Current account swings to deficit

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Bangladesh's current account swung to a deficit in the July-October period for the first time since April, retreating from a surplus of $1.1 billion a year earlier due to soaring import costs, mainly of oil. The shortfall stood at $372 million, reports Reuters. Imports rose 23 per cent to $11.7 billion in the first four months of the 201112 fiscal year from a year earlier. Exports increased 20 per cent to $8.1 billion, widening the trade deficit to $3.6 billion from $2.8 billion a year earlier, central bank data showed. Bills for imports - notably fuel oil for power generation - have soared while exports and remittances have grown more slowly amid a cooling global economy, a senior central bank official said. Remittances from more than seven million Bangladeshis working abroad in July-October rose 10 per cent to $4.0 billion. The taka currency has fallen more than 8.0 per cent against the dollar since July on dwindling foreign exchange reserves. The country's foreign exchange reserves slid to $9.28 billion at the end of November, the lowest since August 2009, from $10.34 billion in October. Meanwhile, bdnews24.com adds: Trade deficit in the first four months of the ongoing 2011-2 fiscal is nearly double the deficit of the same period last year. The gap between export earnings and import spendings in July-October period was $ 3.103 billion, up from $1.825 billion in the same period last year. The deficit shot up in September and October as import costs jumped, with little growth in exports. Experts say the current fiscal's deficit may exceed the previous fiscal year's. "Basically the rise in fuel oil import widened the trade gap," former advisor to the caretaker government A B Mirza Azizul Islam said. More furnace oil and diesel was needed for the power plants, he said. "So, the import costs grew." The rise in import cost has also created pressure on the foreign exchange reserve leading to devaluation of taka against US dollar, Azizul said. "Now a dollar costs over Tk 80. So the cost of imported products has also risen. The heightening inflation is further escalated," he added. According to Bangladesh Bank, the country's import cost in the first four months of the current fiscal was $ 11.283 billion while the export earning was $ 8.18 billion. In the same period last financial year, the country imported products worth $ 8.562 billion and exported products worth $ 6.737 billion. In 2010-11 fiscal, the trade deficit was $ 7.328 billion, a record high. "Import costs look unlikely to fall in near future. But the export earning shows a negative trend. In this situation, Bangladesh will face a trade deficit which is higher than the previous year's deficit," said Mostafizur Rahman, executive director of the Centre for Policy Dialogue. "The government is forced to increase prices of fuel oil to cut subsidies as fuel oil import cost costs rose," he said. In the first two months (July-August) of the current fiscal, the trade deficit was $ 409 million, which is $ 375 million lower than that of the same period in the previous fiscal. But in September-October, the deficit rose to $ 2.7 billion, nearly seven times the deficit in July-August. The import costs rose 31.78 percent in the first four months of the current fiscal while the export earnings rose 21.42 percent. According to the central bank, the rate of opening Letters of Credit (LC) to import fuel increased 116 per cent in July-October while the rate of clearing LCs increased by 82.53 per cent. In the same period last year, the rate of opening LCs to import fuel oil fell by 11.79 per cent, but the rate of clearing increased by 78.41 per cent. The export earning and import cost had increased at almost the same rate in 2010-11 fiscal. The import cost rose 41.79 per cent and the export earnings were up 41.47 per cent that year. The CPD researcher said readymade garments, the major export product of Bangladesh, were exported at higher prices last year as prices of cotton and yarn were high. "The country earned more through export that year." "But prices of cotton and yarn have since fallen to one third. Prices of garments decreased, too. The growth of export earnings therefore appears unlikely to be as high," he said but added that it will not harm the exporters.