Current account deficit continues to break record

Bangladesh's current account deficit surpassed $8.51 billion for the first time in history at the end of April as the country's capacity to export continues to lag behind the appetite for imports.

At this point last fiscal year, the deficit was $1.79 billion, according to data from the central bank.

The deficit has already weakened the local currency against the US dollar and can deplete the country's foreign exchange reserves, said economists and bankers yesterday.

The current account deficit will cross the $10 billion-mark this fiscal year if the central bank does not backtrack from its ongoing policy for the foreign exchange market, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The central bank has already injected more than $2 billion into the market and also put a cap on the bills for collection selling rate to keep the exchange rate stable, he said.

“Such policy will require a long time to cool down the ongoing volatility in the foreign exchange market. I think that the turbulence will subside within the shortest possible time if the central bank stops its intervention into the market.”

Although the exchange rate of the dollar against the taka will go up suddenly when the central bank stops its intervention, it will bring long-term stability to the market, Mansur said.

On Sunday, the interbank exchange rate was Tk 83.70 per dollar, up from Tk 80.60 from a year earlier, according to central bank statistics.

Mansur noted three reasons for the ongoing volatility in the foreign exchange market: capital flight ahead of election, opening of huge letters of credit by importers, and some exporters depositing dollars for rainy days.

“Some importers have been afraid of the exchange rate appreciating further in the coming days. So, they are now opening LCs in bulk,” he said.

Trade deficit also widened 87.53 percent year-on-year to $15.33 billion in the first 10 months of the fiscal year, according to data from the Bangladesh Bank. A higher import payment against the lower export earnings was responsible for the large trade deficit, said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh, a forum of banks' chief executives and managing directors.

Between July last year and April this year, imports surged 25.18 percent year-on-year whereas exports grew 6.99 percent.

Foreign direct investment has recently declined, which also fuelled the current account deficit, said Rahman. FDI decreased 7.35 percent year-on-year to $2.37 billion in July-April, according to data from the BB.

Rahman, also the managing director of Dhaka Bank, fears the current account deficit will widen in the coming months.