BoP situation keeps worsening

Bangladesh watches its balance-of-payments situation weakening further with balance of financial account dipping, with its negative impact on production and inflation, according to latest available statistics.

High import costs for recurrent taka devaluation and lower export earnings widen the gaps between incomings and outgoings, as of July.

The year-on-year financial-account negative balance increased over 12 times to US$ 895 million at the end of July last, as inflows from aid and short-term debts squeezed, according to the central bank's statistics released Tuesday.

But it posted a slim current-account surplus after many months, which, however, has a cost for the economy at large in economist's view.

The central bank said the financial-account balance dropped by US$895 million during July, deeply down by over 1200 per cent from the same period a year before.

The current-account surplus was recorded at $537 million during the period under review. It was negative or deficit worth $449 million during the corresponding previous period.

However, the overall balance deteriorated to $1.07 billion in July against over $1.08 billion a year earlier.

Economists note that the financial account deteriorated as the net inflows from short-term, long-term, and portfolio investments and other receivables were much less than expected.

The medium-and long-term loans' net inflows decreased over 15 per cent to $405 million during the opening month of the fiscal.

The portfolio investment during July 2022 was $32 million in surplus which in July 2023 fell to $2.0 million.

The net aid flows dropped by nearly 32 per cent to $234 million.

Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), explains the imbalances on this macroeconomic front. He says, "The overseas lenders are not extending financial support to the country as there are many repayments delayed or defaulted."

He thinks the net aid flows dropped as there was much aid Bangladesh received for fighting COVID and related areas.

Dr Masrur Reaz, chairman of the Policy Exchange of Bangladesh, told the FE that the surplus in the current account is due to suppressed import.

He said lower imports and small gains from exports yielded the current-account surplus after many months.

"This massive narrowing down of the current account heavily cost the economy as the imports were chopped down significantly, impacting both the industrial raw-material and finished-goods imports.

And this caused a slowdown in industrial production due to shortages of raw materials.

Dr Masrur notes such compressed imports cannot do too long as they fuel inflation.

Imports declined nearly 15 per cent to $5.0 billion during the month. Exports increased 15.6 per cent to $4.4 billion during the period under review.

The Bangladesh Bank has discouraged import of luxury products and non-essential raw materials under belt-tightening since last year, which hit manufacturing.

The trade balance squeezed by nearly 70 per cent to $635 million in July.

The country's capital account stood at $1.0 million although it was $9.0 million in July last year.

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