Widening trade gap to erode reserves: BB

Bangladesh Bank has hinted the foreign exchange reserve and the exchange rate may face some pressure due to the growing trade gap and current account deficit.

The current account and trade deficit will hit a record $10.15 billion and $22.19 billion respectively this fiscal year, Bangladesh Bank said in its latest monetary policy statement (MPS).

A large trade gap and current account deficit will hit the country's economy for a second consecutive time this fiscal year due to higher import payments against lower export earnings, according to the latest monetary policy outlook.

The rising trade gap and current account deficit will bring volatility in the country's foreign exchange regime, which will play a role in depreciating the exchange rate of the local currency against the dollar, said analysts.

Continuing price surge in the global oil market and the government's effort to implement mega infrastructural projects will post a huge import payment which will eventually fuel inflation, they said.  

Possibilities are there for the current account deficit to cross the $10 billion-mark for the first time, added the central bank.

The central bank projected that the current account deficit might stand at $9.18 billion in the recently concluded fiscal year, the highest in the country's history.

The central bank unveiled the monetary policy for the first half of this fiscal year on July 31 at its headquarters in the capital.

Last fiscal year, the trade deficit also registered a record $18.37 billion but the central bank projected that the gap will widen to $22.19 billion in FY19.

The projected trade gap indicated that the country's export earnings would also see moderate growth this fiscal year while import payments would increase heavily.

Such a large trade gap along with the current account deficit will put an adverse impact on the foreign exchange reserve, AB Mirza Azizul Islam, a former caretaker government adviser, told The Daily Star yesterday.

He fears that the country's export earnings and remittance inflow might not pick up as expected this fiscal year because of the ongoing trade dispute between the United States and some other countries.

“The USA has recently got involved in a dispute with China and European Union that will bring a bitter condition to the global economy. Bangladesh may have to suffer from the trade dispute,” he said.

The global oil price has been showcasing an upward trend in recent months which will trigger inflation, Islam said. The government will have to import in bulk to implement the mega projects ahead of the national election which will further weaken the taka against the dollar, he said.

The inter-bank exchange rate stood at Tk 83.75 per dollar on June 30 this year, up from Tk 80.60, the BB data showed.

Higher imports have put pressure on the country's trade and current account balance, which has contributed to the depreciation of the local currency against the dollar, BB Governor Fazle Kabir said while unveiling the MPS.

Higher imports have also triggered inflation in recent times, he said.

The annual average inflation went up to 5.78 percent in fiscal 2017-18 compared to 5.44 percent a year ago, mainly because of higher import payments for capital goods and food items, according to the latest policy.