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Current account surplus dips

The situation may worsen if political unrest lingers: IMF

Rejaul Karim Byron
The current account surplus has decreased slightly due to a decline in remittance inflow and an increase in imports in the first four months of the current fiscal year.
The International Monetary Fund said, if the political unrest continues, the balance of payments (BOP) may come under further pressure.
"Balance of payment pressures could also re-emerge if the disruption leads to a loss in exports and more abrupt capital outflows," the IMF said in a recent report.
Zahid Hussain, World Bank's lead economist in Bangladesh, said the ongoing shutdowns and blockades have been seriously affecting both remittances and export earnings.
Hussain said the export growth may not be sustainable due to the unrest, and if it happens, the current account surplus may dip further.
The surplus in the current account fell by around $20 million to $701 million in the July-October period of the current fiscal year, compared to the same period last year, according to central bank statistics.
One of the major causes of the slide is a decrease in remittances by about 10.09 percent during the period.
Trade deficit fell by 23.40 percent but import rose by around 8 percent, which was negative during the same period last year.
During the period, export grew by about 17 percent, which played an important role in bringing down the trade deficit.
However, the IMF sees a number of risks in maintaining the export growth.
Over the next few years, the garment industry' is expected to consolidate with smaller noncompliant factories closing or being acquired by larger companies that have greater financial capacity to upgrade their premises and absorb the increase in operating costs, the IMF report said.
Industry estimates suggest that up to 60 percent of Bangladesh's garment factories (accounting for up to two-fifths of total production) are housed in shared or converted buildings, rather than in purpose-built factories, it said.
These would likely be the focus for compliance initiative, the IMF said. As a result of this adjustment, export growth may still remain somewhat subdued into fiscal 2014-15.
Hussain said the initiatives for the upgrades or compliance of the factories are being hampered due to shutdowns and blockades.
He said if the compliance commitments are not fulfilled by June next year, Bangladesh's GSP (generalised system of preferences) in the European market will come under threat.
The WB lead economist said, apart from a fall in manpower export, remittance inflow is declining due to political unrest, putting pressure on the current account balance.
I Ie said the diplomatic activities required to remove the obstacles in increasing manpower export to Middle East countries are also being hampered as the government is only focusing on the national elections now.
Hussain said, due to political unrest in the country, many expatriate Bangladeshis are not sending remittances home and depositing those at safer places abroad.
Political unrest is also causing capital flight from the country which, Hussain said is a "flight to safety".
He said capital flight may put pressure on the BOP in many ways.
However, the IMF said remittances are expected to normalise from fiscal 2014-2015 as the demand for migrant labour improves driven by expected infrastructure