Current account deficit still in danger

The current account deficit shrunk about 20 percent in the first seven months of the fiscal year but the gap of $4.33 billion still poses a threat to macroeconomic stability.

“The deficit is still big considering the country's foreign exchange volume,” said Ahsan H Mansur, executive director of Policy Research Institute.

Any country must maintain foreign exchange reserves to make import payments for at least three months.

Bangladesh's reserves now are enough to settle import payments for at most 4.9 months, down from 5.8 months a year ago, he said.

At the end of February foreign exchange reserves stood at $32.24 billion, a decline of 3.39 percent year-on-year, according to data from Bangladesh Bank.

“Foreign exchange reserves have been eroding since last year. If the situation persists, the country will have to seek a bailout package from other nations and multilateral agencies within three years.”

The reserves have been hovering between the $31 billion to $33 billion-mark since 2016.

Subsequently, he advised the BB to let the market determine the exchange rate and stop its regular intervention.

“The taka will depreciate against the greenback and that would give a boost to the export earnings and reduce the burden of import payments simultaneously,” said Mansur, a former official of International Monetary Fund.

Between the months of July last year and January this year, import payments stood at $33.48 billion and export earnings $23.80 billion.

Besides, there is little scope of fuelling inflation if the taka depreciates now as the cost of essential commodities are now at a tolerable level at both the global and local markets, he said. On March 13, the inter-bank exchange rate stood at Tk 84.20 per dollar, up from Tk 82.96 a year earlier.

“This depreciation is not good enough at all considering the country's ongoing business situation,” Mansur added.

AB Mirza Azizul Islam, a former finance adviser to a caretaker government, however, is less alarmed than Mansur.

“There is no serious concern about the current account balance right now. But, the country has to improve its export volume to manage the situation in the long run,” he added.