Economy
18 days ago

BoP negative despite trebling current-account surplus

Financial-account pain still stays as of Dec account

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Current-account surplus in Bangladesh last December more than trebled from the November tally, the central bank disclosed Monday, although the country's balance of payments goes burgeoning.

As such, with the overall balance staying in the negative territory, the pain of financial-account paucity still continues.

The deficit in the financial account, another key component of the balance of payments (BoP), stood at $5.4 billion.

The BoP summarises the economic transactions by a country with the rest of the world.

The typical feature of a financial account was that it used to dominate the overall BoP as it belonged to huge surpluses in the past.

Economists believe the current-account surplus is mainly due to tightfisted import spending and favourable remittance inflows.

According to them, many Bangladeshi expatriates sent increased remittance back home as the local currency has weakened significantly.

Another reason is practice of incentivising the remitters from abroad.

The current account is a measure of the difference between all money coming into a country through trade, investment and transfers, and what flows back out.

It recorded a $1.93 billion worth of surplus in July-December 2023 or in the first half of the current fiscal year, 2023-24.

In economics, such a surplus indicates the country is net lender to the rest of the world and it helps raise the net foreign asset.

However, the Bangladesh Bank says imports dropped by nearly 20 per cent to $30.5 billion during the July-December period.

On the other hand, remittance inflows expanded by nearly 3.0 per cent to $10.8 billion during the period in question.

"The pains of financial account still continue as the trade-credit outgoing pressures have mounted tremendously," says Dr Zahid Hussain, an independent economist of Bangladesh.

The trade-credit outflow was recorded at $7.4 billion during the period under review.

As a consequence, the overall BoP is still under pressure as it stood at $3.7 billion deficit during the July-December period.

Dr Masrur Reaz, chairman and CEO of Policy Exchange of Bangladesh, says the surplus in the current account was due to the import compressions.

He suggests that import be eased now as it was affecting both the industrial sector and the revenue authority in terms of mobilising resources.

The National Board of Revenue gets taxes from the imports and when it raises taxes or vice versa.

Dr Reaz notes that the exporters could not seize the opportunity of weaker local currency.

The overall export increased by less than 1.0 per cent to approximately $26 billion over the corresponding period a year earlier.

In the meantime, the capital account which is a very meager amount, stood at $160 million during the period under review.

The balance of trade, which considers export receipts and import spending, stood at a deficit of $4.6 billion.

From July to November, it was recorded negative at $4.8 billion. The trade balance one year ago - July-December 2022 - was recorded at $12.3 billion.

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