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Trade gap narrows to $3.8b in Jul-Oct

Talukder Farhad
06 Dec 2023 21:45:22 | Update: 07 Dec 2023 16:59:38
Trade gap narrows to $3.8b in Jul-Oct

Bangladesh’s trade gap narrowed to $3.81 billion during the July-October period of FY24, down from $9.62 billion posted during in the same period previous FY, resulting from a heavy reduction in import payments to mitigate the ongoing USD shortage.

This was disclosed in the latest balance of payment (BOP) data published by the Bangladesh Bank on Wednesday.

Despite narrowing the trade gap, negative growth of wage-earners remittance, foreign direct investment, aid flow, and inflow of foreign loans, the country’s financial account was $3.96 billion deficit in the first four months of FY24, compared to $1.27 billion surplus year-on-year.

Experts said that, the deficit of financial account is one of the country’s major concerns for the economic stability. Government should focus on this and it is also concern issue of heavily crunch of import payment, it hampers the production which will affect country’s GDP growth.

Speaking to The Business Post, Policy Research Institute Executive Director Ahsan H Mansur said, “The key issue is the deficit in financial account. It is good that the current account went from a deficit to a surplus.

“But we could 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.”

He continued, “We now need large amounts of foreign funding. We must make an effort to reschedule the 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.”

Dr Toufic Ahmad Choudhury, former director general of Bangladesh Institute of Bank Management (BIBM), said, “Imports have gone down officially, but continues unofficially. This in turn is putting continuous pressure on reserves.

“Foreign investments are not going up, but repayments of foreign loans have gone up. This is why we are not getting the benefits of a current account surplus. We must find a way to boost remittance, and take firm steps to curb the malpractice of hundi.”

Financial deficit continues to deplete the country’s forex reserves. During the July-October period of FY24, $3.82 billion was taken from reserves and its position declined to $20.7 billion at the end of October, when calculated under the IMF BPM6 method.

Current reserves can meet 4.7 months of country’s import payments.

As a result of the fall in reserves, depreciation of the taka continues. In July, interbank rate per USD was Tk 108.70, which rose by 1.65 per cent to Tk 110.50 at the end of October this year.

The remittance inflow did not increase even though imports were drastically reduced to save USD and prevent reserve depletion.

The current account balance could not post a big surplus. However, it is a matter of hope that the figure turned to positive $233 million during the July-October period of FY24, instead of $4.48 billion deficit posted year-on-year.

However, due to the deficit of the financial account, the benefit of the surplus of the current account balance posted no gains for Bangladesh.

The net foreign direct investment fell by 13.39 per cent during the July-October period of FY24, while inflows of medium and long-term (MLT) foreign loans fell by nearly 17 per cent compared to same period of FY23.

Moreover, the country did not receive any short-term foreign loans during the timeframe; instead it repaid about $900 million.

Foreign loan repayments rose by about 20 per cent in the same period compared year-on-year. As a result, the country's financial account deficit is now about $4 billion.

Acceding to the BOP data, the amount of errors and omissions decreased from $1.56 billion during the July-October period of FY23 to $152 million in FY24 the same period.

The country's overall balance was negative $3.89 billion, compared to negative $4.7 billion compared year-on-year. This shortfall was met directly from the reserves, which is the main factor of reserve depletion.