Trade deficit swells
Bangladesh's trade deficit escalated 160 per cent in the first four months of the ongoing fiscal year in the wake of a surge in import payments against lower exports earnings.
Between July and October, the trade deficit totalled $9.09 billion in contrast to $3.49 billion a year ago, data from the Bangladesh Bank showed.
Economists say that the economy would face pressure if the ongoing trade deficit continues in the days to come.
Imports stood at $23.9 billion in the first four months of FY2021-22, an increase of 51.4 per cent year-on-year. Exports grew 20.4 per cent to $14.80 billion at the same time.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the price hike of commodities in the global market and pent-up demand were the main reasons for the import growth.
He went on to express a prediction that the pent-up demand derived from the restrictions on public movement to contain the spread of Covid-19 might continue for at least six to nine months more.
On top of that, the global market will take at least one and a half year to return to a normal state when commodity prices will revert to pre-pandemic levels.
This means Bangladesh's foreign exchange reserve will face difficulties in keeping pace with the surge in imports, said Mansur, also a former official of the International Monetary Fund.
The reserves crossed a record $48 billion in August, but it stood at $44.83 billion on December 1.
"Against this backdrop, the central bank should further depreciate the taka against the US dollar as it will help discourage the import of luxurious items," Mansur said.
The interbank exchange rate of the taka stood at Tk 85.80 per dollar on December 8 in contrast to Tk 84.80 a year ago.
Although the devaluation of the taka will push inflation high a bit, the move will eventually offset the macroeconomic pressure, he added. There is room to devalue the local currency by Tk 2 to Tk 3 per dollar.
People are counting more than Tk 90 per dollar in the kerb market, an informal platform where clients purchase foreign currencies without endorsement in the passports. As a result, the exchange rate gap has widened to more than Tk 5 between the interbank and the informal market.
"This will encourage remitters to send money through the hundi cartel," Mansur said, referring to the illegal cross-border financial transaction system.
Remittance has already started falling, creating a large current account deficit to the tune of $4.76 billion in the four months to October this fiscal year.
The current account, which records a nation's transactions with the rest of the world, enjoyed a surplus of $3.63 billion in October last year.
Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said the volume of imported items had not increased as much as expected, but the payments went up largely due to the price hike of commodities.
A major portion of the imported items is usually used to produce a good amount of exported items. But the price of the exported goods, particularly garments, has not increased as expected, Rahman said.
"Exporters are now managing profits by way of increasing the volume of exports."
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