Dhaka, Bangladesh (BBN)- Bangladesh’s current account balance returned to surplus during the first two months of the current fiscal year after three years of negative balance.
Negative growth in both export and import during the period helped reduce the overall trade gap with the rest of the world and ease pressure on current account with additional support from higher inflow of remittances.
The surplus reached $313 million in the July-August period of FY 2019-20 against a deficit of $7.0 million in the same period of the previous fiscal.
In July, the current account surplus was US$150 million, the first month of the current fiscal year, after a deficit of $ 5.25 billion in the FY ’19.
The balance entered into the negative territory with a $1.33 billion deficit in FY ’17, which was $5.25 billion in FY ’19.
Earlier, the current account balance had posted $447 million deficit in FY ’12.
Economists and central bankers see such development as a temporary phenomenon saying that the balance may enter into negative territory again by the end of this fiscal as import growth has been projected at 7.50 per cent for the FY ’20.
They also expected import to pick up in the coming months to meet the growing demands for construction materials needed for the implementation of ongoing mega projects, including the Padma Bridge and metro rail.
Meanwhile, the overall trade deficit shrunk by more than 6.0 per cent during the period as growth of both export and import turned negative.
The trade deficit came down to $1.98 billion during the first two months of this fiscal from $2.11 billion in the same period of FY ’19.
Export growth fell by 1.06 per cent to $6.65 billion in July-August from $6.72 billion in the same period of the previous fiscal.
Import growth also dropped by over 2.0 per cent to $8.62 billion from $8.82 billion.
Talking to the BBN, a senior official of the Bangladesh Bank (BB) said lower trade deficit along with higher inflow of remittances helped improve the current account balance.
Bangladesh received $3.04 billion in remittances during the first two months of this fiscal year, registering an 11.47 per cent growth over the same period of the previous fiscal, the BB data showed.
The central banker expects that the upward trend of inward remittance would continue in the coming months as the government has announced a 2.0 per cent incentive on remittance receipts.
The government has allocated BDT 30.60 billion as incentive in the current budget to encourage the expatriate workers to send their money through legal channels.
Bangladesh should diversify its exports along with boosting the inflow of remittances to minimise the possible pressure on the balance of payments (BoP), Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), said.
“We need to be cautioned about the possible BoP pressure in the near future,” Prof. Raihan warned.
The BoP showed a decline of $139 million during the first two months of this fiscal from $156 million in the same period of FY ’19.
The BoP had a negative balance of $77 million in July 2019.
Meanwhile, surplus in the financial account came down to $164 million in the July-August period of the FY ’20 from $521 million in the same period of the previous fiscal.
Higher inflow of foreign direct investment (FDI) has continued during the period under review while portfolio investment increased slightly.
The gross FDI inflow grew by 7.06 per cent to $737 million in the July-August period of FY ’20 from $688 million in the same period of FY ‘19.
Besides, net FDI inflow increased 7.16 per cent to $428 million from $400 million.
On the other hand, net portfolio investment rose to $20 million from $5.0 million.