Current account deficit widens on sliding remittance

Current account deficit widened further in the first five months of the fiscal year on the back of the sliding remittance inflow.

Between the months of July and November last year, the current account deficit stood at $726 million in contrast to $1,336 million in the surplus a year earlier, according to the central bank's balance of payments data.

The current account balance set foot into the negative territory for the first time in four years in the first quarter of fiscal 2016-17: the deficit was $504 million.

The last time the current account was in the deficit -- of $447 million -- was way back in fiscal 2011-12. Since then there has been no deficit in the current account balance at any point in time.

A major source of foreign currency for the country in the last 10 to 12 years has been remittance sent by expatriate Bangladeshis, which also keeps the external balance sheet in a strong position.

In the first five months of the fiscal year, remittance dropped 15.67 percent -- a development that has created a pressure on the current account balance.

Remittance inflow fell due to low oil prices on the global market and growing preference for hundi, an illegal way to transfer funds from abroad.

Due to difference in the exchange rate, remittance inflow through legal channels has decreased and the trend continues despite an increase in the number of migrant workers.

Bangladesh Bank Governor Fazle Kabir on Tuesday at a meeting with chief executives of all commercial banks called for an initiative to boost remittance inflow through legal channels.

Given the current international realities, it is unreasonable to expect remittance growth to go back to double digits as was the case three years ago, said Zahid Hussain, lead economist of the World Bank's Dhaka office.

“We need a change in policy play to tap remittances that hinge on more than just sending money for family maintenance, particularly from the Bangladeshi diaspora.”

The exchange houses in the Middle East, the UK and the US need to find ways to become more remitter friendly, minimising the hassles of transferring money through formal channels. 

Hussain also said BB needs to recognise that a money transfer currently takes various shapes and forms. 

It needs to reform the foreign exchange regulations to enable the money transfer operators to connect with the Bangladeshi banking system at the earliest without any hurdles.

BB also must arrest the growing premium in the informal market through the easing of excessive foreign exchange controls.

“Last but not the least, we need to gear up our diplomatic initiatives to nudge the global architecture for governing migration and remittances to focus on multilateral agreements, instead of dealing exclusively on a bilateral basis,” Hussain added.

In the first five months, trade deficit also rose, by 22.86 percent, to $3.88 million.

As a result, the overall surplus also felt pressure in the first five months of the fiscal year.

During the July-November period, the overall surplus stood at $1.9 billion, while it was $2.04 billion a year earlier.

Despite an increase in current account deficit, foreign currency reserves set a new record and on December 28 stood at $32.09 billion, which was $27.45 billion a year earlier.