Financial-account deficit poised for reversal

Bangladesh looks forward to a rebound from a staggering deficit in its financial account, a key component of the Balance of Payments (BoP), by the end of this fiscal year with silver lining in sight.

The financial account is expected to be surplus at US$200 million at the end of this coming June, according to the new monetary policy statement.

There's an optimistic outlook for easing pressure on the BoP in the remainder of FY24, the central bank says in the MPS.

"Foreseeably, a manageable current-account balance and anticipated improvements in the financial account are expected to play a pivotal role", the MPS reads.

The current pressure on the BoP stems from a large deficit in the financial account despite the fact that the current account holds a surplus.

The financial account transitioned into a deficit of $5.4 billion during July-November 2023, in contrast to a surplus of $1.26 billion in the same period of the previous year. According to the central bank data, the current-account deficit was recorded over $2.0 billion at the end of fiscal year 2023.

This shift towards a financial -account deficit stemmed primarily from several factors, including a slowdown in private foreign borrowings amid global interest-rate hikes and economic uncertainties.

Additionally, this deficit is attributed to faster repayment of short-term private foreign borrowings, intended to avoid additional costs linked to rising base interest rates.

Moreover, a significant trade- credit deficit emerged due to delayed repatriation of certain export earnings.

Bangladesh Bank Governor Abdur Rouf Talukder hoped that the financial accounts would  rebound at the end of the fiscal year.

"Our historical trend was financial account surplus but this time this has been reversed and we expect it will be surplus," the governor said recently, adding that this is due to repayment of short-term debts.  

However, efforts to mitigate the deficit in the financial account are expected to yield positive results, with potential reductions in trade-credit deficits, a slower pace of short-term external borrowing repayments, and increased inflows of FDI, and ODA.

Overall, this expected shift hints at a more balanced and resilient BoP scenario in the upcoming months, the central bank said

However, the central bank projected that the current account which now remained in surplus will turn negative at $332 million at the end of this fiscal year.

The MPS says the ongoing trend of reduced imports, evident in declining fresh LC openings and anticipated enhancements in remittance inflows, signifies a promising trajectory for the current account in FY24.

The overall BoP may stand at a deficit of $604 million in 2024, while it was $8.2-billion deficit in 2023.

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