Financial account deficit doubles to $1.19b in a month in Jan
Negative growth in foreign loan inflow amid high depreciation of taka and rising interest rate in global market contributes to worsen external position
Country's financial account deficit doubled just within a month in January due to negative growth in foreign loan inflow triggering an alarm for the plummeting forex reserve amid the dollar crisis.
In July-January of the current fiscal year, the financial account deficit widened to $1.19 billion from $592 million in the July-December period of the same year, according to the Bangladesh Bank data.
The financial account in the last fiscal year's July-January saw a healthy surplus of $8.6 billion.
The rising deficit in the financial account put pressure on overall balance of payments even after a negative import growth.
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The trade deficit widened by 8.8% to $13 billion in the span of July-January from $12 billion in July-December period of the current fiscal year.
However, the trade deficit declined by 28% from $18 billion in the July-January period of the last fiscal year.
Current account deficit, however, narrowed slightly to $5 billion in July-January from $5.2 billion in July-December period.
"When both the financial account and the current account stay in deficit, it is very alarming as the country will have to make external payments from the forex reserve, which will cause faster erosion of the reserve," said a senior official of the central bank.
Though the central bank needs to increase the forex reserve by $3 billion by June as per the International Monetary Fund's (IMF) condition for its $4.7 billion loan, the reserve continued to deplete reaching $32.3 billion on 1 March.
Foreign payments are made from the country's current account balance. If the current account balance becomes negative, the payments are made from the financial account and if this account goes negative as well, then the forex reserve becomes the last option for payment.
The four major components of a current account are goods, services, income, and current transfers. On the other hand, a financial account is a component of a country's balance of payments that covers claims or liabilities to non-residents concerning financial assets. Financial account components include direct investment, portfolio investment, and reserve assets.
The negative growth of foreign loan inflow mainly contributed to the widening of the financial account deficit, said the central bank official requesting anonymity.
High taka depreciation and rising interest rate costs in the global market made the private sector borrowers borrow from foreign sources, added the official.
The Bangladesh Bank data shows that the long term foreign loan position was negative $150 million in July-January period of the current fiscal year while the inflow was $1 billion in the same period of the last year. The negative position reflects that outflow is higher than inflow owing to loan payment.
Short term foreign loan position turned to negative $771 million in July-January period of the current fiscal year compared to the inflow of $1.7 billion in the same period of the last fiscal year, according to the Bangladesh Bank data.
Country's forex position came under pressure when import growth registered negative 5.66% in July-January of the current fiscal year against an export growth of nearly 10%.
