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Tuesday, April 5, 2016

Current-account balance negative after two years: Economists see no reasons to be worried about

Siddique Islam

Higher trade deficit sent the country's current-account balance into a negative territory again in the just-concluded fiscal year (FY) after boasting surplus in the preceding two years.

The current-account deficit stood at US$1.65 billion in the FY2014-15 in a slide from a surplus amount of $1.40 billion a year before.

In FY13 the surplus was as high as $2.39 billion, according to the central bank's latest statistics, released Monday.

The country's overall trade deficit widened nearly 46 per cent in the last fiscal, officials said, disturbing the balance in the nation's net income from abroad and net current transfers.

Higher import payments and lower export receipts mainly created a gap in the two-way external trade.

"The sharp increase in the trade-account deficit was primarily due to subdued export growth while import growth was respectable at more than 11 per cent," Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI) of Bangladesh, told the FE.

Dr Mansur also said this sharp widening of the trade-account deficit, coupled with slower inflow of workers' remittances, contributed to the deterioration in the current-account balance.

However, such developments, though uncomfortable, are not a matter of concern as of now. Because the overall balance recorded a surplus of $4.3 billion and an equivalent increase in foreign- exchange reserves with Bangladesh Bank (BB) due to a large surplus in the financial account (more than $5 billion), the senior economist explained.

The trade deficit rose to $9.92 billion during the July-June period of the FY15 from $6.79 billion in the same period of the previous fiscal.

The imports grew 11.25 per cent to $40.68 billion in FY15 against $36.57 billion in the previous fiscal.

On the other hand, the country's export earnings grew only 3.33 per cent to $30.77 billion in the last fiscal against $29.78 billion in the FY14.

"The higher trade deficit pushed down the current-account balance significantly, despite uptrend in inward remittances," a senior BB official said to explain the situation with the major macroeconomic indicator.

Bangladesh received $15.17 billion in the FY15, registering a 7.47 per cent growth over the corresponding period of the previous fiscal, the BB data showed.

"Such current-account deficit does not signify that the external sector is gradually running into a difficult stage. It does not pose any immediate threat or weakness of the economy," Biru Paksha Paul, chief economist at the BB, told the FE.

Modest current-account deficits are usual, and desirable too, in growing economies, the central bank said in its latest monetary policy statement (MPS), announced on July 30.

It also noted that Bangladesh's current-account deficit that turns out to be less than 1.0 per cent of GDP (gross domestic product) is comfortably manageable and that it does not pose any risk at this moment.

"Rather, it indicates the growing demand for capacity building and more productivity in the economy since more than 65 per cent of our imports comprise capital machinery, intermediate goods, and raw materials," the MPS had explained.

The BB chief economist also said: "We're still expecting 14 per cent growth in imports, 7.5 per cent growth in exports, and 10 per cent growth in remittances for the FY16."

Besides the gap in the trade in goods, deficit also increased in trade in services in the FY15.

Gap in services trade stood at $4.63 billion last fiscal, which was $4.10 billion a year ago.

Trade in services includes tourism, financial service and insurance.

The country earned $3.02 billion in services trade in the last fiscal while payments on services surged to $7.64 billion, from $7.21 billion in the previous fiscal.

The overall balance of payments (BoP) came down to $4.37 billion in the last fiscal from $5.48 billion in the previous fiscal.

Source:  The Financial Express, 11 August 2015

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