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Financial account deficit still depleting reserves

Talukder Farhad
04 Oct 2023 23:15:45 | Update: 04 Oct 2023 23:15:45
Financial account deficit still depleting reserves

Even after tightening imports to mitigate the US dollar shortage, Bangladesh saw a trade balance gap of  $1.01 billion during the July-August period of FY2023-24, down from $4.57 billion recorded in the same period of FY2022-23.

Meanwhile, despite the latest big fall in remittance inflow, the country has seen a positive trend in the current account balance for July-August of FY24.

During this period, the current account balance was $1.1 billion surplus, which was in deficit, at $1.46 billion, in the same period of FY23.

These data were released in the latest report on Balance of Payment (BoP) by Bangladesh Bank (BB) on Wednesday.

However, due to the high repayment of foreign debt, negative growth of fresh loans from abroad, and low growth of foreign direct investment (FDI) and aid, the financial account is still negative.

This deficit increased to $2.02 billion in July-August of FY24, which was only $247 million negative in the same period of FY23, showed the BB 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 July-August of FY24, the overall balance was negative $1.69 billion. This amount was supplied by the central bank in the money market from the forex reserve to stabilise the foreign exchange rate.

But the deprecation of taka continued against USD and the interbank exchange rate increased to Tk 110.5 last month. At the end of August, forex reserves stood at only $23 billion. It was at $39 billion in the same month of last year.

The World Bank’s report on Bangladesh's economic update, which was released on Tuesday, highlighted the financial account deficit and foreign debt burden of the country.

World Bank country director Abdoulaye Seck said that Bangladesh must increase the inflow of remittance through legal channels. He also said that the exchange rate situation needs to be fixed and emphasis should be placed on increasing foreign investment.

According to the BoP data, net FDI inflow increased by only 2.37 per cent to $345 million in July-August 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 July-August of FY24, the inflow of medium and long-term loans declined by 12.73 per cent to $727 million. However, existing loan repayment increased by 33.8 per cent to $289 million compared to the same period of FY23.

As of June this year, Bangladesh’s external debt position was at $98.94 billion.

Meanwhile, net foreign aid inflow declined by 29 per cent to $438 million during the first two months of the current fiscal year, compared year-on-year.