Bangladesh has registered a significant decline in imports, including capital machinery, due to the prevailing dollar crisis and the central bank strictures. The commercial banks have been cautious about opening letters of credit (LCs), while export earnings have been growing consistently. It eventually narrowed the overall trade deficit.
According to Bangladesh Bank data, there was a current account surplus of USD1.92 billion in December last year. Overseas earnings have largely contributed to the surplus, as inward remittances have consistently hovered around the USD2 billion mark throughout the last five months.
However, there is a significant deficit in the financial account. The deficit amounted to USD5.39 billion at the end of December, though it was USD140 million in surplus at the end of 2022.
Insiders attributed the large financial account deficit to different issues, including a slowdown in foreign loan releases, increased repayment of foreign loans, and lack of desired investments. Moreover, delayed receipt of export incomes exacerbated the deficit in the financial account.
The dollar prices cannot be different due to their different entry channels. Hence, there has been a significant deficit in the financial account despite a surplus in the current accountZahid Hussain, former lead economist, World Bank
Zahid Hussain, former lead economist of the World Bank's Dhaka office, said, “We have to learn from experience. Remittance has risen following the introduction of an additional incentive and withdrawal of restrictions. But the dollar price in export earnings remained at the previous level. The dollar prices cannot be different due to their different entry channels. Hence, there has been a significant deficit in the financial account despite a surplus in the current account.”
He pointed out that exporters are bringing earnings home as per their needs. Products are being shipped for exports, but not all earnings are being brought home.
Zahid Hussain underscored the need for introducing a uniform and market-based price for dollars to address the deficit in the financial account. “We must go through the passage today or tomorrow. So, it is better to go earlier.”
FDI amounted to USD1.82 billion during the July-December period, which is 28 percent down from the same period of the previous year.
According to the foreign exchange balance for the July-December period of the fiscal year 2023-24, there was a 19.8 percent decline in overall imports to USD3.05 billion, compared to the previous fiscal year's corresponding period.
At the same time, exports saw a marginal uptick of 0.64 percent, reaching USD2.59 billion. It reduced the trade deficit to USD4.59 billion from USD12.31 billion recorded during the corresponding period of the last fiscal year.
Meanwhile, foreign direct investment (FDI) amounted to USD1.82 billion during the July-December period, which is 28 percent down from the same period of the previous year.
Foreign debt repayments also surged to USD950 million during the time, which is up by 20 per cent from the corresponding period last year.
As a consequence, the financial account deficit stood at USD5.39 billion during the July-December period, which was USD5.39 billion in July-November period. The overall trade balance deficit reached USD3.67 billion at the end of December, contrasting with USD6.45 billion during the same period last fiscal year.