BoP hits deficit for first time in 16yrs

Bangladesh’s balance of payments entered the negative territory for the first time in 16 years in July on the back of a wide mismatch in trade.

The overall balance was $179 million in the deficit in the first month of fiscal 2017-18 against $480 million in the surplus a year earlier.

While historical monthly data is not available, the last time the overall balance was in the negative was back in fiscal 2000-01, when it was $281 million in the deficit for the whole fiscal year.

The current account balance also traversed to the negative territory for the first time in four years in fiscal 2016-17.

However, Bangladesh Bank projects that the overall balance will be $2.35 billion in the surplus at the end of the fiscal year, but the current account deficit will reach $2.72 billion.

In July import soared 47 percent, whereas a year earlier it crept up only 2.99 percent.

As the import of food, capital machinery and raw cotton increased so did the overall import, said a BB official.

For instance, in July last year food import was only $0.8 million, whereas this year it was a whopping $101.8 million.

Besides rice, capital machinery import shot up 61 percent in the first month of the fiscal year. Raw cotton import increased 105 percent, yarn 26 percent and clinker 52 percent.

At the same time, the import of consumer goods like milk, edible oil, sugar and so on increased between 26 percent and 114 percent.

On the other hand, export slightly increased year-on-year but not at the rate as import.

In July export grew 18.50 percent.

Due to the huge mismatch in import and export trade, deficit crossed the $1 billion mark in July, in contrast to $236 million a year earlier. As the trade deficit made a big jump, so did the current account deficit, which reached $497 million in the first month of fiscal 2017-18 in contrast to $379 million in the surplus a year earlier.

Foreign direct investment rose in July but the principle amount of the old debt also went up about 22 percent, which put a pressure on the overall balance. Foreign currency reserves also fell slightly due to pressure on the balance of payments, according to central bank data.

On September 13 the foreign currency reserve was $32.73 billion, which was $33.41 billion on June 30.

The central bank official said the rising trade deficit could put some pressure on exchange rates.

The deficit has already affected the exchange rate as the taka has depreciated against the US dollar.

The weighted average exchange rate was Tk 80.7 per dollar on September 13, up from Tk 78.4 on the same day last year, according to data from the central bank.

However, since June 29 the exchange rate has remained static at Tk 80.7 per dollar.

Source: The Daily Star


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