Trade deficit widens in H1

The country's overall trade deficit widened by 25 per cent or US$902 million in the first half (H1) of the current fiscal year (FY) following higher growth of import payments than export earnings, officials said.
The trade gap rose to $4.51 billion during the July-December period of the FY 2016-17 from $3.61 billion in the same period of the last fiscal, according to the central bank's latest statistics, released Thursday.
"The trade deficit may widen further in the coming months if the existing slower growth of export earnings compared to import payments continue," a senior official of the Bangladesh Bank (BB) told the FE.
The overall import payments including export processing zones grew by 8.19 per cent to $ 20.92 billion in the H1 of the FY 17 from $19.34 billion in the same period of the FY 16.
"Higher imports of capital machinery along with intermediate goods have pushed up the country's overall imports during the period under review," another BB official explained.
The central banker expected that the upward trend of imports may continue in the coming months for implementation of the different infrastructure development projects across the country.
The government is, at present, implementing nine projects under a Fast Track Project Monitoring Committee, headed by Prime Minister Sheikh Hasina for quick implementation.
On the other hand, the overall export earnings including export processing zones grew by 4.33 per cent to $16.41 billion in the first six months of the FY 17 from $15.73 billion a year ago.
The central banker said higher deficit along with falling trend of inward remittances has pushed down the current account deficit balance further during the period under review.
The country's current account deficit reached at $793 million in the H1 of the FY 17 from $1.85 billion surplus in the same period of the last fiscal.
However, the current account balance deficit was $768 million a month ago, the BB data showed.
The flow of inward remittances dropped by 17.66 per cent to $6.07 billion in the first six months of the FY 17 from $7.37 billion in the same period of the FY 16.
Such current account deficit balance may rise in the near future if the existing higher trade deficit along with decreasing trend of inward remittance continues, according to the BB official.
"The country's overall balance of payments (BoP) is still a healthy position despite negative trend of current account balance," the central banker noted.
Higher financial account surplus has contributed to keep the overall BoP position almost stable, he added.
The financial account surplus jumped by $1.92 billion to $2.70 billion in the first six months of this fiscal from $ 779 million the same period of the FY 16.
Meanwhile,  the gross inflows of foreign direct investment (FDI) increased by 6.15 per cent to $ 1.50 billion during the period under review from $ 1.41 billion in the H1 of the FY 16 while net FDI inflows rose by 10.49 per cent to $864 million from $782 million.
However, overall BoP came down to $ 2.26 billion during the period under review from $2.44 billion in the same of the FY 16.
Former Director General of the Bangladesh Institute of Development Studies (BIDS) Mustafa K Mujeri suggested the authorities concerned for taking effective measures immediately to revamp the flow of inward remittances for improving the current account balance position.
"The overall macroeconomic stability may hamper if the negative trend of current account balance persists," Mr. Mujeri also former chief economist of the BB told the FE.
He also hinted that the existing upward trend of overall import may continue in the coming months following implementation of different mega projects across the country.
The senior economist also suggested that the imports particularly capital machinery will be monitored closely by the authorities concerned to check illegal capital flight in the name of imports.
Former BB governor Salehuddin Ahmed said the central bank can take an initiative to cut the gap in the local currency's exchange rates with the US dollar between the banking system and the kerb market to enhance the inflow of remittances through the official channel.
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