• Thursday, August 21, 2014

Surplus in current account soars despite a fall in remittances

Rejaul Karim Byron

The current account surplus rose by 124 percent to $2.65 billion in July-December this fiscal year, compared to the same period a year ago, despite a fall in remittances.
The surplus came due to higher exports and a decline in petroleum import.
However, the central bank in its recent monetary policy statement (MPS) apprehended that the surplus may decrease in the next six months.
Zahid Hussain, lead economist at the World Bank's Dhaka office, supported the stance of Bangladesh Bank, but said the decrease will be slight and the surplus will not be negative.
Hussain also agreed with the BB that there will be some risks of pressure on the balance of payments in the next fiscal year due to a low export growth and a decline in remittance inflow.
“Looking ahead to the second half of FY14 our balance of payments projections apprehend there will be a correction in the pace of export growth due to a possible slowdown in RMG sector orders, along with a pick-up in imports as investor confidence grows,” the MPS had said.
In the first six months of the current fiscal year, remittances declined by 8.5 percent over the same period a year ago, when such earnings increased by 21.97 percent.
But exports grew by 16.56 percent during the July-December period when overall import fell by 0.11 percent. The fall in import was 23.38 percent in December alone which caused a huge surplus in the current account balance.
Though import of food grains, capital machinery and industrial raw materials increased during July-December, import of petroleum products decreased by 16.14 percent, according to LC (letter of credit) settlement data of the central bank.
Shutdowns and blockades seriously hampered transportation in the last few months causing a decrease in petroleum import, Hussain said.
The prices of petroleum products also fell slightly in the international market for which the country had to spend less on petroleum import, he added.
Hussain said the government's expenditure and subsidy on petroleum will be less this fiscal year than its projection.
However, the WB economist said import may go up again as political stability is prevailing now.
The central bank's LC opening statistics show that import of capital machinery increased by 67.23 percent in the first six months of the current fiscal year, while petroleum import rose by 19.84 percent and industrial raw materials 3 percent.

Hussain said exports may slow down in the coming months as some export orders for Bangladeshi garments were cancelled in the last few months.
The commerce ministry at a meeting last week said exports are likely to grow by 12 percent in the current fiscal year.
However, the central bank thinks the surplus in balance of payments would remain positive in the current year.
“We also project a slightly positive remittance growth in the second half. These assumptions along with the outcomes for the first half imply that for FY14 we project overall export growth of 8 percent, import growth of 9 percent and remittance growth of -4 percent which will lead to a healthy balance of payments surplus,” the central bank said in its MPS.
The commerce ministry at the meeting of the fiscal coordination council also mentioned a number of risks in maintaining a healthy export growth.
Bangladesh will have to fulfil a number of conditions to continue enjoying the trade privilege -- generalised system of preferences (GSP) -- of the European Union.
Some conditions including those related to labour standards in the garment sector will have to be met by June this year.  
Bangladesh runs the risk of losing the European GSP as progress was slow in fulfilling many of the conditions, a commerce ministry official said.
WB's Hussain said the balance of payments will come under pressure in the next fiscal year if the GSP is scrapped.
The central bank in the MPS said, starting from FY15 in order to retain external sector stability it will be important for remittance growth to pick up as imports are likely to grow further following a year of import compression.
This will require coordinated activities to boost manpower exports, upgrading skills of migrants and enhanced incentives to use formal channels to remit and invest funds and BB will step up its efforts in this regard, the MPS said.

Published: 12:00 am Sunday, February 09, 2014

Last modified: 12:22 am Sunday, February 09, 2014

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