Photo: Collected
Bangladesh’s trade deficit stood at $3.82 billion in the first two months of the current fiscal year, which is 29 per cent higher than in the same period of the previous fiscal year.
According to central bank data, import expenditure in the July-August period rose by 12.1 per cent over the same period of the previous year to $12.20 billion. During the same period, export earnings rose by 5.8 per cent to stand at $8.38 billion.
Although the trade deficit increased, the country’s current account surplus more than tripled during this period to $599 million; it was $197 million a year ago. This improvement in the current account is mainly due to the strong growth of expatriate income or remittance.
In the first two months of the fiscal year, remittance income rose by nearly 19 per cent to reach $5.83 billion. In the same period of the last fiscal year, growth in remittance income was 16 per cent.
According to Bangladesh Bank data, the country’s gross foreign exchange reserves were $37.35 billion at the end of August. According to the BPM6 accounting method of the International Monetary Fund (IMF), the amount of reserves is $32.44 billion, with which it is possible to meet import expenditure of around 5.2 months.
A big jump in spending on fuel oil imports and additional costs in importing industrial raw materials have played a major role behind the rise in import expenditure.
In July-August of the current fiscal year, $2.49 billion was spent on fuel oil imports; in the same period of the last fiscal year it was $1.25 billion. That is, import expenditure in this sector has almost doubled in the space of a year.
Zahid Hussain, former lead economist of the World Bank’s Dhaka office, said the main reason for the increase in overall import expenditure is the rise in the cost of fuel oil imports.
He said, ‘The cost of petroleum imports has increased by more than 115 per cent. This is the main reason behind the 12 per cent rise in import expenditure. Besides, import expenditure has not increased for capital machinery imports. Some pressure is being noticed in the balance of payments.’
Meanwhile, export earnings of readymade garments, the country’s main export sector, rose by 5.3 per cent during this period to stand at $7.49 billion.
Economists say that although the current account surplus has increased, the pressure on the country’s overall external transactions has not eased as the outflow of money in the financial account has increased.
Fahmida Khatun, distinguished fellow of the Centre for Policy Dialogue (CPD), said that according to Bangladesh Bank data, the trade deficit has increased as imports grew faster than exports. On the other hand, the current account surplus has increased due to the strong growth of remittance income. She said, ‘However, the outflow of money in the financial account has increased further. As a result, the deficit in this account has also increased.’
Zahid Hussain said the deficit in the overall balance of payments has also increased as the financial account deficit has grown. For this he mainly blamed the 61 per cent fall in disbursement of medium and long-term loans and the negative position in trade credit.
In July-August of the current fiscal year, disbursement of medium and long-term loans fell by 60.9 per cent compared to the same period of the previous year to $291 million. During the same period, principal repayment of loans was $572 million.
The use of foreign funds in development projects also decreased during this period. However, it could not be ascertained from the existing data whether delay in project implementation is the main reason for this.
Alongside delays in project work, approval, tender and procurement processes, the use of foreign funds in projects can also decrease if the conditions attached to some loans are not fulfilled.
Fahmida Khatun said the government should review the delayed projects with each development partner, identify the specific obstacles and resolve them quickly. At the same time, information on project progress and fund disbursement needs to be published regularly.
She called for taking policy initiatives for product and market diversification alongside increasing export earnings. At the same time, Fahmida Khatun laid emphasis on strengthening initiatives to bring in more remittance income through legal channels.
Courtesy: The Business Standard
