Current account deficit hits a 15-year high - Share market analysis of dhaka stock exchange, Bangladesh

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14 January, 2018 10:34 AM Source: The Daily Star Bangladesh

The country's current account deficit reached a 15-year high in the first five months of the fiscal year on the back of higher import payments and moderate export growth.

In the July-November period of 2017-18, the deficit stood at $4.43 billion, way higher than $683 million recorded in the same period a year ago, according to data from the central bank.

The deficit is the highest since 2002-03, as data related to the current account before the year was not available from the central bank's documents and website.

The current account recorded a surplus of $176 million in 2002-03 and the previous highest deficit was recorded in 2010-11 when it stood at $1.68 billion.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told The Daily Star yesterday that the government had started implementing some mega infrastructure projects with its own funds which put pressure on the current account.

Higher import payments, moderate growth of remittance inflow and export earnings are mainly responsible for the large current account deficit, he said.

In the first five months, imports rose 27.57 percent year-on-year, while exports grew 7.65 percent.

Mansur said imports of capital machinery and industrial raw materials usually play a positive role in the expansion of the country's business sector, but questions have been raised due to fictitious import payments. “The central bank should beef up its monitoring on under-invoicing for exports and over-invoicing for imports with a view to averting capital flight,” he said.

The former economist of the International Monetary Fund also said banks should avoid opening letters of credit for luxurious products as the foreign exchange reserve has recently fallen below $32 billion.

The current account deficit has already weakened the exchange rate of the local currency against the US dollar, Mansur said.

He also said the ongoing trend of the opening of LCs indicates that the taka would face more pressure in the months to come.

Interbank exchange rate was Tk 82.80 per US dollar yesterday, up from Tk 78.85 a year ago, according to central bank statistics.

During the unveiling of the monetary policy for the first half of 2017-18, the central bank also forecasted that the current account might be in deficit this year, said Md Arfan Ali, managing director of Bank Asia.

The central bank should morally pursue banks not to open LCs for unnecessary products in order to keep the exchange rate between the taka and the dollar stable.

Trade deficit also widened 96.10 percent year-on-year to $7.60 billion in the five months to November, BB data showed.

The government should take immediate measures to boost export earnings in order to narrow both the trade deficit and the current account, a BB official said.

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