The current account balance is likely to plunge to deficit for the first time in two years in the current fiscal year with imports exceeding exports.
The deficit is projected to be $1,348m in the fiscal year 2014-15, according to the latest monetary policy statement.
Until the first quarter of the fiscal, the current account had been in the black since FY2011-12.
The current account balance recorded a deficit of $1,316m during the July-November period of 2014 compared to a surplus of $1,127m in the same period a year ago, according to the Bangladesh Bank data.
“The current account balance was negative during the period, particularly owing to import growth outstripping export growth,” said the central bank statement.
On projection of current account for this fiscal, it said there will be a correction in the pace of export growth as the existing outcome of export earnings appears to be the lag effect of cancellation of garments order followed by political deadlock in the first half of current fiscal year and collapse of Rana Plaza, along with a pick-up in imports as investor confidence grows.
Imports rose by 11.59% to $17.8bn in the first half of this fiscal when exports rose 1.56% to $14.91bn compared to the same period a year earlier, according to the Export Promotion Bureau.
A banker said imports might increase further with the start of Padma Bridge construction works, the country’s largest infrastructural project.
Political unrest might dampen export growth, which would put the balance of payments under pressure in future, he added.
For this fiscal year, the central bank projects an overall export growth of 8%, import 15% and remittance 12%, which will lead to having a reasonable balance of payment surplus.
However, starting from FY2015 in order to retain external sector stability it will be important for export and growth to pick up as imports are likely to grow further, Bangladesh Bank said in policy statement.
“This will require coordinated activities to boost export diversification, change in destination, manpower exports, upgrading skills of migrants and enhanced incentives to use formal channels to remit and invest funds. Bangladesh Bank will continue its efforts in this regard,” it said.
Despite a reasonable remittance growth of more than 10% in the first six months of this fiscal year, the deficits in trade balance ($4.48bn), services account ($2.05bn) and primary income account ($1.21bn) exacerbate the current account balance to a deficit, according to BB.
It said fortunately, remittances and other secondary income to the tune of $17bn are expected to cushion against the deficits of trade, services, and primary income, limiting the amount of current account deficit to $1.35bn for FY2015 – which appears to be normal and serviceable for a growing economy like Bangladesh.
Aiming at keeping exchange rate stable, Bangladesh Bank will continue to buy greenback.
“Intervention in the foreign exchange market have protected exporters by slowing the appreciation or in turn, helping depreciation of the taka.”
The central bank anticipates further buildup in foreign exchange reserves in the second half of FY2015 though at a more moderate pace than FY2014 due to the balance of payments assumptions.
Foreign currency reserves are hovering over around $22bn – enough to cover imports of more than six months.
After a period of appreciation since early 2012, the exchange rate remained stable since mid-2013.