Despite the surplus of current account balance, Bangladesh’s financial account deficit hit an all-time high of $7.35 billion in the July-January period of FY2023-24 due to the negative trend of foreign direct investment inflow and the rise in foreign loan repayments.
In the July-December period, the account deficit was $5.23 billion, which means the deficit went up by $2.12 billion in just one month, according to the latest data of Balance of Payment (BoP) published by Bangladesh Bank on Sunday.
The data showed that due to huge restrictions on imports, the country’s current account balance is now a surplus of $3.14 billion in the July-January period. The current account balance was a $4.64 billion deficit in the same period of FY2022-23.
Export earnings in the first seven months of FY24 increased by 2.5 per cent to $31.39 billion while the import payment declined by 18.17 per cent to $36.02 billion, compared to the same period of FY23.
Although there is a surplus in the current account balance, the financial account deficit is increasing to a huge level and that is worrying for the country.
Speaking to The Business Post, Policy Research Institute Executive Director Ahsan H Mansur said, “The key issue is the deficit in the financial account. It is good that the current account went from a deficit to a surplus.
“But we did not achieve this through an increase in exports and remittance. We did it by restricting imports, and our economy will pay the price in the long run.”
According to the BoP data, the gross inflow of foreign direct investment (FDI) declined by 13.36 per cent to $2.43 billion while the net FDI declined by 9.81 per cent to $901 million 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 26.23 per cent to $1.15 billion during the first seven months of FY24, while such loan inflow increased by only 8.2 per cent to $4.38 billion, compared to the same period of FY23.
Ahsan said, “Now we need large amounts of foreign funding. 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.”
Meanwhile, net short-term loan repayments increased to around $1.36 billion during the first seven months of FY24, which was only $546 million in the same period of FY23. Trade credit repayment also increased to $9.22 billion in July-January of FY24.
However, the overall balance deficit has come down a lot — to $7.38 billion — in July-January of FY23. It was $4.68 billion in the same period of FY23.
In other words, during the July-January period of FY24, $4.68 billion has been taken from the foreign exchange reserves. As a result, the amount of reserves fell to $19.96 billion, calculated under the IMF’s BPM6 method, during that period.
The reserves were at $24.7 billion in the same period of FY23.
