Bangladesh has hit an enormous current account deficit, highest in a decade.
An independent think-tank, Unnayan Onneshan (UO), said this on Sunday attributing this current account deficit to huge increase in import payment together with low export growth amid no possibility of revival of the generalized system of preferences (GSP). Moreover, UO in its monthly publication of the ‘Bangladesh Economic Update’ February 2018 feared that recent hike in oil price and high import of consumer goods are likely to result in an upsurge of food inflation adversely affecting standard of living of the low-income people.
UO took the rising trend in inflation and recent upsurge in oil price into consideration in projecting that food inflation is likely to hit 8.34 percent at the end of the current fiscal year in the absence of immediate price stabilization measures. Such increase in prices in the commodity market coupled with reduced production of food grains, decline in real wage, and lack of employment opportunities is likely to adversely affect people’s standard of living and threaten overall food security in the country, comments the research organization.
Urging for the expansion of country’s productive capacities that enhance utilization of available resources through efficient entrepreneurial capabilities and increased production linkages, the UO recommends adoption of measures to stabilize price in the short run and strategies to foster employment augmenting growth in the long run. Referring to the monumental increase in opening and settlement of Letter
of Credits (LCs) for the consumer goods and consequential price hike in recent time, the think-tank evinces that during the period of July-December 2017, fresh opening and settlement of LCs increased by 56.35 percent and 60.47 percent respectively compared to the July-December 2016. Twelve-month average food and general inflation stood at 7.17 percent and 5.70 percent respectively in December 2017 compared to 4.51 percent and 5.52 percent respectively in December 2016. On point-to-point basis, food and general inflation increased from 5.38 percent and 5.03 percent in December 2016 to 7.13 percent and 5.83 percent respectively in December 2017.
Compared to the target of export earnings of $21,373 million for July-January 2017-18, the actual earnings fell short by $48.13 million, signaling the failure in achieving export target at the end of the fiscal year. In addition, a declining trend in cumulative export growth has been observed since the beginning of the current fiscal year, posing challenges to external balance. Since the suspension of generalized system of preferences (GSP) facility for Bangladesh in June 2013 by the US, which is the country’s single largest export destination, export growth considerably declined from 11.69 percent in FY 2013-14 to 3.39 percent in FY 2014-15. Despite the increase to 9.77 percent in FY 2015-16, export growth plunged to 1.72 percent in FY 2016-17. Failure to restore the GSP facility may further hinder the country’s export, fears the UO. Rise in import payables along with shortfall in the primary income and income from the services, the current account balance exhibits a deficit of $4767 million during July-December of 2017 compared to a deficit of only $543 million during the corresponding period of 2016. As a consequence, the total balance of payment undergoes a deficit of $354 million in July-December of FY 2017-18 compared to a surplus of $2265 million in July-December of FY 2016-17.
