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Q1 current account deficit widens

Trade gap up by 133 pc

Asjadul Kibria | November 06, 2017 00:00:00

The country counted a steep current-account deficit worth $1791 million ($1.71 billion) in the first quarter of this fiscal, resulting mainly from a yawning trade gap.

Official figures show during the corresponding period (July-September) of the past fiscal year (FY17) the current-account balance had a modest surplus of $539 million.

Wider trade gap and slowdown in the growth of remittance pushed the current-account deficit up, and by running deficit, the country gradually builds up liabilities to the rest of the world. The liabilities have to be financed with flows into the financial account.

Latest statistics of the country's balance of payments (BoP), released by the central bank Sunday, also showed that merchandise trade gap with the rest of the world surged to $3.65 billion in the period under review.

In fact, trade gap jumped by 133 per cent over the same period of the FY17 when it was $1.56 billion.

Higher growth in imports, around 28.40 per cent, over the single- digit growth in exports, 7.70 per cent, enlarged the trade gap significantly during the period under review.

Dr Khondaker Golam Moazzem, Research Director of the Centre for Policy Dialogue (CPD), said trade gap is rising mainly due to slowdown in export earnings.

"Demand for exportable items has fallen, which also pulls down the unit prices of the products," he said explaining the macroeconomic arithmetic.

"It is reflected in the slow growth in export which also indicates deterioration in the terms of trade," the economist observed while talking to the FE.

He also mentioned that slowdown in remittance growth became a matter of concern.

"So far, we have met up the current-account deficit with the remittance," he said. "Now remittance inflow through the official channel is slowing down."

In fact, Bangladesh had enjoyed current-account surplus for five years which ended in the past fiscal year when current account posted a deficit of $1.48 billion. It boasted a record surplus of $4.26 billion in FY16.

Dr Moazzem also pointed out that having good foreign-exchange reserves, the country would be able to absorb the growing trade deficit as well as current-account deficit for the time being.

"But, if the deficit continues to increase, it will be very challenging for us to meet the gap," he said.

Bangladesh Bank data also showed that deficit in service trade also increased to $1.02 billion in the first three months of the current fiscal year, 2017-18, which was $0.76 billion ($761 million) in the same period of FY17.

While current account is in deficit, financial account ran higher surplus.

Central bank statistics showed that the financial account reached a surplus of $1576 million in the first quarter of the current fiscal year which was $868 million in the same period of FY17.

Higher inflows of Foreign Direct Investment (FDI) as well as medium-and long-term loans help maintain a robust surplus in the financial account.

Nevertheless, overall balance of the BoP slid to deficit of $360 million which was in a healthy surplus of $1797 million in the same period of FY17.


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