Bangladesh's trade deficit narrows 43% in first 10 months of FY23

It comes amid a slew of measures, including the imposition of import curbs, aimed at conserving forex reserves

Staff Correspondentbdnews24.com
Published : 9 June 2023, 07:15 AM
Updated : 9 June 2023, 07:15 AM

Bangladesh's trade deficit has decreased further to $15.73 billion in the first 10 months of the outgoing fiscal year to April amid a slew of measures, including import controls, to conserve depleting forex reserves.

The latest figure marks a 43 percent decline year-on-year, with the deficit coming down from $27.69 billion in FY22.

The deficit up to March was $14.62 billion, which was 41.63 percent lower than in the same period the year before.

An updated report on the balance of payments published by Bangladesh Bank on Thursday indicates that the growth of the current account balance assessing foreign transactions has also slowed down. However, the deficit in the overall balance and financial accounts has started to widen.

Economists flagged the broadening of the financial account deficit as a fresh concern for the economy despite the improvement in the other indices.

An increase in the deficit means that the exchange rate will come under more pressure, according to them. And, if the value of the taka erodes further, the foreign debt repayment costs for the private sector will increase.

This, in turn, will add further strain on the forex reserves and increase import costs, fuelling inflation.

Sadiq Ahmed, vice chairman of the Policy Research Institute of Bangladesh (PRI), believes the flow of short-term foreign loans will be negatively impacted by the increase in the financial account deficit.

“Confidence of foreign investors will decrease in terms of loans and investments. They'll start to question whether their investment or profit can be recovered from Bangladesh in time."

According to the central bank's report, foreign direct investment in the July-April period amounted to $4.2 billion, which is 7.75 percent more than in the same period last year.

However, the net foreign investment decreased during that time. The amount of net foreign investment until April stood at $1.49 billion, down 12.30 percent year-on-year.

Sadiq Ahmed suggested leaving the determination of the exchange rate to market forces in order to cover the financial account deficit.

“The reserves fell by $12 billion in one year as Bangladesh Bank controlled imports and sold dollars. Capping the value of the taka for more than a decade was by no means right. It would have stabilised at some point if given the opportunity to gradually reduce its value," he said.

"We have to respect the workings of the economy. If the value of the taka decreases a little, the pressure of inflation that will follow can be controlled by government initiatives, such as duty exemption and market supervision."

However, some of the economic pressure would have been alleviated had the inflow of remittance been slightly higher, according to Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue.

In order to reduce the deficit and stabilise the taka, he believes, it is crucial to increase the supply of foreign currency into the country. “Getting new loans will now be a bit more difficult than before. Many will not want to provide new loans. Rather, the foreign debt in the pipeline should be discounted quickly."

“There are more opportunities to increase remittances. The government should increase incentives to bring it into the banking channel and leave it to the market to unify multiple exchange rates.”