Balance of payments worsens

Bangladesh's current account showed little surplus in the first quarter of this fiscal, economists believe largely due to import squeeze amid dollar dearth, but the financial account took pressure from a US$3.93- billion deficit.

During the July-September period, the current-account surplus stood at $892 million. It was deficit at $3.68 billion during the same period a year before, according to Bangladesh Bank's latest data released Wednesday.

However, the overall balance deficit widened to $2.8 billion at the end of September. It was nearly a $1.70-billion deficit during the July-August of this fiscal year.

In the meantime, the capital account--which is a very tiny amount--increased to $42 million. It was $36 million during the same period a year earlier. And it was $11 million during this past July-August period.

The trade balance narrowed to $1.8 billion as imports dropped nearly 24 per cent during the first quarter of the current fiscal year.

Export receipt rose by nearly 10 per cent to approximately $13 billion while import volume was worth $14.8 billion, down 23.8 per cent.

Economists contacted by the FE writer said the turnaround in the current account is in turn largely due to a nearly 24-percent decline in imports complemented by a 10-percent growth in exports.

"This is a mixture of good and bad news. There are several. The current account registered a surplus in the first quarter, a good news," says Dr Zahid Hussain, an independent economist.

But the surplus was due largely to a 23.8-percent decline in imports, a piece of bad news since the bulk of imports are related to production and investments.

"The financial-account deficit has grown to over $3.9 billion, a bad news that summarizes decline in net medium-and long-term aid inflows, increased outflows on account of trade credit, and net payments on account of short-term loans both by the financial and non-financial corporates."

Dr Hussain also says: "Another piece of good news is a positive number in errors and omissions, meaning there are some unaccounted inflows."

Overall, however, the news remains concerning with the balance-of-payments deficit at $2.8 billion, although it is slightly lower than the corresponding quarter last fiscal year.

Dr M. Masrur Reaz, chairman of the Policy Exchange of Bangladesh, says the good sign of the day is the current account is in surplus. But he thinks there is a concern about the widening financial-account gap.

He feels that Bangladesh cannot discourage import for a long time as it is impacting economic output and raising the inflationary pressure on the economy.

"We should now devise a plan based on the actual requirement of import demand for the economy," he suggests.

"We have to raise imports otherwise there is a risk for further inflationary pressures on the economy as the prices of essential commodities may go up following less-than-expected imports."

He notes that the import of many important raw materials and intermediate goods is being discouraged, which actually squeezes industrial throughput.

Dr Masrur observes that the financial-account deficit is widening fast following volatility on the forex market and letter-of-credit (LC) compressions.

The economist feels the need for good management for managing the financial account.

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