External balance improves in July-Nov riding on remittance, exports
“Exports and remittances have been the primary driving forces behind this achievement, as we have not seen significant growth in other components such as foreign loans or grants,” says Prof Mustafizur Rahman, a distinguished fellow at CPD
Due to a significant growth in remittance inflows and exports, the deficit in the country's balance of payments, known as external balance, decreased by approximately 49.5% during the July-November period of the current fiscal year.
According to central bank data, the deficit in the overall balance of payments for the first five months of FY25 stands at $2.47 billion, decreasing by approximately $2.43 billion year-on-year.
Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD), termed the decrease in the deficit of overall balance of payments positive for the country's economy.
"Exports and remittances have been the primary driving forces behind this achievement, as we have not seen significant growth in other components such as foreign loans or grants," he told The Business Standard.
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Despite the slower growth in foreign loans, the economist highlighted a positive aspect of the reduced deficit.
"We must understand that this decline in the deficit is due to increased foreign exchange earnings, which will not aggravate future debt servicing pressures," he said.
Trade deficit narrows by 20%
The trade deficit, which is the difference between exports and imports, in the July-November period decreased by 20% year-on-year.
Central bank officials attributed the improvement to strong growth in exports and a decline in imports.
The trade deficit stood at $7.88 billion at the end of July-November, compared to $9.86 billion in the last fiscal year. During the five months, the country's export growth increased by 10.1%, while imports decreased by 1.2%.
The trade deficit eased due to a decrease in imports by approximately $300 million and an increase in export earnings by around $1.66 billion during the period.
Prof Mustafiz said, "We view the reduction in the trade deficit positively. Export growth was quite low in the previous fiscal year, but it has now increased.
"On the other hand, due to the central bank's contractionary measures, imports have experienced negative growth. However, it is anticipated that by the end of the year, this will return to a positive trend."
Current account deficit drops by 94%
Buoyed by the upward trend in remittance inflows, the deficit in the current account — a key component of the balance of payments — decreased by 94% during the July-November period of FY25 compared to the same period in the previous fiscal year.
At the end of November, the country's current account deficit stood at $226 million, compared to a deficit of $3.94 billion a year ago.
In the first five months of the current year, remittances amounted to $11.14 billion, compared to $8.81 billion during the same period last year. This represents a growth of $2.33 billion, or 26%.
"The reduction in the current account deficit is primarily due to the growth in remittances. Over the past few years, the current account deficit had been steadily increasing. Bringing this deficit down is a very positive development for the overall economy," Prof Mustafiz said.
Financial account deficit shrinks to $581m
Due to the arrival of overdue export proceeds and a reduction in short-term loan outflows, the deficit in the financial account — another important component of the balance of payments — decreased to $581 million during the July-November period.
At the end of July-November of the previous fiscal year, the financial account deficit was $811 million, meaning the deficit has decreased by approximately $230 million in the current fiscal year.
