On the back of a sharp rise in import costs, the country's current account surplus posted a 45% downturn in just one month.
The surplus in the current account balance was $4.32 billion in July-December, which dropped to $2.24 billion in the July-January period — marking the decline of more than 45%.
However, the current account balance in the seven months of the previous fiscal year was not in surplus, rather in a $1.8-billion deficit, according to data from the central bank published Monday.
It shows the current account balance surplus declined in January due to higher import costs as well as a slight decline in exports.
The import costs in the first six months of this fiscal year were $25.23 billion, while it rose to $31.92 billion by the end of January. In other words, January alone saw $6.69 billion rise in import costs.
While contacted, Economist Zahid Hussain said import costs are rising due to the soaring prices of consumer items, fuel and soybean oil in the international market. On top of this, the high growth in remittances has declined. As a result, the current account balance surplus is declining.
The country's imports of consumer items, rice, wheat and raw materials used in production have increased in the July-January period. But, imports of capital machinery during the seven months has declined.
Rice import has risen as the government's stocks of the food staple dwindle. The country spent $275 million for bringing in the food staple in July-January, which is 20 times more than the corresponding period of the previous fiscal year.
On the other hand, the import of crude petroleum cost the country $2.3 billion in the first seven month of the current fiscal year — which is five times more than the same period of the previous year.
After a drastic fall owing to the virus-led situation, oil prices are surging up in the international market with the resumption of economic activities.
The price of crude oil was $45 per barrel in December last year, which exceeded $52 per barrel at the end of January. The price was hovering around $67 Monday.
Besides, imports of soybean oil, chemicals, raw materials for medicines and dyes have also increased. In the meantime, cotton, yarn, iron and steel imports witnessed a decline.
Import of capital machinery — one of the indicators for investment climate analysis — cost Bangladesh $6.6 billion in the first seven months of the year. The spending is 14% less than in the same period of the previous year.
Meantime, foreign direct investment (FDI) still remained sluggish in the first seven months of 2020-21 fiscal year. Net FDI in July-January fell by more than 27% to $530 million.
Economist Zahid Hussain said more factories are going into production as the virus infection rate drops and the vaccination campaign continues.
"Therefore, imports of industrial raw materials and consumer items are spiralling. But, the entrepreneurs are still not willing to go for new investments as the pandemic-led uncertainty prevails. Therefore, import of capital machinery and foreign investment show a downturn," he said.
In the first seven months of the current financial year, remittance income surged by about 35% as compared to the same period of the previous fiscal year. At the same time, investments by non-resident Bangladeshis has increased by 15.5% to $149 million.
But, investments by foreigners in Bangladesh's capital market declined in the seven months as they raised $180 million from the market by selling shares.
Though the current account balance surplus clocked the downturn, the surplus in the balance of payments (BOP) rose to $6.41 billion in the July-January period.
The country's forex reserves exceeded $42.34 billion during the July-January period due to he streaming remittances and a rise in the BOP.
On 24 February, reserves exceeded $44 billion for the first time. But, reserves fell to $42.74 billion on 3 March due to rising import costs.