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Impact of High Food, Oil Prices

50pc higher trade deficit projected

Rejaul Karim Byron
The International Monetary Fund (IMF) projects that high prices of food and oil will push up Bangladesh's trade deficit for FY08 to around $6 billion, which is around S2-3 billion higher compared to the previous fiscal years.
The high trade imbalance will also push the current account balance into deficit, which had around $1 billion surplus in the last fiscal
year, the IMF projected in a report on Bangladesh's current economic situation released last week.
"The pressure on the balance of payments has intensified significantly and our current account balance is now negative for the first time in several years," Finance Adviser Mirza Azizul Islam said in a letter to the IMF recently.
The IMF report said Bangladesh's trade imbalance will be $5.59 billion for FY08 compared to $3.45 billion in FY07.
On an average, Bangladesh's trade imbalance over the past decade has been around $2-3 billion.
Bangladesh Bank sources agreed with the projection, saying the unusual higher trade imbalance could be due to rising import of highly priced rice, wheat and oil. and could be exacerbated by lowering exports. In his letter to the IMF, Aziz said the country needs to import ten times more rice than usual at 70 percent higher prices, which is accompanied by increased imports of fertiliser to ensure local production.
He said there is a short-term need for additional imports worth more than $600 million, while exports have been reduced by $60 million following last year's floods, and cyclone.
The pressure on trade is visible in the first eight months of the current fiscal year witn a trade imbalance of $3.2 billion compared to $2.06 billion in the same period of FY07-a 55 percent jump in one year.
The central bank sources said figures from that period reveal a widening gap between imports and exports with import growth of 20.36 percent compared to 11.32 percent growth in exports.
Between July 2007 and April 17 this year, imports of rice, wheat, chemical fertiliser, edible oil and milk have gone up 121 percent costing $2.7 billion.
Rice imports alone have gone up by 692 percent from S99 million in FY07 to $792 million in FY08. Wheat imports have gone up by 84 percent, rising from $268 million in FY07 to $493 million in the current fi seal year.
The IMF projects an additional SI billion expenditure for oil imports-both crude and edible oil-requiring at least $3.2 billion in FY08 compared to $2.2 billion of FY07.
In these eight months, petroleum products worth $1.58 billion have already been imported.
As per a projection of the energy ministry also $3.2 billion would be needed for importing petroleum products.
However, the central bank sources said the pressure on the balance of payments will not affect foreign exchange reserves significantly because of strong remittance growth and increased foreign aid over the last year.