The country's external trade deficit widened 11.3% to $7.54 billion year-on-year in the first quarter of the current fiscal year as exports fell and import payments surged despite some declines in new orders due to restrictions.
Bangladesh Bank data shows the deficit – difference between the country's imports and exports – in September was $3 billion, which was $2.47b in August and $2.08b in July, marking gradual increase.
The country's imports were $6.77 billion higher than the exports in the July-September period of the last fiscal year.
Zahid Hussain, a former lead economist of the World Bank's Dhaka office, told The Business Standard that the opening of import LCs (letters of credit) have declined significantly owing to the government's restrictions and cost-cutting measures.
But settlements of the previously opened LCs led to a further gap in exports and imports, he said.
The economist, however, hopes that imports will fall as the opening of LCs decreased in the last three months.
In July-September, the opening of LCs decreased by 8.57% for imports of capital machinery, intermediate goods, petroleum and industrial raw materials. But at the same time, LC settlements rose 31.56% to $22.4 billion, on the back of higher payment for petroleum, capital machinery and industrial raw material imports ordered in the previous months.
Imports totalled $19.34 billion in the July-September period this year, which was $17.32 billion in the same period last year. Bangladesh's merchandise exports figured $11.8 billion, up from $10.5b a year ago.
Import data released by the central bank is one month behind the export figures released by the Export Promotion Bureau a day before, showing that monthly exports fell 7.85% to $4.35 year-on-year in October. Although this figure can be compared only after the central bank releases October import data, analysts think the gap might narrow in coming months, given the trend in opening new LCs for imports.
Zahid Hussain said businesses are getting Tk99.5 per dollar when they encash export proceeds, but they are having to pay Tk104-105 a dollar for opening back-to-back LCs. That is why exports fell, further widening the trade gap.
As expatriates' remittances continued to slide for two consecutive months, the current account deficit rose to $3.61 billion in the July-September quarter this year in contrast to last year's $2.54 billion.
Zahid Hussain said, "The decline in remittances is very alarming amid the crisis in our reserves. Multiple forex market rates in a single market are by no means desirable. Now, the central bank should fix the remittance rate in line with the kerb market to increase remittance flows."
In the first two months of the current fiscal year, expats remitted over $4 billion. After that, remittances fell for two consecutive months – the receipts in September and October amounted to just a little over $3 billion.
This put further pressure on the foreign exchange reserves. The country's current forex reserves stood at $35.72 billion as of Wednesday, which will further decline to around $34 billion after the $1.32 billion Asian Clearing Union (ACU) payment on Monday next week, according to central bank sources.
The current reserves can cover the import bills of four months.
Ahsan H Mansur, executive director of the Policy Research Institute, told TBS that the benefits of the steps taken by the government will be seen in the coming quarters. "We need to focus very much on increasing our exports," he said.
The dollar rate should be left to the market right now, he also said, adding that the difference between formal and open market rates needs to be minimised to boost remittance inflows and ease the pressure off the reserves.
In particular, the government should give more importance to production of all kinds of products, including rice and vegetables, to control inflation, he noted.
To save dollars, the central bank has imposed a 100% cash margin on all kinds of imports except the government's one.
Treasury heads of several private banks say most banks are in a dollar crisis. Now, they have reduced LC opening. State-owned banks are buying dollars from the central bank only to make government import payments.
Most banks are inclined to preserve dollars as opposed to the opening of import LCs, they add.