The current account deficit increased from US$ 4.58 billion in FY 2020-21 to US$ 18.6 billion in FY 2021-22 due to increase in import expenditure in the external sector and decline in remittances.
This was revealed in the national budget FY 2023-24, unveiled by the Finance Minister AHM Mustafa Kamal in the Jatiya Sangsad on Thursday.
It was mentioned in the budget speech that the import growth increased to 35.9% in FY 2021-22 from 8.6% in FY 2019-20.
On the other hand, in FY 2021-22, the expatriate income decreased by 15.12% compared to the previous fiscal year.
Besides this, the financial account also turned negative due to slow implementation of foreign aided projects and export earnings repatriation.
The finance minister mentioned that the twin deficit in the current account and financial account worsened the balance of payment situation.
Foreign exchange reserves decreased from US$46.39 billion in June 2021 to US$41.83 billion in June 2022 and gradually further declined to US$ 29.97 billion at present.
He said, at the same time, Taka depreciated against the US dollar. In June 2022, the exchange rate of Taka against US dollar was Tk93.5 per dollar. On May 24, 2023 the exchange rate stood at Tk108.1 per US dollar.
Bangladesh Bank's initial attempt to stabilize the foreign exchange rate by increasing the supply of dollars in the market caused a temporary liquidity crisis in the market. As a result, the government's interest expenditure on deficit financing from bank sources increased.
To deal with the situation, the government is implementing some austerity measures in other areas in the current fiscal year while continuing to prioritize spending on projects related to public welfare and supply sectors.
To keep the production of the agricultural sector uninterrupted, Mustafa Kamal said, the government has taken quick and effective steps to ensure the supply of fertilizers at affordable prices.
“Besides, allocation on subsidies for electricity and gas has been enhanced. Alongside, Bangladesh Bank has increased the policy interest rate i.e. repo rate several times to control inflation”, he added.
Moreover, customs duty on rice prices has been withdrawn and regulatory duty has been reduced from 25 to 10%, he said, adding, advance tax exemption has been allowed and duty on diesel has been reduced from 10% to 5% to reduce the price of diesel.
To control inflation and to mitigate the impact of inflation on low-income people, the government has been carrying out programs like open market sale of rice, distribution of 10million family cards and so on.
In order to restructure the foreign exchange reserves and ensure the stability of the exchange rate, various restrictions have been imposed, including the imposition of a ban on the import of unnecessary and luxury goods, the setting of margins at different rates for opening letter of credits (LCs) depending on the nature of the imported goods.
As a result, imports declined by 12.37% in the first nine months of the current fiscal year. It may be noted that the import growth in the first nine months of the fiscal year 2021-22 was 43.84% (over the previous fiscal).
Due to the government's austerity measures and import control, the growth in the industry and service sector has decreased in the current fiscal year and as such the GDP growth will decline slightly to 6.03% compared to the previous fiscal year according to the provisional estimate released by the Bangladesh Bureau of Statistics (BBS), said the finance minister.
