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Trade deficit widens on costly imports

REJAUL KARIM BYRON
As the prices of petroleum products, rice and scrap vessels shot up in the international market, Bangladesh's trade deficit has widened further, pushing the current account bal-
ance to be negative.
Trade deficit increased by 52 percent to reach $1.2 billion in the first five months of the current fiscal year, from $792 million during the corresponding period of the previous year.
The current account balance recorded a deficit of $111 million during July-November 2004 against a surplus of $169 million in the same period of the preceding year.
"When the payment of outstanding letter of credit (L/C) will be made, the trade deficit will increase further as price of major import items have shot up," a Bangladesh Bank (BB) official said.
"It will also put pressure on our foreign exchange reserve," he added mentioning that the reserve declined to $3 billion in the first
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week of January after the payment of Asian Clearing Union (Acu).
The BB official said the reserve was $3.05 billion yesterday and it will drop to below $3 billion after the Acu payment in the first of week of March.
According to the central bank statistics, the volume of L/C for rice and wheat import increased 107 percent, scrap vessels 524 percent, petroleum products 50 percent and capital machinery 67 percent in the first six months of the current fiscal year.
A high official of a commercial bank said import of food grain increased significantly this year due to last year's devastating flood. The price of food grain also shot up in the international market.
The government's food stock plunged to 6.58 lakh metric tons (MT) in December 2004 which was 8.36 lakh MT one year ago.
The shortage in food stock has prompted the government to import food to take the stock to a secured level of 8 lakh MT.
The government has already approved import of 1.32 lakh MT of rice and is also planning to import one lakh MT more to overcome the
massive production loss of aman and aus paddy.
As rice prices are high in the domestic market, private importers are encouraged to import more from other countries despite the high price.
The import of rice at exorbitant prices has resulted in an increase in import spending this year widening the trade deficit, a bank official said.
A BB official said oil prices shot up to a record $52 a barrel a couple of months ago. Although the price has now come down to $47, it is still very high in comparison to previous years.
As the demand for MS rod and steel products is rising due to a booming construction sector, the import of scrap vessels witnessed sharp rise this year, he explained.
Apart from import, payment for overseas education, treatment and travelling and debt instalment also increased in the first five months of FY 2004-2005.
The payment in service sector increased by over $100 million in the same period, pushing the current account balance to a deficit from a surplus one.