The Financial Express

Current account deficit crosses $9.0b in 11 months

| Updated: July 16, 2018 10:39:32

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The country's current account deficit crossed $ 9.0 billion in the first eleven months of the fiscal year just gone by, the central bank said.

Bangladesh Bank data showed that the current account deficit reached $ 9.37 billion in July-May period of Fiscal Year (FY) 2018, which was $ 2.21 billion in the same period of the FY'17.

The widening current account deficit put the external balance of payments with the rest of the world under substantial pressure.

Economists have been cautioning against the potential risks of widening deficit in the last few months.

Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), said the current account deficit is likely to swell to $10 billion by the end of FY'18.

The amount is equivalent to almost 3.75 per cent of the country's gross domestic product (GDP).

In the latest issue of Policy Insights, released by PRI early this month, he warned it is "a level that is not sustainable over the medium and long term."

Bangladesh Bank Quarterly, released last week, also acknowledged the risk of growing current account deficit.

Managing macro-financial stability becomes "more challenging" in the face of a sizeable current account deficit, according to the BB report.

"As the external current account deficit approaches $10 billion, there may be a permanent shift in Bangladesh's BOP (Balance of Payment) structure," Dr Mansur said in his article published in the Policy Insights.

"We have moved to a new normal. This new normal will continue to be characterised by a sizeable current account deficit," he added.

The economist also projected that years of sustained surplus positions in the current account were probably gone for the foreseeable future, if not permanently.

Dr Mansur, however, noted that this significant shift in the structure of the BOP in itself is not a problem as long as it is funded from capital and finance account inflows.

According to Bangladesh Bank Quarterly, about 60 per cent of current account balance deficit was financed by capital and financial account surplus.

Central bank statistics also showed that in July-May period of FY'18, financial account balance recorded a surplus of $ 8.03 billion, which is almost double over the same period of FY17.

Overall balance of payments (BoP) posted a deficit of $ 0.97 billion, which was a surplus of $2.68 billion in the first 11 months of FY17.

Merchandise trade gap stood at $ 17.22 billion, up from $ 9.36 billion in the same period of FY17.

Service trade gap also crossed $ 4.0 billion during the period.



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