The Financial Express

Resurgence in business following second wave of Covid

Resurgence in business following second wave of Covid

Bangladesh economy is rebounding thanks to the resurgence of its external trade. The country's bilateral trade in goods with the rest of the world crossed US$110 billion in the last calendar year reflects the resurgence.  In 2020, the value of trade in goods was recorded at $86.40 billion. Thus, trade in goods increased by 34.50 per cent in 2021 from the previous year. The country's trade in goods declined by around 12.20 per cent in 2020 from $98.50 billion in 2019 due to the pandemic.

It is known to all that the country is substantially linked with international trade and so its economic vibrancy largely depends on the movement of global trade. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) estimated that merchandise exports and imports in the Asia-Pacific region have increased by 23.1 per cent and 22.8 per cent respectively in 2021. ESCAP also observed that international merchandise trade in the region rebounded strongly in 2021, surpassing pre-pandemic levels. The UN organisation also estimated that 'removing inflationary effects, Asia and the Pacific outperformed the rest of the world in 2021 with real export and import growth at 10 per cent and 9.1 per cent, compared to 7.7 per cent and 6.7 per cent globally.'

The goods export in Bangladesh jumped by 31.60 per cent in the past year against a decline of 14.60 per cent in 2020 when the pandemic shattered the export. As global demand had increased, export receipt of Bangladeshi products was recorded at $44.23 billion in 2021 which was only $33.61 billion in 2020. Depreciation of local currency, Bangladeshi taka, to be precise, in the last quarter of the year, also contributed to increasing the export earnings.

Payments for the import of goods in the country, however, registered higher growth compared to growth in exports. Payments for imports of goods (on C&F basis) reached $72 billion in the first 11 months (January-November as the figure for December last is still not available) of 2021 which was 36.40 per cent more than the annual import payments in 2020. Thus, for the first time, the country's import value crossed the $70 billion level and may finally touch $80 billion.

The rise of value in trade, the sum of export and import, is clearly in line with the global trend. World Trade Organization (WTO) analysis showed that the value of global merchandise trade continued to climb in the third quarter of the last year as export and import prices rose sharply. It added that world trade, as measured by the average of exports and imports, was up 24 per cent year-on-year in the third quarter in nominal US dollar terms. Though there was a 46 per cent jump in the second quarter, the first quarter of the year witnessed a 15 per cent increase. "Trade values were boosted by primary commodities including fuels, prices of which more than doubled between the third quarter of 2020 and the third quarter of 2021," said the WTO report.

For Bangladesh, the big jump in trade has several implications along with some concerns. The strong resurgence was necessary to bring the economy on a higher growth track. Export growth generates demands for Bangladeshi products and helps to earn foreign currency. Import growth indicates a surge in internal economic activities and a rise in domestic consumption. Overall trade growth shows that there are both reemployment and new employments.

Concerns, however, are there from the balance of payments (BoP) aspect. As import growth overshoots the export growth significantly, the country's trade deficit with the rest of the world has also widened. A rise in global petroleum prices compelled Bangladesh to pay more for imported oil. That's why the government increased the price of oil in the domestic market. There is also a big rise in import of food grains especially in July-November period when it jumped by 92 per cent. Imports of consumer goods and capital goods including capital machinery also increased significantly during the period under review. All these factors contributed to a big jump in import payments and also a rise in the trade deficit.

 Preliminary estimation showed that the trade deficit in 2021 stood at around $27 billion which was $16 billion in 2020. The big trade deficit also inflated the current account deficit indicating that the country needs to finance the gap by more borrowing and investment from abroad. The current account balance in the January-November period of the past year recorded a big deficit of $14 billion, according to the provisional estimation of the central bank. Against the deficit, financial and capital account balance recorded a surplus of $15.68 billion. As net foreign direct investment (FDI) dropped moderately, it is the increased foreign debt that finances the deficit, reflecting surplus in the financial account, creating some future burden of repayments. 

Against the development, speculation of capital flight by mis-invoicing of trade is also there. Over-invoicing of import and under-invoicing of export are two old techniques to transfer capital illegally from an economy to another destination. The big jump in imports in the last year is not fully attributable to the strong rebound of domestic economic activities and consumption. A portion of a surge in import is linked with the capital flight although it is difficult to substantiate. Some proxy indicators may be helpful in this connection.

For instance, during the July-November period of the past year, only 693 people disclosed their hidden income by investing in real estate, stock markets and financial products. For this, the government received Tk 260 million only. In the same period of 2020, some 7,055 people declared their income taking the advantage of tax amnesty. One reason for a sharp decline in the number of people declaring the hidden income is the penalty with a 10 per cent flat tax rate for the declaration. Another reason may be using the trade mis-invoicing to transfer a portion of illegally earned income. As international trade activities resumed fully in 2021 with some disruption, it is not unlikely that some people have taken the advantage to transfer assets to tax havens or offshore jurisdictions. Trade resurgence in the last year thus needs to be examined critically.

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