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Trade deficit down by $6b in 11 months of FY 24 

Published : Friday, 26 July, 2024 at 12:00 AM  Count : 109
Business Correspondent
Despite a decline in exports, Bangladesh's trade deficit decreased by $6 billion to $20 billion in the first 11 months of FY24, mainly due 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 percent year-on-year during July-May period of FY24.

The mystery of the export data mismatch was finally resolved a few days ago after the National Board of Revenue (NBR) 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. According to an economist, even a slightly lower deficit is adding pressure to the economy due to uncomfortable reserve position.

Zahid Hussain, former lead economist at World Bank's Dhaka office said, "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 deficit balance for the period up to May is increasing."

Referring to ongoing dollar crisis as a major reason for decrease in imports, the economist said the crisis might have eased slightly due to loans from several international organizations.

"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 percent growth in remittances, 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, totaling $2.08 billion.

The balance of payments statement for July-April of FY24 revealed that 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.

"Before improving the balance of payments, our economy must be fully activated. There has been massive disruption in both real and virtual economies due to political instability. This should be addressed first by restoring internet availability to previous levels, the economist says.



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