Trade deficit narrows on falling imports
The trade deficit shrank heavily in the first half of the ongoing fiscal year because of dwindling imports amid the economic slowdown, in a sign of depressed demand and consumption.
Between July and December, the trade deficit, which occurs when imports outweigh exports, stood at $6.46 billion, down 21.37 per cent year-on-year, data from the central bank showed.
During the period, imports declined 6.8 per cent from that a year earlier to $25.22 billion, eclipsing a 0.44 per cent fall in exports to $18.76 billion.
"Although a declining trade deficit is apparently good for an economy, such a trend will put an adverse impact on the GDP growth," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
The economic meltdown brought on by the coronavirus pandemic has adversely affected the domestic demand, bringing down import payments.
The falling import of capital machinery and industrial raw materials indicated that investment in the private sector is feeble.
Capital machinery import stood at $ 1.5 billion in the first half of 2020-21, down 29.17 per cent from a year ago. This means businesses are reluctant to set up new plants or expand their existing ones.
Import of intermediate goods, including industrial raw materials, dipped 8.8 per cent to $15.33 billion, in a sign of lower production than the pre-pandemic period.
The consistent lower import growth also highlighted the difficulty the exporters in the country are facing because of the crisis. In Bangladesh, exporters are usually among the major importers as they make products for external markets.
The decline in imports has had an adverse impact on the private sector credit growth, which stood at 8.37 per cent in December against the central bank target of 11.5 per cent.
"The increase in private investment will be key to faster growth and the rebound of the economy. Proper implementation of the stimulus packages is also essential," Rahman said.
Current account balance, one of the major indicators of the balance of payments (BoP), stood at $4.32 billion in the July-December period in contrast to a deficit of $1.66 billion a year ago.
The current account includes all the transactions (other than those in financial items) that involve economic values and occur between resident and non-resident entities.
The lower imports and an increase in remittances have widened the current account.
Between July and December, expatriate Bangladeshis sent home remittances worth $12.94 billion, up 37.60 per cent year-on-year.
The large balance in the current account has contributed to the ballooning of the foreign exchange reserve, which stood at $43.17 billion at the end of December.
But the current account balance would be meaningless if the economy does not make a turnaround, according to experts.
The overall balance was $6.15 billion in the first six months of the fiscal year in comparison to $27 million a year earlier.
The stronger current account balance and the loans from multilateral lenders helped boost the overall balance of the BoP.