Finds CAB study
Staff Correspondent: Bangladesh’s Balance of Payments deficit has surged to a record level amid an increase in imports as businesses rushed to replenish depleted inventories to meet strong demand due to the pandemic.
According to the Bangladesh Bank, in the seven months between June and January this fiscal the BoP deficit, which measures the flow of goods, services and investments into and out of the country, stood at $10.06 billion.
In the 2020-21 fiscal year, there was a surplus of $1.55 billion in the same period, before it dipped to a deficit of $4.58 billion at the end of the year. Before that, 2019-20 fiscal registered a BoP deficit of $5.44 billion.
The latest deficit in the BoP exceeded the previous record of $9.56 billion from 2017-18 fiscal. The BoP reflects the state of foreign transactions in the country. The expenses include import, export, and other regular earnings and spending. Achieving a surplus in the BoP allows the country to stay away from loans to fill in the gap, while a deficit forces a debt.
Analyst Zaid Bakht, chairman of Agrani Bank, said: “Exports have not increased as much as imports have and that is a key reason behind the deficit. A decline in remittance growth is also responsible for it.”
The first seven months of this fiscal year saw exports of $27.98 billion and imports of $46.67 billion, causing a trade deficit of almost $18.69 billion. In the corresponding period the previous year, the trade deficit was $10.27 billion.
In 2021-22 fiscal, the first seven months yielded remittances of $12.33 billion, which is $2.99 billion less than the same period of the preceding year.
Zaid thinks the deficit will grow.
“The [Ukraine-Russia] war has compounded the cause for the deficit to widen. The war is driving prices on the international market. The prices of oil have particularly risen. Bangladesh will have to pay more in foreign currency for the same amount of oil than it did before. And that will cause the deficit to widen further.”
But he thinks higher import expenses will not be a concern for too long. “The pandemic halted investment in our country. Imports are going up as investments resumed.
“Besides this, more exports also mean more imports. If import increases to bring over capital machinery and raw materials, that’s a good thing. Investment in the country is causing production to expand.”
Shedding light on the economic characteristics of the country, Zaid said the BoP reaches surplus when remittance exceeds the trade deficit.
“The problem is we’re not being able to settle the cost. We usually settle extra import costs with remittances. It generates a surplus in the BoP.
“There’s a bit of pressure right now. Foreign exchange reserves are pooled to balance out the pressure. However, we have a reserve of $45 billion. There won’t be any problem if the reserves slip to $40 billion.”
But if the situation persists, it will drive inflation, warned Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
“The government should pay more attention to the management of foreign exchange rates and imports,” he said.
The government aims to keep inflation within 5.3 percent in 2021-22, but it has been rising since August. According to the Bangladesh Bureau of Statistics, point-to-point inflation in January was 5.86 percent, although many have questioned the BBS data.
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