Trade Deficit Surpasses $7.47 Billion in Three Months

❐ Staff Reporter

The country’s trade deficit increased to $7.47 billion in the first three months of the current fiscal year, from July to September. During this period, there was also a $1.33 billion deficit in the current account.

The overall current account deficit has also widened to $1.16 billion as foreign investment and credit flows have not increased as expected. This pressure has been created in foreign transactions despite good growth in remittances.

According to those concerned, the increase in import costs due to the increase in the prices of energy and consumer goods in the global market is one of the reasons for the increase in the trade deficit. At the same time, due to the stagnation of the industrial sector and the energy crisis, export earnings are not growing at the expected pace. As a result, the gap between import and export earnings is gradually widening.

According to Bangladesh Bank data, the country imported goods worth $19.33 billion in the first three months of the current fiscal year. Imports increased by 15.10 percent compared to the same period of the previous fiscal year. On the other hand, exports of goods were worth $8.38 billion, which is 7 percent more than the same period a year ago. As a result of this gap between imports and exports, the trade deficit stood at $7.47 billion.

Fuel oil played the biggest role in the increase in import costs. According to Bangladesh Bank’s calculations, $4.22 billion was spent on importing crude oil, petroleum products and lubricants during July-September of the current fiscal year. This expenditure was $2.05 billion during the same period of the previous fiscal year. That is, the cost of importing these products has increased by 105 percent in a year.

According to those concerned, high fuel prices in the international market have put significant pressure on import costs. In addition, as industrial production and exports have not gained the expected momentum, the growth of foreign exchange earnings has not been able to keep pace with import costs. As a result, the balance of foreign trade is gradually coming under pressure.

The impact of the trade deficit is also visible in the current account. The first two months of the fiscal year—July and August—had a current account surplus of $590 million. But by the end of September, the account had turned into a deficit. At the end of three months, the current account deficit stood at $1.33 billion.

There has been a major change in the current account situation within a month. During this time, despite a growth of more than 13 percent in expatriate income or remittances, the pressure on import expenditure could not be managed.

Central bank officials say that more dollars are being spent on imports than the amount of foreign exchange coming into the country from exports and remittances. This is why the current account deficit has arisen. The situation has been further complicated by the increase in the prices of fuel and other commodities in the international market.

The fiscal account had a deficit in the first two months of the current fiscal year. However, it returned to surplus at the end of September. The fiscal account surplus for the three months stood at $320 million.

The financial account has improved slightly due to increased foreign direct investment (FDI), foreign grants, and credit flows. However, the surplus is much lower than the same period in the previous fiscal year.

According to Bangladesh Bank data, there was a surplus of $1.79 billion in the first three months of the last fiscal year. At that time, foreign loans came in at about $1 billion. Foreign loans came in at half that amount during the same period of the current fiscal year. As a result, although the financial account is somewhat better, foreign financing is lower than in the previous year.

According to economists, in order to maintain the supply of foreign exchange, it is necessary to increase FDI and foreign credit flows in addition to exports and remittances. If investment and credit flows do not increase at the expected level, the pressure on foreign transactions may increase further.

Despite the widening trade deficit, there has been no major crisis in the overall balance of foreign transactions so far. However, the situation is deteriorating due to the decline in foreign financing since the beginning of the current fiscal year.

According to Bangladesh Bank, the overall balance of payments deficit was $694 million in the first two months of the current fiscal year. It rose to $1.16 billion by the end of September.

In other words, the overall external deficit widened further in the three months. Despite strong growth in remittances, the trade deficit and lack of foreign financing have become obstacles to filling that deficit. This has created new pressure on the external sector.

Bangladesh Bank Executive Director and Spokesperson Arif Hossain Khan said, “The trade deficit is increasing due to the high cost of fuel imports. The cost of procuring fuel from the international market has doubled compared to before. This has put a huge pressure on the overall expenditure.”

He added, “While this situation will create some economic pressure, it is expected to be short-lived.” The central bank spokesperson also expressed optimism that the situation will return to normal.

According to those concerned, to maintain the balance of foreign trade, it is important to control import costs, increase export earnings, restore momentum in industrial production, and attract foreign investment. If the energy supply situation does not improve, it may be difficult to achieve the expected growth in production and export sectors. Therefore, the direction of the foreign exchange situation in the coming months will become important for the economy.