Rallying import calms down a bit

With a slight fall of 1.97 percentage points, Bangladesh import growth in July-January stood at 52.50% after a six-month rally, according to the latest data of the central bank, which is possibly linked to the emergence of Omicron variant that compelled businesses hitting the brakes worldwide early-2022.

In the past seven months of the current fiscal year, settlement of letter of credit (LC) – which is also known as actual import payments – amounted to $45.48 billion that is still 52.50% year-on-year high.    

The country logged a record $7.18 billion LC opening in August 2021 as Covid-19 waned allowing businesses to reboot.

In the wake of growing imports and yet-to-catch-up-with export volume, economists had been advocating reducing excessive import dependency by raising concerns over the current account balance and reserve. They suggested slashing the import to provide a respite to the balance of payments.

According to the Bangladesh Bank, the country's trade deficit jumped almost two and a half times year-on-year to $15.62 billion in July-December. The export-import gap was $6.87 billion in the first half of the 2020-21 fiscal year.   

"The trade deficit is widening as our import volume exceeds export. To wind down the gap, we need to focus on production and reduce import dependency at the same time," Ahsan H Mansur, executive director at the Policy Research Institute (PRI), told The Business Standard.

Referring to falling remittance inflow in recent months, he said the fall may put an increasing squeeze on the current account.

The PRI executive director said the Russian invasion in Ukraine will make imports costlier, while hurting the export. The combination, according to Ahsan H Mansur, may result in pricier US Dollar in the local market.     

"For the government, it will be challenging to keep the macro-economy normal in upcoming months," he provided a note of caution.

According to the central bank, the forex reserve crossed the record $48 billion mark in August this fiscal year. Import orders kept surging subsequently, pulling in scheduled banks to sell the US Dollar as per the growing demand.

At the end of January, the reserves stood at $44.95 billion, which means foreign bill payments and sales of US Dollar brought down the forex reserve by $3.10 billion.

Meanwhile, the country has been witnessing a lower remittance inflow since the beginning of the current fiscal year. In the first eight months of the 2021-22 fiscal year, Bangladeshi expats remitted $13.44 billion to home, which is 19.5% less than the corresponding period of the previous year.