Following the tightening of the import payment, the country’s current account balance is now a healthy surplus of $4.76 billion; however, the financial account deficit hit an all-time high of $8.36 billion in the July-February period of FY2023-24 due to the low foreign direct investment growth and the rise in foreign loan repayments.
In the July-January period, the financial account deficit was $7.78 billion, which increased to $8.36 billion at the end of February, according to the latest Balance of Payment (BoP) data published by Bangladesh Bank (BB) on Wednesday.
The data showed that due to huge restrictions on imports, the country’s current account balance was a surplus of $4.76 billion in the July-February period of FY24. Such balance was a $3.45 billion deficit in the same period of FY2022-23.
According to the BoP data, export earnings in the eight months of FY24 increased by 3.76 per cent to $36.26 billion while import payment declined by 15.36 per cent to $40.88 billion, compared to the same period of FY23.
As a result, the country’s trade gap declined by a huge amount in that period. In July-February of FY24, this gap narrowed to $4.6 billion, down from $13.35 billion in the same period of FY23.
Commenting on the matter, Zahid Hussain, former lead economist of the World Bank Dhaka Office, told The Business Post that the current account surplus is actually paper-based data and not based on reality. “We are seeing that USD inflow against export is declining. So the trade credit outflow deficit exceeded $10 billion.
“Although there is a surplus in the current account balance, the financial account deficit is increasing to a bigger level and that is worrying for the country.”
BoP data also showed that the net inflow of foreign direct investment (FDI) growth is low. It went up by only 1.36 per cent to $1.12 billion in the July-January period of FY24, compared to the same period of FY23.
On the other hand, the medium and long-term loan repayments increased by 26.02 per cent to $1.26 billion during the first eight months of FY24, while such loan inflow increased by only 6.69 per cent to $4.94 billion, compared to the same period of FY23.
“We must make an effort to reschedule short-term loans. Besides, the due payments for oil and gas imports should be converted to debt instruments, so that those can be paid off in instalments,” said Policy Research Institute (PRI) Executive Director Ahsan H Mansur while talking about the issue.
Meanwhile, net short-term loan repayments increased to $1.77 billion in July-February of FY24, which was $1.01 billion in the same period of FY23. Trade credit repayment also jumped to $10.75 billion in July-February of FY24.
However, the overall balance deficit in the BoP has come down a lot — to $4.43 billion — in July-February of FY24. It was $7.94 billion in the same period of FY23.
In other words, during the July-February period of FY24, $4.43 billion was taken from the foreign exchange reserves. As a result, the reserves fell to $20.78 billion, calculated in line with the IMF’s BPM6 method, during that period.
The reserves were at $24.88 billion in the same period of FY23.
Zahid said, “Looking at the BoP till July-February of FY24, it is clear that the overall economy of the country has not improved.
“Also, no major degradation has been seen. But we are still in crisis. This picture shows that there is no sign of stability returning in the economy very soon.”
