Current account deficit rises concern for economy

The trade deficit declined significantly in recent months, but the current account deficit is a rising concern for the economy. 

Actually, the dollar crisis led to a reduction in imports as a result of regulatory measures. At the same time, exports and remittances are increasing. Due to this, Bangladesh's trade and current account deficit with the outside world has reduced a lot.

However, the country's financial deficit is prevailing due to multifarious reasons including the decrease in foreign loans and investments, and the pressure of repayment of previous loans. All in all, there is pressure on the dollar market. Even though the banks are increasing the rate of the dollar, the foreign exchange reserves are not improving.

Bangladesh Bank released the balance of payments or foreign exchange balance statistics for the current financial year. In the last financial year (2022-23), imports have decreased by 15.76 percent due to non-availability of dollars as per demand, an increase in import duty, hundred percent LC margin and other means of import control.

Exports increased by 6.28 percent during the same period. Due to this, the trade deficit decreased from $ 3 thousand 325 million in the previous financial year to $ 1 thousand 716 million. During this period, the remittances of expatriate Bangladeshis increased by 2.75 percent. In all, the current account deficit narrowed to $3.33 billion. In the financial year 2021-22, it was $ 1 thousand 864 million.

Former lead economist of the World Bank Dhaka office Zahid Hossain said that the decrease in imports has played a major role in reducing the current account deficit. Although this situation has temporarily reduced the pressure on foreign exchange payments, it has had a major negative impact on all sectors of the economy. Again, the current account deficit has decreased a lot, but there has been no profit.

Because the financial deficit has increased so much that there is a large deficit in the overall account. As a result, the benefit of reducing the current account deficit was not found with such difficulty.

He thinks that if the situation is to improve, the deficit in the financial account should be taken into surplus. And for this, the most important thing is the development of trust. In particular, Moody's has downgraded the credit rating and S&P has made the outlook for the future 'negative'. An attempt must be made to rebuild trust by considering why they did so.

Zahid Hossain also said that one of the reasons for the financial deficit is that the period of short-term loans in the private sector could not be extended as before. Again, the dollar that was in the accounts of the commercial banks has decreased a lot. 

On the other hand, these banks have to pay their previous debts. Thus, both liabilities and assets of commercial banks have decreased and the international position has deteriorated. The payment pressure has increased. Again, the loan waiver of development partners has decreased. Apart from this, the gap between trade credit and the shipping of export goods has increased. A major reason for this is the current exchange rate policy. Now you are getting more money if you delay in bringing the export bill. As a result, the bill is being delayed. The reality is that everyone will do that. There is no way out from here unless the monetary and fiscal policies are fixed.

According to the report, a large deficit has been created from a series of fiscal surpluses. In the previous financial year, where the surplus was $ 1 thousand 546 million, this time it has fallen to a deficit of $ 214 million. The deficit in the overall trade balance was $8.22 billion mainly due to the fiscal deficit. In 2021-22, the deficit was just $6.66 billion during the same period. An increase in the deficit in the overall trade balance means that the amount of foreign exchange coming into the country from various sources is greater than that which has gone out.

To meet the market crisis, Bangladesh Bank sold $ 1 thousand 358 million to various banks last financial year. The previous financial year had sales of $ 7.62 billion. As a result of this sale, the reserve further decreased to $ 23.27 billion according to the IMF accounting system.