The current account deficit has tripled

Bangladesh’s current account deficit is expected to widen to 2.7% of gross domestic product (GDP) in the current fiscal year from 0.9% a year ago, due to escalating imports and declining remittances.

The deficit, which indicates a shortfall between money received from selling products to other countries and money spent buying goods and services from other countries, is double the level for the year 2020, according to the Asian Development Bank (ADB).

It is, however, expected to shrink to 1.8% of GDP in FY2023, helped by a rebound in remittances and slower import growth.

The forecast was made in the Manila-based development lender’s annual flagship publication – Asian development Outlook 2022 – released yesterday.

Bangladesh’s current account deficit hit a record $10 billion in the first seven months of the current fiscal year due to the escalating trade deficit and slower-than-expected flow of remittances.

The previous highest current account deficit was $9.56 billion in fiscal 2018, according to Bangladesh Bank data. The deficit was $4.57 billion last fiscal year.

Import payments rose 46% in July-January FY22 after contracting 0.2% in the same period last fiscal year as the economy returns to normal thanks to the decline of the pandemic.

Half of the imports of intermediate products went to the clothing industry and the rest to other manufacturing industries. Imports of food grains and other basic consumer goods increased by 55.3% and imports of capital goods increased by 46%, reflecting improved business confidence, the AfDB said.

“With inventory replenishment, imports are expected to stabilize in the second half of the year.”

Import growth for the whole of FY22 is forecast at 24.3%. It is expected to slow to a higher base, loosening global prices for oil and other commodities, and reducing food imports on an uptick in agriculture.

Remittances are expected to fall to $21.8 billion in the current fiscal year, down 12% in fiscal 2021, reflecting a high base and increased use of unofficial channels by senders of funds.

“The decline in remittances in fiscal 2022 will affect the current account deficit,” the report noted.

Remittances, however, hit an eight-month high in March as migrant workers sent home a higher amount to help their families cope with increased expenses during Ramadan, Bank data shows. from Bangladesh.

FY23 revenue is expected to rebound to $23.3 billion, up 6.8%, driven by a further 0.5 percentage point increase in the cash incentive and increased government efforts to limit the use of unofficial channels.

The AfDB projects that Bangladesh’s GDP will continue to sustain strong growth of 6.9% in FY22.

Calling the fallout on the global economy from Russia’s invasion of Ukraine the main uncertainty, the report says rising oil prices and imports, and the loss of export sales beyond those projected in the current outlook, are the main risks to the outlook.

Inflation is expected to increase to 6% in FY22 from 5.6% in FY21 as price pressures increase due to the upward adjustment in the domestic administered prices of the fuel, rising global food and fuel prices and the implementation of stimulus measures.

Monetary policy is expected to remain accommodative and expansionary in FY22 while controlling inflation and maintaining financial stability.

Price adjustments of liquefied petroleum gas or liquefied natural gas in the coming months could also intensify inflationary pressures, AfDB Country Director Edimon Ginting said during a virtual press conference after the launch of the report.

Ginting suggested a few key steps to sustain the medium- to long-term higher growth trajectory and make it more inclusive.

“Efforts are needed to boost competitiveness, employment and private sector development, while regulatory bottlenecks need to be reduced. Critical infrastructure needs to be built to improve the efficiency of the national value chain” .

“Inclusive growth will require increased spending on education, health and social protection,” he said, pointing to significant efforts to improve domestic resource mobilization aimed at generating sufficient funds.

He also stressed the need to quickly address the effects of climate change to make growth more sustainable.

Even with current spending broadly on target, full implementation of the government’s fiscal targets will not be achieved, as has been the case in previous years, according to the AfDB.