Current account deficit shrinks

The country’s current-account deficit – the gap between the higher foreign expenditure and low income – narrowed down significantly to $321 million in July compared to $1.41 billion in June.

A cut in imports, mainly in energy products, helped contain the current-account deficit on a monthly basis after the government and the central bank kept a high check on imports to efficiently use the depleting foreign exchange reserves, analysts say.

The reduced current-account deficit stands positive to stabilise the dwindling foreign exchange reserves standing at a relatively low level, of over a five-month import cover and supporting the taka against the US dollar.

The current-account deficit shrank to $321 million in July from $1.41 billion in June, largely reflecting a sharp decline in energy imports, according to the Bangladesh Bank’s latest data published on Sunday.

Import payment was $5.86 billion in July, down $1.23 billion from $7.09 billion during the period.

Besides, export earnings and inward remittances improved as exports rose 14.01 per cent to $3.88 billion and remittances 12.02 per cent to $2.09 billion in July compared to the same month of the previous year.

“The outcome of several measures taken by the government and the central bank is inevitable,” Policy Research Institute (PRI) Executive Director Ahsan H Mansur told The Business Post.

Furthermore, he said, there was Eid vacation in July when the country saw fewer working days than the other months, leading to a somewhat positive impact on the current account deficit.

After the Russia-Ukraine war in March, import costs started to rise abnormally due to the increase in the prices of goods in the international market.

Due to this dollar crisis, the exchange rate was increasing in the country. The inter-bank dollar rate was Tk 86.20 at the beginning of April, which is now over Tk 95.

However, in the open market, dollars are being sold at prices ranging from Tk 105 to Tk 106.

The dollar price increased six times in July. But it rose only two times in August.

“It seems that the exchange rate is moving towards stability as the import pressure has decreased,” said the PRI executive director.

However, he predicted that the dollar crisis might further increase in days to come once the soaring inflation was reined in. Moreover, Aman harvesting was affected this year due to the low rainfall, which may lead the government to import rice, he added.

On interest rates, he said, “Rising inflation is our weakest point. We need to tackle it. That is why the interest rate cap needs to be lifted. There is no alternative, ” said Mansur.

However, the central bank decided not to withdraw the interest rate cap. Now the bank’s loan interest cap is 9 per cent and the deposit rate is around six per cent, according to the BB’s monthly report.

Trade gap stood at $1.98 billion in July, which was $2.43billion in June.

Net foreign direct investment increased 45.6 per cent to $182 million and portfolio investment which is known as the stock market investment by foreigners or non-resident Bangladeshi stood positive $35 million in July.

The forex reserves stood at $39.60 billion, an amount equivalent to more than five months’ payment for imports.