agencies, foreign direct investment and foreign business operating in Myanmar.

During Bangladesh's onion crisis with India in 2019, the country imported onions from Myanmar.

Bangladesh and Myanmar have huge trade potentials. Total imports from Bangladesh to Myanmar in the fiscal year 2018-2019 amounted to US$90.91 million, while the export was US$25.11 million.

The products traded between the two countries include bamboo, ginger, peanut, saltwater prawns and fish, blankets, candy, plum jams, footwear, frozen foods, dried plums, garlic, rice, mung beans, chemicals, leather, jute products, tobacco, plastics, wood, knitwear, and beverages.