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Trade gap narrows, but financial account deficit widens

Staff Correspondent
03 Nov 2023 17:17:04 | Update: 03 Nov 2023 17:17:04
Trade gap narrows, but financial account deficit widens

Bangladesh – after tightening imports to mitigate the USD shortage – saw a trade balance gap of only $1.18 billion during the July-September period of FY24, a significant decrease from $7.57 billion recorded in the same period of FY23.

Moreover, despite a decline in remittance inflow, the country witnessed a positive trend in the current account balance for July-September of FY24. During this period, the current account balance stood at $892 billion surplus, which was at $3.67 billion in deficit year-on-year.

The Bangladesh Bank released this data in its latest report on Balance of Payment (BoP) on Thursday.

But not all are good news. Due to the high repayment of foreign debt, negative growth of fresh loans from abroad, foreign aid and low growth of foreign direct investment (FDI), the financial account deficit widened massively in the July-September period of FY24.

This deficit increased to $3.92 billion in Q1 of FY24, compared to $2.02 billion in the July-August period of FY24. The figure was positive $839 million in July-September period of FY23, show central bank data.

As the financial account deficit is keeping the overall balance negative, Bangladesh is failing to reduce the depletion of the foreign exchange reserves.

In the July-August period of FY24, the overall balance was negative $1.69 billion. It widened to $2.85 billion in the July-September period this year. The central bank supplied the amount to the money market from forex reserves to stabilise foreign exchange rate.

The depreciation of taka continued against USD, and the interbank exchange rate has now increased to Tk 111. At the end of September, forex reserves stood at only $21 billion. It was at $28.16 billion during the same month last year.

It should be noted that the World Bank’s report on Bangladesh's economic update, recently released, highlighted the financial account deficit and foreign debt burden of the country.

According to the BoP data, net FDI inflow increased by only 3.96 per cent to $525 million in the July-September period of FY24, compared year-on-year.

Bangladesh's foreign debt repayment amount has increased tremendously and the availability of fresh loans has dropped. As a result, the balance of payments is falling under more pressure.

During the July-September period of FY24, the inflow of medium and long-term loans declined by 14.48 per cent to $1.11 billion. However, existing loan repayment increased by 28.33 per cent to $530 million compared to the same period of FY23.

As of June this year, Bangladesh’s external debt position stood at $98.94 billion. Meanwhile, net foreign aid inflow declined by 34.46 per cent to $580 million during the first two months of the current fiscal year, compared year-on-year.