Backlog of export receivables upsets BoP

Bangladesh barely gains from growing current-account surpluses in the balance of payments (BoP) as bloating deficit in trade credits in financial account erodes the positive outcomes through LC contractions.
Economists term an almost fourfold rise in the trade deficit the biggest worry over the BoP upset, which impacts the country's overall balance badly.
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 pending or the receivables not being repatriated for months, in a matter of serious concern for the economy.
The deficit in trade credits keeps surging to reach $12.24 billion in July-March period of the financial year (FY'24) from $3.93 billion recorded during corresponding period of the previous fiscal. Because of the widening shortfall, the deficit in the financial account continues rising, according to the BoP for March released Monday by Bangladesh Bank (BB).
The fall in supply of foreign currencies, particularly the American greenback, from foreign direct investment (FDI), portfolio investment and increasing trade-credit deficit is largely contributing to the growing shortfalls in the financial account, according to them.
And these factors keep upsetting the benefits of a sound surplus in the current-account coffer.
According to BoP data for the July-March period 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).
The data show gross inflow of FDI having dropped 4.92 per cent to $3.21 billion by end of March 2024 from $3.37 billion recorded until previous March in 2023.
However, the upturn in current-account surplus continued, reaching $5.80 billion until March of the FY'24, from shortfalls amounting to $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 gap in overall balance in the BoP eased by around $4.0 billion while the current-account deficit turned into positive, which are good developments under current context of macroeconomic scenario.
"But the most concerning part 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," the central banker added.
The BB official, however, was positive about improvement in the situation regarding the trade credit as recent 5.88-percent depreciation of the local currency against the US dollar through crawling peg-driven exchange rate would possibly encourage the exporters to repatriate their held-back export proceeds.
"We are expecting to see a positive change in the last quarter of this fiscal," the central banker said.
Contacted, Prof M. A. Taslim, head of economics department at Independent University, Bangladesh, said the current account became surplus because of high import compression in view of future macroeconomic vulnerability amid persisting forex tightness.
"As a matter of fact, the outflow of dollars through import comes down significantly in recent months, which, in fact, is reflected in the current account of the BoP," he says explaining the conundrum.
The noted economist says the tendency of fresh external borrowing by both private and public sectors slowed down but repayment of the existing loans continues with resultant pressure on the financial account.
The Economics professor notes that the supply of industrial raw materials, and intermediate and capital goods got largely disrupted because of the tightfisted import, which could dampen the overall economic growth in the coming days.
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.
He thinks the inflow of FDI and portfolio investment will not come at the desired level unless the stabilisation of the currency is in place here.
The economist feels that 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 in repatriating the proceeds…BB should take strict actions if it finds exporters willfully not bringing back the proceeds," he says.
Former lead economist of Dhaka's World Bank office Dr Zahid Hussain says the country's overall balance is not reflected positively despite significant rise in surplus in current account due mainly to the widening gap in trade credit.
Citing the data, he mentions that the country had made export worth around $41 billion till March of this fiscal but a significant part of the money is not coming in the banking system, which is a "serious concern".
Terming the existing crawling peg-managed exchange-rate system a so-called one, the noted economist says it would not help resolve the problem at all. "Rather, I am afraid that it would create more volatility on the forex market."
About the reason for his fear, Mr Hussain says crawling peg is an IMF-prescribed exchange-rate-management system where there would be a band within which the rate will be crawling.
"Unfortunately, there is no band in the BB-announced crawling peg. So it will create more speculations and could cause to hold dollars. I don't understand why and how the IMF agrees to allow the system here," he wonders.

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