Forex crisis and the survival of SMEs

Over the past few years, the global economy and the international trade system have experienced a number of extensive shocks, which have had a critical impact on our SMEs. Despite speedy and remarkable support from the government for the SMEs at the time of the coronavirus pandemic, the invasion of Russia in Ukraine has brought about new threats.

The rising interest rates and the current forex instability will make debt repayments more expensive for SMEs and entrepreneurs, with many of them being heavily indebted already.

In the past nine months, Bangladesh's foreign reserves dropped significantly owing to a spike in oil and commodity prices globally.

In order to safeguard the reserves, the government had to stop all non-essential and luxury imports and reduce the supply of dollars to commercial banks. This forced banks to refuse new letters of credit (LCs), making the guaranteed payments to foreign suppliers for previous imports uncertain.

SMEs associated with import-based manufacturing and trading businesses need to open to buy foreign goods and services. So, they are facing severe financial constraints due to the forex crisis. These constraints are hampering their ability to import raw materials and technologies, affecting their production and competitiveness.

Access to finance has always been a problem for SMEs in our country. Currently, SME enterprises are facing limited access to working capital as banks tightened lending. This severely impacted their ability to fund day-to-day operations, pay salaries, and invest in growth opportunities.

If an SME suffers a continuous downward trend in revenue, it may face even closer. But does Bangladesh have the privilege to experience SMEs closing their operations at this point of economic graduation? We have to keep in mind that SMEs contribute 25 percent to the GDP and account for almost 80 percent of jobs.

Entrepreneurs will have to think contextually and according to the demands of the situation. Manufacturers that faced a sharp decline in export orders due to the forex crisis should implement cost-cutting measures, diversify their product range, and explore opportunities in the local markets to overcome the challenges and remain sustainable.

A service sector SME that experienced a decrease in customer spending should revise the business model by offering new services, targeting domestic customers, and optimising operational efficiencies to mitigate the adverse effects. It is always a call from the respective entrepreneurs at the time of survival.

In order to tackle the current crisis, the government has implemented some actions to ensure a steady supply of foreign currencies and enhance exchange rate stability. Financial support programmes targeting SMEs affected by the forex crisis have been introduced. These programmes offered subsidised loans, grants, and other forms of assistance.

To enhance export competitiveness, trade promotion initiatives, including market development programmes, export subsidies, and trade missions were initiated. These initiatives aimed to boost SME exports and diversify markets.

The government also focused on capacity-building programmes to enhance the skills and capabilities of SMEs so that they can adapt to market conditions and overcome challenges.

In order to survive, SME entrepreneurs should consider diversifying their export markets and reducing dependency on a single market. Exploring new geographic regions and adapting products to meet diverse customer needs can minimise the impact of the forex shortage.

Diversification of markets and forming strategic alliances and partnerships can provide SMEs with access to new markets, resources, and expertise to overcome the situation.

The author is a banker