Balance of payment shrinks with pandemic | The Daily Star
12:00 AM, June 02, 2020 / LAST MODIFIED: 02:52 AM, June 02, 2020

Balance of payment shrinks with pandemic

The major economic indicators of the country's balance of payments (BoP) shrivelled in the first nine months of the fiscal year on the back of the economic fallout from the global coronavirus pandemic.

Both the contraction of exports and imports has not widened the trade deficit to a great extent in the first three quarters of fiscal 2019-20.

But this is not a good sign at all for the country as the economy has been shrinking remarkably in the last few months, economists said.

The trade deficit narrowed 1 per cent year-on-year to $12.07 billion in the first nine months.

Exports stood at $28.25 billion between July last year and March this year, down 6.34 per cent from a year earlier. Imports also decreased 4.81 per cent to $40.33 billion during the period.

Both the volume of export and import have been decreasing alarmingly this quarter, which will put a negative impact on the BoP, said Zahid Hussain, former lead economist of the World Bank's Dhaka office.

The deficit in the current account stood at $2.64 billion in the first nine months of the fiscal year, down 37.13 per cent year-on-year.

"But the situation of the current account will change in the last quarter of this year. The deficit will increase alarmingly."

April's export, import and remittance figures do not suggest otherwise.

Export and remittance may decrease more in the months to come, he said.

"Against the backdrop, the trade deficit will widen more in the days ahead."

The foreign exchange reserves too will face trouble as both the export and remittance declined, he said.

As of March 31, reserves stood at $32.38 billion, which is good enough to settle import payments for 5.5 months.

The country, however, will manage about $1.5 billion from different multilateral lenders to mitigate its BoP crisis and implement the fiscal budget.

"But the amount will not be good enough to tackle the crisis stemming from the BoP in the days ahead," Hussain said, while urging the central bank to stop intervention in the foreign exchange market to keep the economy stable.

Although the import payment will increase due to the central bank intervention, the higher export earnings and remittance will play a role in trading off the situation, he said.

The country's overall balance stood at a surplus of $345 million in the first nine months of fiscal 2019-20, in contrast to a deficit of $326 million a year earlier.

But the overall balance will also enter a negative zone if the trade gap and current account deficit widen.

The ongoing image of the BoP indicates that the country's economy has been downsized due to the financial recession, said Ahsan H Mansur, executive director of the Policy Research Institute.

The oil price in the global market has also declined massively, which has given a breathing space to the government.

"But this is not good enough to tackle the situation as the indicators of the BoP will get worse in the last quarter of the fiscal year," said Mansur, also a former official of the International Monetary Fund.

Both the central bank and the government will tackle the situation cautiously as the economy will not bounce back until the global economy will make a turnaround.

 

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