BoP goes into a rare $63m deficit

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Bangladesh’s balance of payments (BoP) went into a deficit for the first time in six years due to an astronomic rise in food, fertiliser and petroleum imports, and experts fear it may blow out to $200 million by June this year.

Between October and November in the second quarter of the current fiscal year, the overall BoP was $63 million in deficit compared to the $203 million surplus in the previous quarter, says Bangladesh Bank quarterly report.

One of the causes for the deficit is the astonishing 983 percent rise in rice imports in the first seven months of the current fiscal year. Moreover, letters of credit to import rice also increased by 1,221 percent in the same period, according to BB figures.

In FY 01, the BoP was in deficit of $281 million, with the overall balance enjoying a steady string of surplus years until last quarter.

According to BB data in the five months, imports have gone up by 17.52 percent, while exports have grown by only 2.4 percent, widening the trade imbalance to $2.09 billion. In the corresponding period last year, the trade imbalance was $1.16 billion.

The central bank sources say the trade imbalance could worsen as imports continue to rise against exports in the context of a sharp fall in domestic agricultural production and soaring international food prices.

The quarterly report states that to stabilise the BoP and competitive value of taka, “vigorous efforts are needed to further boost up export earnings and workers’ remittances.”

Capturing new markets, export diversification, more skilled manpower exports and moving to high-end products would be key to match global market demands and increasing exports, the report notes.

Between July and January in FY 08, the country imported 13.61 lakh tonnes of rice worth $455 million, upped from 2.04 lakh tonne worth $42 million during the same period in FY 07.

Besides, LCs have been opened for 21.99 lakh tonnes during the same period, compared to LCs for 2.89 lakh tonnes in the corresponding period in FY 07.

Wheat imports have gone up by 150 percent in July-January FY 08, with LCs in the same period rising by 95 percent.

Edible oil imports went up by 56 percent between July-January FY 08, with LCs to purchase edible oil upped by 100 percent in the same period.

Chemical fertiliser imports upped by 67 percent with a rise of 41 percent for LCs between July-January FY 08.

The foreign exchange reserve is also likely to dip below $5 billion with the country expected to pay $600 million for the import bill to the Asian Clearing Union. Bangladesh’s foreign exchange reserve stood at $5.44 billion yesterday.

BB sources say the foreign exchange reserve needs to stay above $5 billion to match the country’s present import volumes.

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