Current account surplus crosses $3b in Jul-Jan

Infographic: TBS

Bangladesh's current account surplus has crossed $3 billion in the first seven months of the current fiscal year, overcoming a deficit of $4.6 billion in the corresponding period a year earlier, thanks to a steep fall in import expenditure.

During the period, imports fell by 18%, or $8 billion, year-on-year, while exports grew by 2.5%, turning the current account balance into a surplus.

The rising surplus in the current account balance – which comprises primary and secondary income through trade, services, and remittances – helped to stop the unusual fluctuations in the dollar price that the country had been facing for the last two years.

The official exchange rate has remained stable at Tk110 per dollar for the last five months, while banks have been settling imports above Tk120 to Tk122.

The positive signal toward stability in the dollar price encouraged expatriates to send money home through the banking channel, improving monthly remittance inflow to above $2 billion for the last few months, contributing to the surplus in the current account balance.

The country's trade deficit narrowed down to $4.6 billion in the July-January period of the fiscal 2023-24 from $13.3 billion in the same period a year ago, with the help of a rising surplus in the current account balance.

However, the deficit in the financial account continued to widen due to negative growth in foreign direct investment and short-term foreign loan inflows, which are major components of that account.

The deficit crossed $7 billion in the seven months through January, marking a major jump from just $800 million in the same period of the last fiscal year.

The widening financial account deficit caused erosion in foreign exchange reserves, despite the central bank's efforts to rebuild them through currency swaps.

Foreign exchange reserves fell below $20 billion on Sunday after clearing Asian Clearing Union (ACU) payments.

However, the Bangladesh Bank has made every effort to rebuild the reserves to achieve the ceiling set by the International Monetary Fund as part of its $4.7 billion loan package.

Bangladesh Bank Governor Abdur Rouf Talukder recently mentioned at an event that banks in the country have holdings of more than $4 billion, and by depositing these dollars in the central bank, they can access liquidity assistance.

Stating that the country currently enjoys a surplus in its current account balance, the governor assured that if necessary, banks could withdraw dollars from their accounts. He emphasised that such a mechanism could facilitate an easier resolution of liquidity issues in the market.

He said, "People have bought dollars and put them under the pillow. We have taken several initiatives to return these dollars to banks."

"After returning home from travels abroad, anyone can deposit up to $10,000 in his or her resident foreign currency deposit [RFCD] account. Besides, if someone declares at the airport, the Bangladesh Bank has given them the opportunity to keep any amount of dollars in an account without question," he added.

Currency swap surpasses $1b  

Despite the Bangladesh Bank receiving more than $1 billion from banks through currency swaps, foreign exchange reserves fell to $19.99 billion on 7 March after the payment of $1.29 billion to settle the import bill for January and February, known as the ACU payment, was completed. But even a day earlier, the reserves were $21.15 billion.

Bankers say the central bank has started currency swaps with commercial banks since 20 February, which is playing a supporting role in boosting the reserves. Still, the decline in reserves cannot be prevented due to cost pressure.

A senior central bank official said more than $2 billion in remittances came in February. Moreover, currency swaps are constantly taking place with banks. Due to this, gross reserves have increased, but they are falling again due to the pressure of import bill payments.

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, told The Business Standard, "There is no balance between the source of reserve money and its expenditure. As a result, reserves could not be maintained."

He said the trade deficit has narrowed slightly as the Bangladesh Bank controls imports. However, there is doubt as to how long it will be possible to hold this way.

"As a result of import control, the country's production is disrupted. It is leading to a negative impact on exports," he believes.