Current account deficit continues to widen

The current account deficit reached $1.8 billion in the first ten months of the fiscal year on the back of the sliding remittance inflow and the slow export growth.

In contrast, it was $3.53 billion 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 and it has been on the rise every month since.

The last time the current account was in the deficit -- of $447 million -- was way back in fiscal 2011-12. Since then there had 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.

Strong import growth coupled with a moderate rise in export and a slowdown in remittance inflow contributed to the deficit, said a Bangladesh Bank official.

During the July-April period of fiscal 2016-17, imports rose 11.73 percent while exports grew 3.93 percent, both of which resulted in further widening of the trade deficit. Trade deficit stood at $8.18 billion during the period in contrast to $5.4 billion a year earlier.

However, the BB predicts that at the end of the fiscal year the current account deficit will come down to within $600 million on the back of a pick-up in remittance and export. Export is expected to pick up, with improving growth outlook in some advanced economies, said the latest monetary policy statement of the BB. “But this outlook is subject to substantial geopolitical risks and policy uncertainties in the US, the UK and the euro area.”

There is no sign yet of an acceleration in export growth, according to the government data.

In this regard, the International Monetary Fund last week said there is a risk of export slowing down further.

Since the US, Germany and the UK are the three main export destinations of Bangladesh, a risk of slowdown in the EU may hurt shipments, mainly of garments.

For example, British garment importers have already started putting price pressures on Bangladeshi manufacturers following the announcement of Brexit.

“In the short term the impact may not be a major concern, but in the long term rising inflation expectations in the UK from the possible depreciation of the pound will affect exports,” the IMF said.

However, a strong capital and financial account performance underpinned by net foreign direct, portfolio and other investments led to an overall balance surplus of $2.3 billion during the July-April period of the fiscal year. A year earlier, it was $3.97 billion.

The overall surplus also decreased due to the widening trade deficit and declining remittance.

After a prolonged spell of appreciation pressure on the taka, it has started to depreciate, although slowly, since October 2016, in line with the gradual erosion of the current account surplus.

On June 7, the average taka-dollar exchange rate stood at Tk 80.60, which was Tk 78.40 a year ago, according to central bank statistics.