Home ›› 14 May 2023 ›› Front
Financial account of the balance of payments (BOP) has turned negative due to foreign debt repayment pressure, lack of new foreign loans and foreign direct investment, and inefficiency in the use of foreign aid.
Due to these factors, the benefits of reducing imports or increasing exports and remittances are not available. On the other hand, the deficit in BOP is getting wider as the reserves are further declining.
According to the Bangladesh Bank, the financial account was negative $2.21 billion during the July-March period of FY23. However, it was positive at $11.92 billion during the same period last FY.
The current account balance deficit nosedived to $3.64 billion from $14.34 billion during the July-March period year-on-year.
Analysts say the current account balance deficit is narrowing due to the steep decline in imports to overcome the USD crisis.
But as the financial account turned negative, the overall balance deficit widened. Increased foreign debt repayment pressure and non-inflow of new foreign loans are the main reasons for negative financial accounts.
In this context, former director general of Bangladesh Institute of Bank Management (BIBM) Toufic Ahmad Choudhury said, “A negative financial account means that our foreign currency outflow has increased compared to the inflow.
“Besides, it tells us that our foreign investment is not in good shape. We cannot also use foreign aid either.”
He added, “Since the current account deficit has slightly improved, the negative phenomenon of financial account’s impact is not much understood. If not improved, the situation would have been worse.”
Ahsan H Mansur, executive director of Policy Research Institute, said there is no opportunity to balance the current account deficit. Imports have been reduced, and it can’t be reduced anymore.
“So, we must now turn our attention to the financial accounts. It must be made positive separately. For this, the government officials should sit with the bankers and investors.”
According to the BOP data, the inflow of net foreign direct investment (FDI) fell by 17.98 per cent to $1.34 billion during the July-March period of FY23 compared to the same period of the previous FY.
On the other hand, foreign investment in the stock market is still negative. It was negative $41 million in the July-March period of FY23, compared to negative $110 million in the same period last fiscal year.
But the amount of medium and long-term loans dropped by 24.17 per cent to $5.07 billion during the July-March period of FY23 compared to the same period of FY22.
And similar loan repayment increased by 7.35 per cent to $1.25 billion over the same period of FY23.
Besides, Bangladeshi businessmen are no longer getting foreign loans for trading rather they have to pay more.
As a result, in the July-March period of FY22, where the amount of trade credit was negative $672 million, it increased to negative $3.19 billion in the same period of the current fiscal year.
In this context, Ahsan H. Mansur said, “We have made a big mistake in this regard. No bank should be allowed to default in payment of LC liability. That’s why trade credit is not coming now.”
The economist also said that if foreign debt doesn’t increase, reserve loss cannot be reduced. “Do not be afraid of foreign debt because a vibrant economy needs to increase flow from everywhere.”
Toufic Ahmad Choudhury said even if the foreign loan comes down, the second instalment of the IMF loan will come. Then the World Bank promised $2.5 and the Asian Development Bank will also help. But these are all foreign aid.
“We need to focus on increasing foreign direct investment.”
He also said that foreign investors actually come with investment when a country’s currency appreciates. But our currency is now depreciating. However, foreign investment in the whole world is not in a very good condition.
Foreign aid in the pipeline not being used
Beyond foreign debt, Bangladesh has a big opportunity to increase its use of foreign aid. Net aid flow fell to $3.76 billion in FY23 from $5.44 billion in the July-March period of FY22.
Toufic Ahmad said, “We are not able to make proper use of foreign aid. But there are billions of dollars in the pipeline. That is why bureaucrats have to step up their efforts. They should not sit with the file in hand.”
The amount of foreign aid stuck in the pipeline has reached around $52 billion, as of March this year, according to the Economic Relations Division (ERD).
Huge deficit in overall balance
In the July-March period of the last fiscal year, the overall balance deficit was a little over $3 billion. But it increased by more than $5 billion to $8.16 billion in the same period of the current fiscal year.
Ahsan H Mansur pointed out, “Overall balance deficit means reserve loss.”
At the end of March this year, reserves fell to $31 billion, down $13 billion from the same month of last year. Reserves stood at $44.25 billion in March 2022.
Ahsan Mansur said, “We are very weak in the service sector. As a result, we are paying huge foreign currency on education, health, travel and the purpose of consultancy.
“If we do not improve in these areas, the deficit of the overall balance will be much reduced and the county will face more USD shortage.”
