Home ›› 03 Jun 2022 ›› Front
Bangladesh’s current account balance deficit reached $15.32 billion in the July-April period of the current 2021-22 financial year.
The deficit has gone to an all-time high as import payments keep increasing in the backdrop of spiralling global commodity prices, continuous depreciation of the taka against the US dollar, and a significant rise in domestic demand after the Covid-19 situation came under control.
In the July-March period, the deficit amount was at $14.15 billion, which means $1.17 billion was added to the total in just one month.
The account balance deficit was only $1.65 billion in the July-April period of FY2020-21.
Bangladesh Bank (BB) released the data on Thursday in its monthly report on Balance of Payment (BOP).
In the July-April period of FY2021-22, import expenditure increased by 41.42 per cent to $68.67 billion compared to the same period of last fiscal. At the same time, export earnings increased by 34.56 per cent to $41.10 billion.
Despite strong export growth, the trade deficit widened to $27.56 billion. The trade gap from July-March was $24.90 billion, which means it increased by $2.6 billion in one month. The gap was $18.01 billion in the July-April period of FY21.
Besides, in the first 10 months (July-March) of FY22, remittance income decreased by 16.25 per cent compared to the same period of FY21, causing the current account balance deficit to increase further.
Economist Ahsan H Mansur, executive director of Policy Research Institute, said the account balance deficit is increasing mainly due to rising import costs and negative growth of remittance inflow.
“If the government’s initiatives to reduce the import rush are implemented properly, we can expect positive outcomes,” he added.
Remittance down
The wage earner’s remittance inflow was $17.31 billion from July-April of FY22. It was $20.66 billion in the same period of FY21. The latest data also showed that during July-May of FY22, remittance inflow was $19.19 billion, which is 16 per cent lower than the same period of FY21.
Ahsan said that more remittances are now coming through illegal channels. “Taka needs to be devalued more to attract remittance through legal channels.”
Responding to a question, he said the central bank increased the policy rate but it also increased the cost of the banks. “To control inflation, the interest cap must be raised.”
FDI inflow strong
The BOP report showed that the country’s foreign direct investment (FDI) inflow was bigger in the first 10 months of FY22 compared to last fiscal.
Net FDI inflow increased 53.59 per cent to $1.86 billion during July-April of FY22, compared to $1.21 billion in the same period of FY21.
Economist Ahsan said, “It’s necessary to focus on increasing the FDI amount and not looking at the growth. FDI is expected to be much higher compared to the current size of Bangladesh’s economy.”
The report also showed that Bangladesh’s overall balance from July-April stood at a negative $3.71 billion, which was a positive $7.49 billion in the same period of FY21.
According to BB’s calculation, the foreign exchange reserve was at $44.02 billion during July-April of FY22, which can cover the import (goods and services) payments for 4.8 months.
In this context, Zahid Hussain, former lead economist of the World Bank’s Dhaka office, told The Business Post, “The country has reached the level of the minimum reserve requirement. Dollar support from the reserves should stop now to keep the exchange rate stable.”
On Thursday, according to BB, the forex reserve was at $42.11 billion.
Last Sunday, the central bank had set the uniform exchange rate for the dollar at Tk 89. However, it withdrew the decision after a meeting with bankers on Wednesday and said it will increase surveillance to control the abnormal rise of the dollar price.
Taka depreciated by 90 paisa against the US dollar further on Thursday, taking the inter-bank exchange rate to Tk 89.90 per dollar.
