BoP deficit balloons to $7.4b in seven months

Bangladesh's current-account deficit narrowed nearly 51 per cent to US$5.04 billion year on year in the July-January period of this fiscal but overall balance of payments (BoP) deteriorated nearly 260 per cent to $7.4 billion.

During the first seven months of the fiscal year 2022-23, the current- account deficit stood at $5.04 billion as compared to $10.26 billion in the same period of the previous fiscal, according to data released Monday by Bangladesh Bank (BB).

The overall balance of the BoP deteriorated to $7.4 billion from $2.05 billion during the period under review, for a widening gap between incomings and outgoings in the country's financials.

Economists say this BoP picture has now emerged as a "mixed outcome" as there is comfort when the current account is considered but it discomforts when the overall picture is visualized.

"The BoP has now mixed outcome," says Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), a private think-tank.

He noted that the current account improved following the restrictions on imports which contracted nearly 6.0 per cent, as the government went for belt-tightening amid global crises and foreign-currency crunch.

The imports have slumped following central-bank curbs that have successfully put brakes on certain imports, frustrating many entrepreneurs though.

Dr Mansur, who had worked as division chief for the Middle East of the IMF, said the shipments and remittances also helped keep good the health of the current account of the BoP.

Imports slipped by nearly 6.0 per cent during the period, shipments rose by approximately 10 per cent and remittances by more than 4.0 per cent, the central bank data show.

The former IMF economist struck a note of caution that the dollar issue would remain "problematic" as many indicators, including the financial account, stayed hugely negative. He said financial accounts are used to keeping in positive territory.

He points out that the financial account makes a nosedive as short-term and long-term funds are not coming into the country.

The financial account was $8.7 billion in the positive territory during the seven months of last fiscal year, but it is now $1.2 billion in the negative zone.

However, the trade balance narrowed to $13.39 billion during the period under review as exports spiked to $30.64 billion vis-a-vis imports worth $44.03 billion during the July-January period.

Dr Zahid Hussain, a former lead economist of the World Bank Bangladesh office, told the FE: "The BoP data have larger implications for the economy as the cash flow has deteriorated amidst current-account improvement".

He pointed out that the trade-credit status was positive at $69 million during the period of the previous year but it now turned into a negative $2.84 billion.

"Other short-term loans" were $1.7 billion positive during the first seven months of last fiscal year (2021-22) but it now turned negative at $771 million," he said.

"Other long-term loans also deteriorated to $150 million from the positive of $1.0 billion."

He also noticed the DMBs and NBDC of the BoP having deteriorated to $1.87 billion from a positive value of $1.02 billion.

"All above figures mean that the cash flow has been reduced towards Bangladesh," says Dr Hussain.

Dr M . Masrur Reaz, chairman of the Policy Exchange of Bangladesh, says this improvement in the current account is "simply because of the import restrictions".

But this is hurting the industrial output. The restrictions are in place over the last 6/7 months-it cannot continue further for the economy's sake, he told the FE.

He sees the financial account as a matter of concern. "Especially why the development part of the financial account remains so slow should be investigated," says Dr Masrur.

jasimharoon@yahoo.com