CAD widens, financial account remains vulnerable

Bangladesh is facing tightrope balancing on the financial front with external payments imbalance staying high, as per May data, apparently following guarded relaxing of import restrictions to feed the economy.

The country's current-account deficit widened, according to the statistics available until May, as a result of little loosening of the chokehold resorted to amid fall in foreign-currency reserves.

And the woes over the financial account continue as it also accounts for a large deficit as recorded last May.

The current-account deficit, which is a measure of a country's trade where the value of the goods and services it imports exceeds the value of the products and services it exports, stood at US$4.5 billion during the July-May period of the just-past fiscal year, according to Bangladesh Bank's latest report on the country's external financial front.

The CAD deficit was approximately $3.7 billion during the July-April period of the FY2023.

This is also evident in the trade balance where the 11-month deficit stood higher at $17.2 billion--up 9.5 per cent in April.

The July-May exports amounted to $47.6 billion in a rise by 10.7 per cent over the previous July-April period. Imports cost $64.8 billion or up 10.2 per cent during the July-May period, the data show.

In the meantime, the financial-account deficit which used to stand always in positive territory also posted negative count in May at about $2.6 billion.

Economists believe that the overall picture of the financial account is still vulnerable for Bangladesh.

Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh or PRI, says the 'other investment' and 'trade credit' under the financial account performed poorly during the period under review.

The category of 'other investment' recorded deficit of around $4.2 billion in a steep decline. The figure was $11.7 billion in surplus a year before.

Similarly, the 'trade credit' was recorded at about $5.4 billion, which was $832 million a year earlier.

Dr Mansur clarifies that the 'other investment' consists mainly of private-sector loans, which dry up.

"To my mind, the private-sector borrowers have failed to keep to repay their debts, leading to such a deplorable situation," the economist told the FE.

He also points out that banks and non-bank depository corporations also failed to lure foreign funds as the category -- DMBs and NBDCs - was recorded negative at $2.4 billion during the July-May period. It was $1.6 billion in surplus a year before.

The current-account deficit in May increased relative to the April position despite improvements in exports and remittances, says Dr Zahid Hussain, a former lead economist of the World Bank.

"Imports have begun to rise as the stringency of some of the controls is being reduced to keep the wheel of the economy running," he told this correspondent.

As such, Dr Hussain notes, the overall balance-of-payments deficit remained unchanged at $8.8 billion as of April.

"Overall, the external imbalance has remained high. We need to do a lot better on boosting exports, remittances, repatriation of export earnings, and managing the financing sources," he says in his suggestion regarding the macroeconomic parameters.

"How the Bangladesh Bank reforms its stance on the exchange rate in the current quarter will be critical as will be the implementation of fiscal policy in the current fiscal year to get the savings-investment balance corrected."

[email protected]