• Wednesday, Jan 27, 2021
  • Last Update : 06:55 pm

Trade deficit narrows on stuttering economic recovery

  • Published at 01:04 am December 3rd, 2020
Chittagong port import export trade
Rajib Dhar/Dhaka Tribune

The deficit fell by $2.49 billion to $3.23 billion during the July-October period

Bangladesh’s trade deficit narrowed 43.5 per cent year-on-year to $3.2 billion in the first four months of the fiscal year, thanks to the falling trend of import due to the ongoing economic slowdown brought on by the coronavirus pandemic.

The deficit fell by $2.49 billion to $3.23 billion during the July-October period, according to data from the Bangladesh Bank (BB).

“It is an indicator of recession. However, it has both negative and positive aspects,” said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.

The trade deficit narrowed due to the negative import growth, which indicates stagnated economic activities and weak domestic demand.

Import growth dropped about 13 per cent during the period to $15.8 billion from a year earlier. 

Investment-related imports like capital machinery and intermediate goods have dropped significantly owing to the pandemic, Hussain said. 

The country’s export earnings grew only 1.1 per cent to $12.5 billion in the first four months of the fiscal year, according to the BB data.

Earnings from garment exports fell 1.2 per cent year-on-year $10.45 billion in the July-October period of the fiscal year. 

Exports may fall further in the upcoming days as the second wave of COVID-19 has already started in Europe and America, Hussain said.

“There will not be any sustainable economic recovery from the recession for the six months,” he added. 

The country's current account balance posted a surplus of $4.05 billion in the first four months of the fiscal year owing to the sharp decline in the trade gap. 

The surplus in the current account will fall when the country’s economic activities pick up, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The record foreign exchange reserve is also a reflection of the lower trade deficit and surplus in the current account.

The country's foreign exchange reserves stood $41.25 billion on December 1, the largest yet.

Even though some may interpret the shrinking of the trade deficit as a good indication but a deeper analysis of the country’s import-dependent nature would reveal that it was not sending out a satisfactory message to the economy at all, said AB Mirza Azizul Islam, a former caretaker government adviser. 

A slight improvement in export earnings coupled with funds released from the donor agencies, including the World Bank, the Asian Development Bank and the International Monetary Fund, also contributed to the improved state of balance of payments, the economist said.

The country’s net foreign direct investments dropped 50.2 per cent during the period.

The BB data also showed that the country attained $153 million in net foreign direct investment in the first four months of fiscal 2020-21 against $307 million a year earlier.

The net portfolio investment, meant for investment in the capital market, posted a $167 million deficit in July-October from $32 million in the positive.

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