STAR BUSINESS REPORT

Bangladesh closed its financial year 2021-22 with an $18.7 billion current account deficit, the highest on record, as its overall export earnings failed to narrow the gap with skyrocketing imports, according to Bangladesh Bank data released yesterday.

The nation paid $82.49 billion for imports while it earned $49.2 billion by shipping goods abroad, causing the trade gap to rise to $33.2 billion last fiscal year, which, along with a downturn in remittances, has created intense pressure on the forex market and resulted in a steep rise in cost of the US dollar against the Bangladeshi taka.

“It is unprecedented in recent decades,” said Selim Raihan, a professor of economics at the University of Dhaka.

The widening gap has fuelled worries regarding overall stability of the economy, which has done better than its Asian peers even during the worst days of the coronavirus pandemic, prompting the government to go for austerity measures, allow depreciation of the taka and tighten rules regarding import of luxury and non-essential goods.

Raihan said the surging current account deficit was a short term yet strong shock for the economy.

But, he said, the steps taken by policymakers were timely and the impact of the measures have started to become visible.

Imports, which surged over 40 per cent in the initial months of the fiscal year of 2021-22 amid rising commodity prices, supply chain disruptions and the war in Ukraine, went up 36 per cent at the end of the fiscal year thanks to rules being tightened by the government since May this year and deprecation of the taka that made imported goods costlier.

Raihan said the depreciation of the taka might give a boost to export and remittance.

Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, said demand for dollars may decrease if remittance and exports grow and import falls.

This may reduce the gap between the actual rate of the greenback in the foreign exchange market and inter-bank rate, he said.

“Uncertainty will remain,” he said, citing slowing orders for exports.

Atiur Rahman, a former governor of Bangladesh Bank, said overall imports might decline during the current quarter of fiscal 2022-23. “Volatility in foreign exchange market will ease too,” he said.

However, imports tightening measures alone will not be enough, he said, adding that the government also needs to cut its development expenditure.