Addressing the widening trade gap
Monday, 28 July 2008
Bangladesh being a net importer, its balance of payments (BoP) position is always highly susceptible to the fluctuation in the prices of goods and services it has to buy from abroad. Naturally, the last fiscal year has been one of the most problematic for Bangladesh as the prices of food grains and fuel oils rocketed upwards irreversibly.
As a consequence, it had to spend more than it had earned from its exports. The central bank reports shows that the country had to pay in terms of foreign currency some US$15.896 billion against an export earning of $11.24 billion during the last 10 months between July and April in the last fiscal (FY 2007-08). So, this is an instance of further widening of the trade gap by 56.66 per cent to $4.656 billion. The upshot of enhanced import has left its impact on the overall BoP eating further into the comfortable surplus it had been enjoying. For in the fiscal (2006-07), the BoP had a surplus close to $1.0 billion, whereas in the mentioned period of the last fiscal (FY 2007-08) it came down to US$ 140 million. As noted earlier, it has been due mainly due to the higher price of fuel oil in the international market and the need for increased import of food grains for the country in the wake of the devastating floods and the cyclone Sidr that made this big dent in the current account balance.
However, the saving grace is that the current transfers in the form of foreign remittances sent by the overseas wage earners as well as the incoming foreign aid helped the BoP somehow to maintain a surplus. There is still reason not to lose heart in the situation, for the economy could after all avoid ending up in a net deficit position. There is also further good news for the economy. And that lies in the fact that the volume of import of food grains has started to reduce as the boro variety of rice recorded a bumper harvest last season. So, it is certainly a cause for reassurance for the economy.
So, from the foregoing it is easily understandable that the weaker BoP position for the economy in the last fiscal is attributable largely to the higher trade deficit at $4.656 billion compared to what it was at around $3.0 billion in the FY 2006-07.
However, so far as the economy is able to pay for the costs it needs to run, there is no cause for much alarm even in the face of dwindling BoP surplus or in the further widening of the trade gap.
It is worthwhile to note here that Bangladesh is traditionally caught in the deficit trade gap syndrome. In the last one decade, there has been a marked improvement in the scenario, thanks to the achievement of our chief export earner, the garment sector. The robust contribution of the garment exports in the balance of trade has helped the economy put up a bold front despite its failings in many other respects. As for instance, in the FY under review, the amount of foreign investment fell by $91 million (at $575 million) compared to $666 million in FY 2006-07.
In short, despite the heavy drag on the Current Account Balance (CAB) due to higher volumes and costs of import, it still managed to show a net surplus. One has also to consider here the fact that the foreign direct investment (FDI) also declined in the mentioned period, with only a very slight gain in the interest shown by foreign investors in the domestic securities and financial assets in the form of portfolio investment.
As a consequence, it had to spend more than it had earned from its exports. The central bank reports shows that the country had to pay in terms of foreign currency some US$15.896 billion against an export earning of $11.24 billion during the last 10 months between July and April in the last fiscal (FY 2007-08). So, this is an instance of further widening of the trade gap by 56.66 per cent to $4.656 billion. The upshot of enhanced import has left its impact on the overall BoP eating further into the comfortable surplus it had been enjoying. For in the fiscal (2006-07), the BoP had a surplus close to $1.0 billion, whereas in the mentioned period of the last fiscal (FY 2007-08) it came down to US$ 140 million. As noted earlier, it has been due mainly due to the higher price of fuel oil in the international market and the need for increased import of food grains for the country in the wake of the devastating floods and the cyclone Sidr that made this big dent in the current account balance.
However, the saving grace is that the current transfers in the form of foreign remittances sent by the overseas wage earners as well as the incoming foreign aid helped the BoP somehow to maintain a surplus. There is still reason not to lose heart in the situation, for the economy could after all avoid ending up in a net deficit position. There is also further good news for the economy. And that lies in the fact that the volume of import of food grains has started to reduce as the boro variety of rice recorded a bumper harvest last season. So, it is certainly a cause for reassurance for the economy.
So, from the foregoing it is easily understandable that the weaker BoP position for the economy in the last fiscal is attributable largely to the higher trade deficit at $4.656 billion compared to what it was at around $3.0 billion in the FY 2006-07.
However, so far as the economy is able to pay for the costs it needs to run, there is no cause for much alarm even in the face of dwindling BoP surplus or in the further widening of the trade gap.
It is worthwhile to note here that Bangladesh is traditionally caught in the deficit trade gap syndrome. In the last one decade, there has been a marked improvement in the scenario, thanks to the achievement of our chief export earner, the garment sector. The robust contribution of the garment exports in the balance of trade has helped the economy put up a bold front despite its failings in many other respects. As for instance, in the FY under review, the amount of foreign investment fell by $91 million (at $575 million) compared to $666 million in FY 2006-07.
In short, despite the heavy drag on the Current Account Balance (CAB) due to higher volumes and costs of import, it still managed to show a net surplus. One has also to consider here the fact that the foreign direct investment (FDI) also declined in the mentioned period, with only a very slight gain in the interest shown by foreign investors in the domestic securities and financial assets in the form of portfolio investment.