STAR BUSINESS REPORT

Bangladesh’s financial account deficit has kept widening, signaling that the pressure on the foreign exchange regime will persist in the upcoming days.

In July to February of the current fiscal year, the financial account of the balance of payments (BoP) showed a deficit of $8.36 billion, up from $2.32 billion in the same period of 2022-23, as per the latest data from the Bangladesh Bank.

It stood at a deficit of $7.78 billion in July-January of FY24.

The financial account covers claims or liabilities to non-residents concerning financial assets. Its components include foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investments, and reserve assets.

Industry insiders said that reduced short-term foreign borrowing by the private sector and declining balances in nostro accounts maintained by commercial banks with foreign banks were to blame for the ballooning deficit.

The financial account deficit persisted from July to February largely because the ‘other investment (net)’ segment of the BoP stood at $9.40 billion in the negative. It was $3.37 billion in the negative in the same period a year earlier.

In contrast, the gross flow of foreign direct investment rose only 1.55 percent to $3.14 billion. The net portfolio investment was $77 million in the negative in the first eight months of FY24, up from $47 million in the negative in the same period last year.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, said since payments outpaced earnings, the financial account was still in negative territory.

“Foreign loans to the private sector have continued to fall. This indicates that investment is stagnant. This is a worrying sign because it has an impact on employment.”

The current account deficit narrowed in FY23 and showed a surplus in the first seven months of FY24, driven by import suppression measures.

However, the financial account deficit persisted due to increasing outflows of trade credit and other short-term loans, said a recent World Bank report.

The trade deficit, which takes place when the value of imports surpasses that of exports, narrowed to $4.62 billion in July-February. It stood at $13.35 billion a year prior.

In the eight-month period, exports were up 3.76 percent year-on-year while imports dropped 15.36 percent.

Import payments have fallen mainly due to austerity measures put in place by the government and the central bank to stop the depletion of the forex reserves, which declined by 25 percent last year.

The current account balance returned to positive territory and climbed to $4.76 billion in the eight months after standing at negative $3.45 billion in the same period of FY23.

The country’s overall balance was $4.43 billion in the negative between July and February, against $7.94 billion in the negative in the identical period of the previous year, BB data showed.