Trade deficit shrinks in first quarter

Trade deficit narrowed slightly in the first quarter of the fiscal year as both exports and imports declined, a development that can be construed as symptoms of an economic slowdown.  

Between the months of July and September, trade deficit, a situation when imports exceed exports, stood at $3.71 billion, down 3.50 percent year-on-year, according to data from the central bank. 

During the period, imports declined 2.55 percent from a year earlier to $13.25 billion and exports 2.18 percent to $9.53 billion.

Along with trade deficit, current account deficit also decreased 48.48 percent year-on-year to $678 million in the first quarter of fiscal 2019-20. 

Decreasing trade and current account deficits is good for any economy, but the declining trend of both exports and imports is worrisome, said experts.

The overall balance, the most important indicator of the external sector, showed a frustrating performance in the first quarter as the balance in the capital and financial accounts decreased rapidly.

Deficit in the overall balance stood at a negative of $204 million in the July-September period, up from $158 million in the negative.

“The balance of payments data indicates the overall economy is facing sluggishness,” said Ahsan H Mansur, executive director of the Policy Research Institute.

The central bank should take immediate steps to depreciate the taka against the dollar in a bid to protect the country’s external sector from the ongoing crisis.

“A sizable depreciation of the taka should be needed to keep up with our peer economies or else the indicators of the balance of payments will face more trouble in the days ahead,” said Mansur, also the chairman of Brac Bank.

Private sector borrowing from foreign sources had decreased significantly in the recent period as businesspeople think the local currency will depreciate in the near future to keep pace with the global trend, he said. This has left them in two minds about going for business expansion, said Mansur, a former official of the International Monetary Fund.

Financial account of the balance of payments includes private sector foreign loan. The balance in the financial account decreased 71 percent year-on-year to $380 million in the first quarter of the fiscal year.

Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, echoed the same, saying the central bank should devalue the local currency immediately in the interest of the economy.

“A strong overall balance could even offset the large trade and current account deficit.” he said.

The reduced deficit in both trade balance and current account will not yield any positive results for the economy as the overall balance decreased alarmingly.

“The country’s external sector will face more troubles ahead if the existing trend continues.”

The government should try to increase the inflow of foreign direct investment and efficiently use foreign aid with a view to strengthening the overall balance, he added.