Falling exports accelerate current account deficit
The widening trade deficit has been eroding foreign exchange reserves, which was $31.13 billion on December 4 – lowest in a year
A persistent decline in export earnings has accelerated the country's current account deficit in October, mounting pressures on foreign exchange reserves and macroeconomic stability.
The current account deficit was $1.3 billion during July-October of the current fiscal year, according to Bangladesh Bank data.
The trade deficit increased by 5.57 percent to $5.6 billion during the first four months of the fiscal year 2019-20 compared to the same period the previous year.
The current account measures a country's imports and exports of goods and services.
The current account deficit was 4.35 percent of the gross domestic product, which is alarming because a country is allowed to run a deficit of up to 2-3 percent.
India is running current account deficit of below 3 percent this year, according to Bangladesh Bank data. Other Asian countries like Sri Lanka, Indonesia and the Philippines are also running the deficit of below 3 percent.
The strong remittance inflow has helped the Bangladesh Bank maintain surplus current account balance during the first two months of the current fiscal year. But a negative growth in the apparel sector caused a decline in export earnings for the consecutive four months till November.
The export growth has been falling in a way that strong remittance earnings have failed to keep the current account balance in the black.
The export growth was negative 6.65 percent during the first four months of the FY20 when the import growth was negative 3.17 percent, central bank data shows.
The widening trade deficit has been eroding foreign exchange reserves, which was $31.13 billion on December 4 – lowest in a year.
Backed by strong remittance and export growth, the current account balance turned positive, in July, after three years.
Economists are emphasising devaluation of local currency to keep the competitiveness of Bangladeshi exporters.
The declining exports will continue to put pressures on the country's trade account and current account balance, Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue.
Competitor countries are doing better than Bangladesh as they have a competitive edge during the slow growth of global trade and economy, he maintained.
The government has already devalued currency slightly but it should depreciate taka further to make the apparel industry more competitive, said Mustafizur.
Currency devaluation is better than providing cash incentives against remittance earnings, he said, while adding that remittance earnings are much better at present.
