The current account deficit has started to shrink on the back of a rise in import payments.
In February, the current account surplus dropped by $652 million.
In July-January of the current fiscal year, Bangladesh posted a current account surplus of $2.21 billion, which declined to $1.56 billion in the July-February period, according to the latest balance of payment data released by the Bangladesh Bank on Thursday.
The balance of payment was in deficit of $2.11 billion in the first eight months in the last fiscal year as the payment for imports, which was going at a normal pace, was much higher during that time with no Covid-19 impacts.
But, towards the end of the last fiscal year, the pandemic blow to imports, subsequently economic activities coming to a grinding halt and a fall in domestic demand led to a decline in the import payments. That is why the current account balance registered a surplus, rather than a deficit.
From last January, imports started to increase with the pandemic slowing down. The import growth continued in February too. Thus, in the first eight months of FY21, the country's import payments increased by 2% to $37.07 billion over the same period a fiscal year ago.
On the other hand, during the same period, export earnings fell by 1.28% to $25.27 billion year-on-year.
Rice imports have played a major role in increasing import payments. The costs for its imports have gone up significantly in July-February with the government having increased its imports to increase the stock of the staple food.
The payments for rice imports amounted to $377 million in the eight months in contrast to only $15 million during the same time a year earlier.
In the last eight months, imports of consumer goods have increased by 5.5%. But, as the prices of such goods have started shooting up in the international market, the central bank fears inflation in the domestic market under the price hike impact.
Therefore, the central bank has ordered banks to open letters of credit with a minimum margin for the imports of essential commodities to ensure supplies and prices stable during the upcoming Ramadan. So, imports will now be easier and faster ahead of Ramadan. An importer can continue his imports even if he does have enough money with the minimum LC margin facility.
Meanwhile, in the eight months, payments for imports of intermediate goods rose by 4% year-on-year. But the same for imports of capital machineries dropped by 21%, meaning that entrepreneurs are yet to return to pre-pandemic investment levels.
The foreign investment is also going through a lean period. The net foreign investment plummeted by 31% to $606 million year-on-year during the time. On the other hand, the investment in the capital market is declining too. In July-February, foreign investors sold shares worth $204 million.
The investment of non-returning Bangladeshis has also not increased during the time.
But, the good news is remittance inflow has kept up its rising trend alongside a rise in imports. In July-February, the remittance receipts stood at $17.05 billion with a 33% year-on-year jump.
The balance of payment increased to $6.88 billion from only $214 million during the same time of the last fiscal year, riding on high remittance inflows and with no pre-pandemic like import payment pressure.
The forex reserve increased because of the rising balance of payment. The reserve surpassed the $44 billion mark in February.
Bangladesh can meet import payments of up to eight months from the foreign exchange reserve, according to the central bank data.
A country needs to have a forex reserve that can meet import bills of at least three months. The country having the reserve with the capacity to pay the bills of six months is deemed to have stood at a good position.
On 15 March, the government created the Bangladesh Infrastructure Development Fund to lend money from the forex reserve for implementing profit-yielding development projects. The Payra seaport has been picked first to be financed through the new fund.