Trade deficit surges $1.1b in April despite fall in imports

The country's trade deficit rose $1.1 billion month-on-month in April despite restrictions on imports amid the ongoing dollar crisis, according to the latest Bangladesh Bank data.

With the latest addition, the deficit in trades amounted to $15.73 billion in the first 10 months (July-April) of FY23, which is $11.96 billion lower than that of the previous fiscal year.

Bankers said the government has made all-out efforts to reduce imports so that it can save foreign currencies. Yet, the month-on-month trade deficit has been on the rise owing to poor performance in exports.

The trade deficit, coupled with negative current and capital accounts, continues to increase pressure on foreign exchange reserves, they added.

The country imported goods and services worth $58.78 billion during July-April of FY23, down 14.4% year-on-year, while its exports were worth $45.68 billion, up 5.38% year-on-year, according to official data.

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.

"On one hand, our trade deficit has been on the rise, and, on the other hand, the flow of remittances, and foreign investment and aid are on fall. As a result, our financial account is now in a deficit of over $2 billion, which was rare in the past several years," the managing director of a private bank, wishing to remain unnamed, told The Business Standard.

According to the latest central bank report, the financial account deficit increased to $2.16 billion in the ten months of the current fiscal year. The account was positive at $11.95 billion during the same period of the previous year.

The rising deficit in the financial account put pressure on overall balance of payments even after a negative import growth. "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.

According to the latest central bank report, the current account deficit stood at $3.77 billion in the first ten months of FY23. It was $15.48 billion in the same period of the previous fiscal year. 

The central bank has been asked to maintain net reserves of $24.5 billion at the end of June this year as a condition of the $4.7 billion loans from the IMF. Currently, the net reserves hover near $20 billion.

Finance Minister AHM Mustafa Kamal, in his budget speech, hinted continuation of import restrictions in the next fiscal year as part of efforts to rebuild reserves.

"To rebuild the foreign exchange reserves, the current initiatives of verifying the accuracy of the price of imported items along with implementation, and monitoring of procedural requirements on LC opening, disposal and related issues shall continue in future. To encourage the use of formal channels in sending remittances, a 2.5% incentive is provided and remitter-friendly processes are being promoted including mobile financial services," according to the budget speech.