While preliminary data on export earnings has been released at the end of the fiscal year, import data for the full year from July to June is yet to come. Bangladesh Bank released data on import spending up to May on Monday.
It showed that in the 11 months of the fiscal year to May, Bangladesh’s growing trade deficit was $30.82 billion as imports outpaced exports and the negative trend in remittances continued. The deficit increased by 48.83 percent ($10.11 billion) compared to the same period of the previous fiscal year. In the discussed period of the previous financial year, that was $ 20.70 billion.
As a result, the country’s current account deficit has crossed $17.23 billion, which is higher than any record in history. A month ago, at the end of April, that was $42 billion 15 decimal places.
And this current account deficit has increased more than 6 times in a one-year period since May last year. In May of the 2020-21 fiscal year, the deficit was $2.78 billion.
The data comes at a time when Bangladesh is struggling to cope with the pressures of high inflation, with a record trade deficit and current account balance. As the dollar rises to meet import cost pressures, the rupee continues to lose value. The contagion of the new coronavirus is increasing and thousands of people are suffering from flooding in different parts of the country.
The spokesman and director of Bangladesh Bank said about the increase in the trade deficit. Sirajul Islam told bdnews24.com: “The reason for the increase in the trade deficit is mainly due to the increase in import costs. Compared to that, exports have not increased, although they have increased this time. But due to global factors, inflation and exchange rates have risen, hence the import cost has increased by an amount of Rs.
“On the other hand, remittances have not increased as much this time around, although they increased last time.”
He cited several measures taken to save foreign exchange by reducing import costs, saying: “Restrictions have been placed on travel abroad to save foreign exchange, margins of up to 75% have been imposed to discourage imports of luxury goods.”
These decisions taken in April last year had no effect even at the end of May. Economists say we have to wait three months to know the effect of these decisions.
Private Research Organization Policy Research Institute of Bangladesh (PRI) Executive Director Economist Dr. Ahsan H. Mansoor had already predicted that the trade deficit would reach this level.
He said that in order to reduce the deficit, demand must first be reduced. The government has already adopted a number of policies to save foreign exchange, such as a ban on the purchase of new cars. Some such decisions could save Rs 40,000 crore.”
Regarding taking more policy decisions at the government level, he said: “The prices of some products, such as electricity and gas, need to be increased. When the price rises, people become aware and they reduce consumption and demand.
“Secondly, the exchange rate must be able to rise further. Then the money will stabilize at some point. It will increase the amount of exports. What happened this time.
In addition to banning the import of various products at a private level, he proposed increasing the duty.
However, he advised the government to take initiative to maintain an adequate supply of essential food items such as rice and wheat for the middle class and marginalized people.
To give an example, he said, the government has given a special opportunity to import four lakh tons of rice. It does not require 2 million tons of aid. Then the price will be adjusted. The range of even more such products should be increased.
“Inflation control is more important than GDP growth. Even if GDP growth is slightly adjusted, there is no harm. The government is already moving in that direction. Several projects have stopped implementation.”
An analysis of the data shows that in the 11 months to May of the recently concluded fiscal year, import spending was $75.40 billion, a 39 percent growth. A month ago in April, the import volume was $68.66 billion.
By contrast, export revenues amounted to $44.54 billion at the end of May. It is up 32.98 percent from May last year.
According to these figures, the trade deficit from July to May of the past fiscal year was $30.82 billion, which is more than ever before. The trade deficit at the end of May of the previous fiscal year 2020-21 was $20.70 billion.
During this period, petroleum was the most imported commodity, followed by industrial raw materials and semi-finished products. Capital equipment has the third highest position.
Expat remittances play a role in filling the country’s shortage of imports and exports. At the end of the past financial year there was credit growth.
The current account deficit widened to $17.23 billion as export revenues and negative remittance growth failed to cover import costs.
Bangladesh has never had such a current account deficit. A current account balance with a deficit followed by a surplus at some point since the last fiscal year 2020-21. At the end of that fiscal year, the deficit was $4.58 billion. Earlier in the 2019-2020 fiscal year, the deficit was $5.44 billion. Previously, the $9.56 billion deficit was the largest in fiscal year 2017-2018.
Regular imports and exports and other income and expenditure are included in the current account. As such, having a surplus means that the country is not in debt in regular transactions. And if there is a deficit, the government has to fill it with loans.
The effects of trade and current account deficits have made the dollar market unstable and taka cheaper. At the beginning of the past fiscal year, the current exchange rate of 84.81 taka against the dollar is 93.44 taka in the banking channel. And in the open market, it is now in the 98-100 taka range, which has recently risen to 102 taka.
Bangladesh Bank is easing rules and boosting remittances due to the dollar crisis. It doesn’t improve much either.
Overall balance of surplus to deficit
As imports increase, the surplus on the total balance (overall) also becomes negative. Last financial year in May, where the surplus amounted to 8.51 billion, this became a debt of 3.71 billion last April. And at the end of May, the debt was $4.3 billion.
Analysis of the data shows that Bangladesh started the fiscal year with a large current account surplus in the recently concluded fiscal year 2021-22 as a continuation of fiscal year 2020-21. But in the end it comes down to debt.