Home ›› 04 Nov 2022 ›› Front
Bangladesh’s import payments rose by 11.7 per cent to $19.35 billion in the first quarter of FY23, compared to the same period last year, despite austerity measures introduced by the government and central bank.
Published by the Bangladesh Bank on Thursday, the monthly balance of payment data for the July-September period show that the country’s trade gap has widened to $7.55 billion, current account deficit jumped to $3.61 billion, and overall balance stood at negative $3.45 billion.
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “The import payment growth percentage posted in the first quarter of current FY actually declined compared year-on-year, from 47.58 per cent in FY22 to 11.7 per cent in FY23.
“An analysis of the posted data suggests that the austerity measures imposed by the government have worked to some extent. But the deficit of overall balance indicates that such steps were not implemented properly or not sufficient.”
Centre for Policy Dialogue’s (CPD) Distinguished Fellow Prof Mustafizur Rahman said, “Import payments jumped mainly due to the price hike in the international market. But if we try to introduce even more austerity measures, it might have the opposite effect on our economy.
“Therefore, Bangladesh must focus on boosting remittances and exports.”
Toufic Ahmad Choudhury, former director general of Bangladesh Institute of Bank Management (BIBM), said, “The large gap in the overall balance indicates that the pressure on reserves is increasing and the taka will continue to depreciate against the greenback.”
To save foreign exchange reserves, the government has taken a number of initiatives since this April, including increasing the LC margin, imposing regulatory duties to control the import of luxury goods, slowing the implementation of import-dependent projects.
Trade gap and current account deficit
During the July-September period of Q1 FY23, import payments stood at $19.35 billion and the export earnings were $11.80 billion. So the trade gap widened to $7.55 billion during that period. This gap was $6.77 billion in the same period of FY22.
In this context, Toufic Ahmad said, “A trade gap of seven and a half billion dollars in three months is a big deal. Who knows where it will stand at the end of the year.”
Trade gaps are mitigated by low service payments and increase in the primary and secondary income. However, Bangladesh’s service payments increased by 20.42 per cent to $3.33 billion during the first quarter of FY23.
In the same period, remittance inflow – a key source of secondary income – rose only 4.9 per cent to $5.67 billion. So, the current account deficit stood at $3.61 billion in that period, compared to $2.54 billion posted in FY22.
Zahid Hussain said, “Remittances have flowed into informal channels instead of through the banks, only because of the new USD exchange rate. Meanwhile, non-RMG exports are heavily discouraged as exporters cannot accept Tk 99 per USD after opening LCs with Tk 107 per USD.
Financial account and overall balance
Current account deficit has to be met with the financial account. But this account surplus was only $359 million during the July-September period of FY23, compared to $2.22 billion in the same period last FY.
The biggest blow to the financial account came in net aid flows. The amount stood at just $885 million in that period, compared to $1.44 billion year-on-year.
As part of the financial account, the amount of long and medium term foreign loan repayments decreased during the July-September period compared to last year. However, the trade credit deficit has increased. It went to negative $1.25 billion in July-September of FY23, which was just negative $405 million in the same period last FY.
Commenting on the matter, Zahid Hussain said, “Trade credit gap is the gap between the price of exported goods and export earnings. A widening of the gap means less export earnings are being repatriated. “The buyers’ credit is also going up, and the reason for a decrease in foreign aid is not exactly understood. It may be temporary.”
All in all, the overall balance stood at negative $3.45 billion in the July-September period of FY23, which was negative $810 million in the same period last fiscal year. Mustafizur Rahman said, “This gap is putting pressure on the forex reserves. This will make the exchange rate more volatile. So it is better to leave the exchange rate to the market.”
Forex reserves declined by around $10 billion at the end of September this year compared to the same month of previous year. Reserves stood at $46.28 billion in September last year, which steadily dropped to $36.44 billion this September.
Besides, the USD exchange rate increased from Tk 85.35 in September 2021 to Tk 103.08 this September.
