Bloating deficit in trade credits prompts the central bank to begin probing the facts as the lacuna has upset the country's financial account in recent times, officials said.
The fact-checking measure of Bangladesh Bank (BB) comes at a time when the mounting trade-credit burden continues eroding the positive outcomes from growing current-account surpluses in the balance of payments (BoP) through LC contractions, according to them.
As part of the move to improve the country's overall balance from the tightness due mainly to widening deficit in the financial account, the central bank's officials concerned began analysing export-related data of banks to understand the real situation.
Trade credit is a business-to-business (B2B) agreement in which a customer can purchase goods without paying cash up front, and paying the supplier at a later scheduled date. But the payment of export proceeds of Bangladesh remained unpaid or not repatriated for months, causing serious concern for the economy.
The deficit in trade credits keeps surging, having reached $12.24 billion in July-March period of the financial year (FY'24) from $3.93 billion recorded in corresponding period of the previous fiscal. Because of the widening shortfall, the deficit in the financial account continues rising, according to the statistics of the BB.
And the factor keeps upsetting the benefits of a sound surplus in the current-account coffers.
According to BoP data for July-March of the financial year 2023-24, the deficit in the financial account had climbed to $9.26 billion while the volume of deficit was only $2.93 billion in the nine months of the last fiscal year (FY'23).
However, the upturn in current-account surplus continued and reached $5.80 billion until March of the FY'24 from shortfalls amounting $3.30 billion recorded a year ago.
But, the overall balance in the BoP improved with the deficit having narrowed to $4.75 billion in the foresaid period of this fiscal from $8.49 billion on a year-on-year basis.
Seeking anonymity, a BB official said the current account was a serious concern for the economy for years until FY'22 when the financial account was an area of great relief.
But things reversed now as the most concerning part of the BoP in recent times is financial account, which keeps weakening.
As a result, the country is not getting the benefits of the positive developments, the current account surplus in particular, he said.
"I think trade credit is the reason that continues weakening financial account," the central banker added.
Another BB official, who also preferred to remain anonymous, says they have started scrutinising the matter to find exact reason why the backlog of export receivables keeps surging.
The central bank already has received export-related data of some banks. "We need to collect such data of all banks. Hopefully, we will be able to detect the main reason behind the widening burden of trade credit."
Founding chairman of the Policy Exchange Bangladesh Dr Masrur Reaz says spiraling deficit in trade credits emerged as the biggest worry regarding the BoP scenario and the continuous deterioration in the financial account is neutralising the painful gains through import compression.
The economist feels the central bank needs to assess properly why such a large volume of export proceeds remains un-repatriated.
"Whether it is the buyers who are not paying the money in time or a quarter of exports who are delaying repatriation of the proceeds should be found out. BB should take strict actions if it finds exporters willfully not bringing back the proceeds," he says.
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