Low imports ease pressure on external balances amid revolution in July

The deficit in the country's current account and trade narrowed significantly in July, driven by a decline in imports amid the quota reform movement, which ultimately escalated into anti-government protests leading to the ouster of Sheikh Hasina's 15-year regime.

A strong rebound in remittance inflows following the formation of the interim government on 8 August provided the Bangladesh Bank with some breathing space by increasing dollar availability in the forex market.

The balance of payments statement shows that the deficit in the current account, which includes primary income and expenditure, narrowed by 34.5% to $193 million in the first month of the current fiscal year, down from $295 million a year ago.

The improvement in the current account balance also helped reduce the trade deficit by 9%, bringing it down to $1.4 billion in July from $1.6 billion in the same month last year.

Import expenditure dropped by 2.6% year-on-year during the month, while exports showed a slight positive growth of 0.4%, helping to ease pressure on the external balance.

Although remittance growth fell by 3% during the month due to internet disruptions and bank closures amid the anti-government movement, it experienced a strong rebound in August following the ouster of Hasina's government.

Speaking with The Business Standard, a senior executive of the Bangladesh Bank said pressure on the external balance eased in July solely due to low imports. The official expressed hope that it would improve further in August due to strong remittance growth.

Bangladesh received an impressive $2.2 billion in remittances in August, marking a 39% year-on-year increase, according to Bangladesh Bank data.

In August 2023, expatriates sent $1.6 billion in remittances. Compared to July 2024, remittance inflows in August surged by 16%. In July, the country's banks received $1.91 billion in remittances.

Financial account surplus

The financial account turned to a surplus of $166 million in July, compared to a deficit of $900 million in the same month last year, according to central bank data.

The correction in export data entry helped turn the financial account positive for the first time since July-April FY24, after remaining in deficit for two years.

The mystery of the export data mismatch was finally resolved on 3 July, when the National Board of Revenue (NBR) corrected its estimates, which had been erroneously inflated for the past few years.

The trade credit, which was negative $10 billion due to multiple entries of export data, turned positive after the correction.

When trade credit was negative $10 billion, it reflected that the amount of export proceeds remained pending abroad. As a result, this figure was shown as a deficit in the financial account.

How dollar market fares

Even after the central bank nearly stopped selling dollars from its reserves to banks last month, the forex market has not been under much pressure due to the good inflow of remittances. However, several banks have allegedly been offering slightly more than the fixed rate of Tk120 to buy remittance dollars.

Senior officials at several banks said most banks are not paying more than the fixed rate of Tk120 for buying remittance dollars.

"However, we are receiving complaints that some banks are offering rates of up to Tk120.20–120.30 to collect remittance dollars. Additionally, banks are charging rates ranging from Tk120 to Tk120.40 for import settlements," one of the officials told TBS.

According to central bank data, the remittance received in the country through legal channels was $1.63 billion during the first 21 days of this month. Of this, remittances through state-owned and specialised banks accounted for $550 million, while private banks received $1.08 billion.

Remittance inflows fell to $1.33 billion in September last year after the central bank took punitive measures against banks for offering additional dollar prices.

By the 21st of the same month this year, remittance inflows had already exceeded this figure. Bankers expect the remittance total to exceed $2.2 billion by the end of September.

A senior official of the central bank said many government's letter of credit (LC) payments are still overdue. As a result, demand in the dollar market has not decreased significantly. If the overdue payments are reduced in the coming months, the pressure on the dollar market will ease somewhat.