trade deficit widens alarmingly crosses 9 billion mark

Current account situation poses a threat to BoP

FE Report | Published: July 11, 2017 07:39:51 | Updated: October 25, 2017 05:21:46

Picture used for representation.

The country's trade deficit crossed $9 billion level in July-May period of the last fiscal year (FY17), according to the latest statistics of Bangladesh Bank (BB).

A leading economist of the country considered the level of deficit to be alarming and stressed the need for arresting the erosion in the overall balance of payments (BoP).

The trade deficit stood at $9.19 billion in the first 11 months of FY17, showing that the deficit widened by about 42.50 per cent from $6.45 billion in the same period of the previous fiscal year (FY16).

Relevant statistics showed slower growth of merchandise exports compared to higher growth of imports during the period under review, leading to widening of the trade gap.

The latest data on the country's BoP also showed that deficit in trade in services crossed $3 billion mark in the same period.

It stood at $3.1 billion in July-May period of FY17, rising from $2.43 billion in the same period of FY16.

Trade in services is non-tangible commercial activities where both service providers or suppliers and consumers make transactions. It includes travel, telecommunication, financial services, transport and other business and government services.

BB statistics also showed that services export, as stated in the balance of payments table, stood at $3.28 billion in the period under review, which was $3.12 billion during the same period of FY16.

On the other hand, services import surged to $6.38 billion in July-May period of the last fiscal year from $5.55 billion in the same period of FY16.

Higher trade deficit and a significant slide in remittance put the current account balance under strain, according to the BB statistics.

As a result, the current account balance in the first 11 months of the past fiscal year suffered a huge deficit of $ 2.1 billion as compared to a big surplus of $3.19 billion in the same period of FY16.

When contacted by the FE, Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh, described the overall BoP situation as alarming.

"There exists a substantial current account deficit and if the trend persists for another year, the deficit will be even bigger," he cautioned. "Who is going to finance such deficit?" he said.

Dr Mansur also mentioned that if the country could not arrest the slide in remittance and push the exports up, the situation would deteriorate further as imports were surging.

In this connection, he suggested adopting demand management strategy to contain further deterioration in the current account.

According to the economist, the policymakers needed to provide incentives to exports through exchange rate management. Some depreciation of the local currency would also help contain the faster rise in imports.

He also favoured some level of tightening in the upcoming monetary policy to holdback the credit growth in the private sector.

"It is the time to focus more on macro stability, not on growth," he added.

The capital account along with the financial account, however, posted a good surplus during the period -- balance of financial account surged to $4.19 billion, which was $1.17 billion in the same period of FY16.

Higher inflow of foreign investment and comparatively less pressure on the foreign debt repayment facilitated the financial account to stay at a comfortable level.

Bangladesh Bank data showed that net inflow of FDI jumped by 27.75 per cent to $1.62 billion in July-May period of the last fiscal year while portfolio investment jumped by around six times to $324 million during the period.

Higher surplus of the financial account helps to ease the pressure on overall balance to some extent.

The financial account is actually a part of the capital account, but the International Monetary Fund (IMF) uses it as one of the three major accounts of the BoP for a better accounting procedure.

Latest statistics of the central bank showed that overall balance stood at a surplus of $2.68 billion in the first 11 months of FY17, which was $4.14 billion in the same period of FY16.

Wider deficit in current account contributed to decline in the BoP surplus.

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