Trade deficit widens 46 per cent, current account in red

Dhaka,  Sun,  24 September 2017
Published : 17 Aug 2017, 00:45:25

Trade deficit widens 46 per cent, current account in red

Trade deficit widens 46 per cent, current account in red
Asjadul Kibria

Bangladesh's merchandise trade deficit with the rest of the world widened 46.62 per cent in the past fiscal, leaving its current-account balance in the red.

Bangladesh Bank released Wednesday an update on the country's balance of payments (BoP) which revealed such state of this macroeconomic indicator.

It showed that the trade deficit hit $9.47 billion in FY17 in a climb from $6.46 billion in FY16.

Slower growth in export earnings, around 1.73 per cent, alongside greater growth of 9.0 per cent in import payments increased the trade imbalance.

The central bank statistics further showed that deficit in services trade also gaped, amounting to $3.28 billion, in the past fiscal year from $2.70 billion in FY16.

As such, the annual balance of payments (BoP) showed the current-account balance in red in FY17 after four years.

Country's current account incurred a deficit of $1.48 billion in the past fiscal, which had a record surplus of $4.26 billion in FY16, as per latest estimation.

The last time Bangladesh experienced current-account deficit was in FY12 when it counted a $447 million negative balance.

Negative current account generally means that the country is paying or spending more on the external front than its earning from the external economic activities.

The deficit in current-account balance also reduced the huge surplus in the overall balance of payments to $3.16 billion in FY17 as against $5.03 billion in the previous fiscal.

Dr Mirza Azizul Islam, former adviser of the caretaker government, finds the overall balance-of-payments situation not so alarming.

"With higher import and lower export, trade gap surged while drastic fall in remittance contributed to turning the current account negative," he explained.

"But our foreign-exchange reserves are still good and able to finance around eight months' import bills of goods and services," he added.

The economist, however, cautioned that if the rising trend in trade- and current-account deficit continued, then it could create additional pressure in the near future.

"These deficits mean that we are financing the gap through borrowing," he said. "Higher external borrowing will create additional liabilities in future."

The central bank data also showed that financial-account balance posted a record surplus of $4.17 billion in the past fiscal year, which was only $944 million in FY16.

Higher inflow of Foreign Direct Investment (FDI) along with a surge in medium- and long-term loans contributed to maintaining a healthy balance of the financial account.

Surplus in capital account, however, dropped to $314 million in the past fiscal year from $464 million in FY16.

According to the International Monetary Fund (IMF)-designed manual, BoP consists of three accounts: current, capital, and financial.  

When contacted, Dr Md Akhtaruzzaman, economic adviser of the central bank, told FE that current account deficit was below one per cent of the country's Gross Domestic Product (GDP) and that there was no need to worry.

He attributed the deficit to robust growth in import, slowdown in export and big decline in the remittance.

"But decline in remittance is a global phenomena," he added. "Nevertheless, we have to enhance our effort to increase its inflow."
Editor : A.H.M Moazzem Hossain
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