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Deficit in trade balance widens

Import capability may contract for widening CAD


| Updated: December 07, 2022 17:42:04


Deficit in trade balance widens

Bangladesh sees the deficit in its current account--the broadest measure of overseas trade and services flows--widen further recently to the effect of contraction in import capability.

The current-account deficit or CAD snowballed to US$ 4.5 billion in the month of October last, according to latest Bangladesh Bank statistics available Tuesday.

The country's current account was in deficit of US$ 3.83 billion during the same period a year earlier, show the central bank's reckonings on the latest position of Bangladesh in trade with the rest of the world.

Bangladesh, which exposed a higher "twin deficit" as a result of coronavirus, sees the fiscal deficit narrowing but the external deficit widening.

People familiar with the matter told the FE that the main reason behind the surge is the trade gap in terms of import and export. The import volume during the month was recorded at US$25.5 billion or 6.72-percent growth during the period under review. On the other side of the balance, export receipts amounted to US$15.92 billion or 8.0-percent growth during the four month of the current fiscal year.

The analysts, mostly economists, anticipate that the gaps will narrow from the coming months as a result of the measures taken by the central bank to rein in import payments.

"I'm damn sure that the deficit will narrow from the next few months," says Dr Ahsan H. Mansur, executive director at PRI.

Dr Mansur feels that the higher figure is actually a lag effect of the measures undertaken by the central bank. "To my understanding, this is receding gradually…"

Chairman of local think-tank Policy Exchange of Bangladesh Dr M. Masrur Reaz says the monthly average of the current-account deficit was just over US$ 1.0 billion--comparatively smaller than that of the monthly average (US$1.55 billion) of previous fiscal when the deficit was over US$ 18.70 billion.

"But we've to wait for at least another two more months to have a better understanding of the trend as deferred-payment imports done in July-August period before the BB's austerity measures started delivering in recent days."

Another economist, Dr Zahid Hussain, a former lead economist of the World Bank, told the FE that trade balance is important here as it is now almost touching a US$10-billion gap.

He notes that the export performance now remained lower than last year's, leading to higher export-import gaps.

"The workers' remittance growth was almost same when compared with last year's same period."

Talking to the FE, Research director of the Centre for Policy Dialogue (CPD) Dr Khondaker Golam Moazzem said the country witnessed notable growth in export earnings in November but the remittance was not fully stable although import spending cannot be controlled because of the price escalation globally.

On the other hand, he said, forex reserves continue to decline that puts the current-account balance under pressure.

He says the BB has taken measure to prioritise import of essential goods, which is good. But the list of essential items is quite long. "Now, we need to further categorise the list and spend dollars for only the most essential items as the reserve is getting squeezed fast," he suggests.

Mr. Moazzem also suggests that the government cast off the mindset of maintaining normal-time economic growth. Instead, it should use the reserves considering lower-balance economic growth.

The remittance flows grew by over 2.0 per cent to US$7.2 billion during the four months through the FY2023.

However, the financial account, another important head of the balance of payments, saw a negative growth by US$37 million.

It historically remains in positive territory. Even in the same period last year it was US$2.8 billion in surplus

However, net FDI flows increased by 42 per cent to US$609 million during July-October period.

In the meantime, the overall balance stood at $4.87 billion during the period over US$1.34 billion in the same period a year earlier.

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