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Soaring trade deficit, falling reserve, remittances External sector of BD economy at risk

21 January 2022

Al Amin :
Bangladesh's trade deficit soared, foreign exchange reserves decreased and remittances declined sharply in the first half of the current fiscal year (2021-22), rising concerns if the external sector of the economy might be at risk.
The country's import expenditure has increased by around 50 per cent in November 2021 compared to the corresponding period of last year.
In the first five months (July-November) of the current fiscal year, import cost has increased by about 54 percent. Of this, the export cost increased by 63 percent only in November.
According to the Bangladesh Bank data, the country's actual import in terms of settlement of letters of credit (LCs) jumped by 53.74 per cent to $30.32 billion during this time from $19.72 billion in the same period of the previous fiscal year.
The overall import cost stood at $31.17 billion in the first five months against $20.24 billion in the same period a year earlier while export earnings rose at a slower pace to $18.64 billion from $15.19 billion.
The deficit in trade with the rest of the world widened by 148.31 per cent or $7.48 billion to $12.53 billion during the mentioned time of the current fiscal year against $5.05 billion in the same period of the previous year, the data said.
And the swelling import expenses have put the country's foreign-exchange (forex) reserves under pressure again.
The forex reserve has declined by one billion to $44.98 billion on January 12, 2022 from $46.07 billion on December 30, 2021.
Serajul Islam, Spokesperson of the Bangladesh Bank, said, "The swelling of imports-especially raw materials and capital machineries-is mainly putting pressure on the foreign exchange reserves."
"Besides, payment for Covid-19 vaccine is also another reason behind the reduction of the foreign reserve," he said.
Dr Salehuddin Ahmed, former governor of the Bangladesh Bank, told The New Nation, "High import cost and low remittance inflow have put the external economy under pressure and it may increase further due to the Omicron."
"So, the central bank will have to monitor the country's international trades strongly for reducing the import cost," he said, adding the authorities should discourage imports of Luxury goods.
On the other hand, remittance inflow to the country was 20 per cent less during July-December compared to same month of the previous year, despite the inflow slightly up in December, about $7 million, after plummeting for the last six months since June of last fiscal year, according to central bank data.
In December of FY2020-21, Bangladesh received $2.05 billion remittance, which came down to $1.63 billion in December of FY2021-22.
The government has set a target to earn a $26 billion remittance in the current fiscal. But remittance inflow has been only $10.23 billion in the first six months of the FY2021-22, which is only 39.37 per cent of the target.
The government has increased incentive to 2.5 per cent from 2.0 per cent to encourage the expatriate Bangladeshis to send their hard-earned money through the formal banking channel, instead of the illegal 'hundi' system, in order to help boost the country's foreign-exchange reserves.
Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), told The New Nation on Thursday, "The country's external economy has already put under pressure for increasing import payment and decreasing remittance inflow."
"The foreign exchange reserve may decline further, if the imports don't go down and the exchange is not being controlled," he said.
The increased demand for the dollar has put pressure on the central bank's foreign exchange reserves in the recent months.
Sale of dollar has increased and the central bank sold worth $2.5 billion till January 10 of the current fiscal year.

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