AS The Daily Star reported on Tuesday, Bangladesh's trade deficit nearly doubled to USD 8.62 billion in the first half of fiscal year 2017-2018 (FY17-18), according to Ahsan Mansur, executive director of Policy Research Institute of Bangladesh, raising concerns among experts about the possibilities of the Taka depreciating against the US dollar and pressure on the country's foreign reserves increasing.
The main cause for this has been imports, which went up by 25.76 percent year-on-year during July-December to USD 26.31 billion in 2017, according to Bangladesh Bank (BB) data; offsetting export growth of USD 17.69 billion (7.8 percent) such that the trade gap could surpass USD 19 billion in FY17-18, should the trend remain unchanged.
First half current account deficit in FY17-18 was already at its all-time high; USD 4.76 billion in contrast to USD 543 million in FY16-17. USD 40.23 billion worth of letters of credit were opened, also up 74.76 percent year-on-year, with import orders nearly doubling—led by purchases for the Rooppur nuclear power plant which amounted to USD 28.25 billion. That aside, the other most notable increases took place in the import of rice because of crop losses, capital machinery or industrial equipment used for production, and industrial raw materials.
And that is not necessarily a bad thing (except in the case of crops). Because increased imports of capital machinery and industrial raw materials could increase overall output capacity in future and be indicative of growing confidence among businesses and investors. To achieve the right balance in foreign trade, therefore, the focus of policymakers should have been on formulating consistent and coherent export maximisation strategies.
That, however, has not been the case. This may be a little tricky to see at first glance, as export data does seem to indicate otherwise. For example, export earnings in July soared 26.54 percent to USD 3.2 billion led by garment, whose shipments rose 17.08 percent year-on-year to USD 2.47 billion in the month starting FY17-18, marking a strong rebound from FY16-17 that concluded in June, according to data from the Export Promotion Bureau.
In August, exports reached USD 3.64 billion, the highest in a single month in the country's history, going up 10.64 percent from a year earlier and 13.75 percent from the previous month. In December, exports again increased by 8.42 percent over the same month in FY16-17, with garments fetching USD 14.77 billion in the first six months, up 7.75 percent from the same period a year ago, while export of jute and jute goods jumped 21.48 percent to USD 574.06 million. Yet, if we look at government policies in regard to the exports of garment and jute alone in that time-period, or their complete absence at key moments, the inconsistencies and incoherence become glaringly apparent.
To start with, what is interesting is that garment export struggled in the latter half of FY16-17, experiencing a decline even of 4.49 percent year-on-year in February; and surprisingly soaring in July, despite the European Union, which accounts for over 54 percent of our exports, banning direct cargo flights from Dhaka to the 28-nation bloc in June, following the lead of the UK (who just lifted the ban yesterday), Australia and Germany.
At the time, USD 1 billion worth of garment orders were being lost in a year due to the inefficiency of airport authorities, according to Siddiqur Rahman, president of the Bangladesh Garment Manufacturers and Exporters Association. Which means that losses incurred by exporters ever since have most likely been higher, as the decision further complicated matters by requiring Bangladeshi businesses to have their consignments re-screened at a third airport en route to an EU country.
This increased shipping time of goods to the EU from 17-18 hours to more than two days. And, as many airlines coincidently reduced their cargo transport capacities from Bangladesh in that time, cargo congestion, especially because of problems also at the Chittagong Port, magnified considerably.
All this because the government had failed to set up the necessary screening and security mechanisms, and has continued to fail, even after all these months of the ban being in effect. Had that not been the case, how much more exports would have risen by and how much better off our balance of payment position would have been, is anyone's guess.
Earlier this week, it was reported that the government had finally urged India to allow Bangladesh to use its airports for exporting goods to third countries. Again, what took the government this long to ask, or simply react to such a serious crisis, is difficult to predict or understand.
Meanwhile, jute exports too suffered a major setback because of the government itself, after it whimsically imposed a ban on the export of raw jute on January 18 to the complete shock of producers. This, once again, shows the incoherence in the government's thinking as it was jute exports that had played a vitally important role in FY16-17, when garment exports were down significantly.
This shows that the government is still failing to provide some of the most basic support to exporters even in our most well-established exporting industries. How it can be counted on to provide any substantive support to other sectors in the interest of export diversification—considered to be of highest importance by experts—is difficult to comprehend.
All is not gloom, however, as overall exports performance, despite the lack of policy support, is encouraging. Also encouraging is that, according to a recent report by this newspaper, BB “is set to upgrade the Bangladesh Automated Clearing House in a bid to help businesspeople settle their local export- and import-related transactions in a day instead of [the] existing 7-10 days.” The system should be up and running in early May.
Given such positive developments, the government doesn't really have to do a thousand things to better balance our trade accounts. Rather, it needs to formulate simple and coherent strategies to support exports in the long run.
Experts and stakeholders have already mentioned some key aspects such strategies should include—addressing congestions at various ports, ensuring adequate power, energy and infrastructure. The challenge now, it seems, is to make the government listen so that its policies change from being unplanned and erratic to something well-planned and concrete. That is the best way it can help increase exports and better balance our foreign trade.
Eresh Omar Jamal is a member of the editorial team at The Daily Star.