Deficit in financial account $1.19b in 7 months

News Desk :
Bangladesh’s financial account experienced a deficit of $1.19 billion in July-January of FY23 against a surplus of $8.65 billion in the same period of FY22, according to Bangladesh Bank data.
The financial account deficit occurs when residents of a country invest in foreign countries more than what the foreign investors invest in that country, or when the country borrows from foreign lenders more than what it lends to the foreign borrowers, according to experts.
The financial account records the flow of financial assets, including foreign direct investment, portfolio investment and others, between countries.
Masrur Reaz, chairman and founder of Policy Exchange Bangladesh, said that that Bangladesh’s financial account had recently been adversely affected by sluggish foreign direct investments and net foreign loans and grants.
He said that the negative account might be due to foreign lenders and investors lacking confidence in Bangladesh’s economy amid the ongoing economic woes.
Furthermore, foreign portfolio investment, a crucial aspect of the financial account, has also decreased substantially due to volatile capital market and the appreciation of the dollar against the local currency taka, he said.
Masrur observed that the negative financial account indicated a sharp decline in dollar supply, leading to a drop in the country’s currency value.
Bangladesh’s trade deficit, however, dropped to $13.38 billion in July-January period of FY23 compared with that of $18.81 billion in the same period in the past financial year 2021-22 thanks to a fall in imports due to various restrictions on imports amid a dollar shortage in the country.
In July-January of FY23, the country’s current account deficit declined to $5.03 billion from deficit balance of $10.26 billion in the same period of the previous year as export earnings increased in the period.
A trade deficit refers specifically to the situation where a country imports goods and services more than what it exports, bankers said.
It is a narrower measure of a country’s trade balance and does not take into account income and transfers, they said.
A current account deficit is the broadest measure of a country’s international trade and financial flows, including not only trade in goods and services but also income and transfers between countries, they said.
A negative financial account can be a consequence of a trade deficit or a current account deficit, as the country may need to borrow money or sell assets to finance its international transactions, the bankers said.
In the first seven months of FY23, the country’s import payments declined slightly by 5.66 per cent to $44.03 billion compared with that of $46.67 billion in the same period of the previous year, according to the Bangladesh Bank data.
The trade deficit was $1.08 billion in January 2023 and $1.18 billion in December 2022.
In July-January of FY23, the country’s export earnings grew by 9.98 per cent to $30.64 billion compared with that of $27.86 billion in the same period of FY22 due to increased shipments of readymade garment products.
The bankers said that the imports had recently declined as banks were declining opening letters of credit for importing raw materials and other products due to a severe dollar crisis in the market.
Since April, the central bank as well as the government has taken a number of initiatives, including restricting imports of luxury and unnecessary products, to contain imports.
The country’s trade deficit reached a record high of $33.25 billion in FY22 from $23.78 billion in the previous financial year.
The country’s net FDI increased by 4.11 per cent to $1.34 billion in the first seven months of FY23 compared with that of $1.29 billion in the same period of the previous financial year.
The deficit in trade services also increased in July-January of FY23 to $2.24 billion against $2.02 billion in the same period of the previous financial year.