Trade deficit falls by $6b in July-May FY24
The mystery of the export data mismatch was finally resolved a few days ago after the National Board of Revenue corrected its estimates of exports that had been erroneously showing inflated for the last few years
Despite a decline in exports, Bangladesh's trade deficit decreased by $6 billion to $20 billion in the first 11 months of FY24, thanks to a significant reduction in imports, according to central bank data.
However, the trade deficit increased by $1.52 billion in May. Still, the pressure on the trade balance eased slightly as imports fell by 12.6% year-on-year during July-May of FY24.
The mystery of the export data mismatch was finally resolved a few days ago after the National Board of Revenue corrected its estimates of exports that had been erroneously showing inflated for the last few years.
This has thumped down export figures for July-March by a huge $10 billion, showing a negative growth in reality instead of positive growth perceived so far.
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According to an economist, even a slightly lower deficit is adding pressure to the economy due to the uncomfortable reserve position.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, told The Business Standard, "Our imports are decreasing, which is not good for the economy. Imports have been reduced primarily to ease the pressure on the balance of payments. Merchandise and service exports have also collapsed. As a result, the trade balance deficit for the period up to May is increasing."
Referring to the ongoing dollar crisis as a major reason for the decrease in imports, the economist said the crisis might have eased slightly due to loans from several international organisations.
"However, the overall situation has not improved significantly. Efforts to address the dollar crisis by reducing imports are still ongoing," he added.
The current account – considered the primary account of a country and consisting of remittances, exports, and imports – is in deficit by $5.98 billion for July-May of FY24, according to central bank data. The deficit was over $12 billion at the end of the same period of the previous fiscal year.
Despite a 10.1% growth in remittances, the current account deficit widened slightly due to a decline in exports. Mainly because of the high trade deficit, the current account could not achieve a surplus even with the growth in remittances.
According to central bank data, the financial account surplus at the end of May decreased by $226 million compared to April, totalling $2.08 billion.
The balance of payments statement for July-April of FY24 revealed that the financial account swung to a surplus of $2.2 billion, reversing from a historic deficit of $9.25 billion a month earlier. Indeed, the financial account turned positive after two years of being negative.
The financial account, which consists of the secondary income of a country – foreign direct investment, short-term and long-term loans, aid, and trade credit – has remained negative for the past two years, compelling the central bank to make foreign payments directly from the reserves.
The overall deficit of the balance of payments stands at $5.88 billion for July-May of FY24.
However, this deficit may be one of the main reasons for reserve erosion, as gross foreign exchange reserves fell to below $22 billion on 30 June from $27 billion in December last year, central bank data shows.
Zahid Hussain said, "Our overall deficit increased slightly in May but is expected to decrease in June. This is because, in June, we received several forms of aid, including loans from the World Bank and IMF. Therefore, the financial account surplus will likely increase in June."
Commenting on the lack of significant reasons for the increase in gross foreign direct investment (FDI), he noted that year-on-year FDI growth is negative.
"I see that while FDI is coming in, it is mainly reinvested earnings, with new FDI being less. Additionally, due to the current economic and political situation, there is little chance of rapid improvement. Our arbitrary economic policy is also contributing to the decline in FDI," said the economist.
"Before improving the balance of payments, our economy must be fully activated. There has been massive disruption in both our real and virtual economies due to political instability. This should be addressed first by restoring internet availability to previous levels. The economy needs to achieve stability for the long term. At the same time, the situation should be normalised by reopening educational institutions."
