Bangladesh's trade deficit goes up, impacts BoP

The trade deficit for the first five months of the 2016-17 financial year has gone up, leaving the country with an adverse Balance of Payment (BoP) of $726 million.

At $3.88 billion, the trade deficit in the goods sector for the July-Nov period is 23 percent higher than that in the corresponding period last fiscal year.

In the service sector there has been a 33% rise in trade deficit.

Finance Minister AMA Muhith has attributed the rise in trade deficit to increased imports for expediting mega projects like the Padma Bridge.

He, however, said that the impact has been minimal due to steady oil and food prices.

 

According to Bangladesh Bank’s statistics, the trade deficit from July to November during the 2015-2016 fiscal year was $3.15 billion.

Imports of goods between July and November in the current fiscal year amounted to $17.22 billion, an increase of 9.5 percent from the previous fiscal year.

In that same period Bangladesh’s exports of goods accounted for $13.34 billion, an increase of 6.15 percent from the 2015-2016 fiscal year.

The BoP deficit thus stood at $3.88 billion.

The trade deficit for services between July and November increased from $1.09 billion in the previous fiscal year to $1.46 billion in the first five months of the current fiscal.

The trade deficit for services is calculated by aggregating the amount spent on such products as insurance and travel.

Though Bangladesh’s BoP had long been registered as a significant surplus, it ran into deficit in September.

 

According to Bangladesh Bank statistics, the first five months of the 2016-2017 fiscal year have registered a total deficit of $72.6 million.

During the same period in the 2015-2016 fiscal year, the BoP had stood at a surplus of $1.33 billion and Bangladesh had ended the year on a robust BoP surplus of $3.7 billion.

The current account of the BoP is the sum of the balance of trade (a country’s imports of goods and services minus their exports), net income from abroad and net current transfers.

The current account balance indicates whether a country owes debt to other nations. If the BoP has a surplus, the government does not owe debt. The country does owe a debt if the BoP registers a deficit.

According to Bangladesh Institute of Development Studies (BIDS) Researcher Zaid Bakht, the low price of oil and food on the international market in the past two to two-and-a-half years has kept down Bangladesh’s import spending.

“For this reason we had a significant BoP surplus. However, as the cost of imports has increased, the BoP has turned into deficit,” he said.

Bakht, who is also the chairman of Uttara Bank, said: “As work has begun on a few major projects in the country, the import expenditure on necessary materials has increased, which has led to a corresponding rise in imports of capital equipment and raw materials for industrial use.”

The current situation was ‘nothing to worry about’, said Bakht . “Imports of necessary capital machinery and raw materials mean there is significant investment in the country, which will energise the economy.”

As Bangladesh Bank currently holds $32 billion in foreign exchange reserves, the BoP deficit should not be a problem even if it increases, he said.

 

FDI up almost 10 percent

According to the Bangladesh Bank, Foreign Direct Investment for the July-Nov period has gone up.

 $719 million worth foreign direct investment was received in the period which is 9.6% higher than the figures corresponding to the same period in the previous fiscal year ($656 million).

Bangladesh has received $118 million in net foreign portfolio investment in the July-Nov period of the current fiscal year.

In the same period of the previous fiscal year, the net foreign portfolio investment had registered as negative $300 million – meaning Bangladesh had spent $300 million more on foreign portfolio investment abroad than foreigners had spent on Bangladesh.