Economy faces BoP disequilibrium: UOStaff Correspondent
The country’s economy is experiencing disequilibrium in the balance of payments due to internal economic imbalances and mismanagement of different policies taken by the government and global financial crisis, said Unnayan Onneshan on Saturday.
The BoP slipped into deficit for the first time in a decade resulting in heightened risks to Bangladesh’s external position, said the think-tank in its June issue of ‘Bangladesh Economic Update’.
Referring to the ongoing three-year reform programme agreed between the government and the International Monetary Fund to stave off the BoP pressure under the latter’s extended credit facility, the Unnayan Onneshan said that the aggregate demand would drop because of use of instruments such as depreciation of local currency and cut in import demand and supply of investible funds to the entrepreneurs.
The research organisation, in this connection, cited the central bank’s recent steps in allowing the local currency for depreciating significantly against the foreign currencies and putting in place contractionary monetary policy to restrict credit to the private sector and import of goods and services.
The restrictive monetary targets, agreed in the Memorandum of Economic and Financial Policies with the IMF, the research organisation claimed, have also in effect reduced the fiscal space of the government, demonstrated in the recently approved national budget for the financial year 2012-2013.
The prescription of shrinking import in the upcoming financial years would not only reduce the import of capital machinery and intermediate goods, prerequisite for the expansion of productive sector, but also would result into contraction in export which would widen trade deficit further, said the think-tank.
Under the existing business scenario, terms of trade may decrease to 70.71 per cent in FY 2011-12. In comparison, in FY 2010-11, terms of trade was 72.37 per cent which was 52 percentage points higher than that of FY 2009-10 and the export price index and the import price index increased by 7.31 per cent and 6.74 per cent respectively.
Trade deficit has widened at a staggering rate. During July-April of FY 2011-12, export earnings were $19.54 billion which was 8.19 per cent higher than that of the same period of the previous fiscal year.
During the period, import payments were $26.88 billion which were 8.65 per cent higher than that of the corresponding period of the previous financial year because of the higher growth rate of fuel imports for the higher demand of quick rental power generation.
As a consequence, trade deficit during July-April of FY 2011-12 increased by 9.87 per cent and reached at $7.34 billion against $6.68 billion in the same period of the previous financial year.
Depreciation of local currency may create the importable goods expensive and the exportable goods cheaper.
During the last few months of the last financial year that ended on Saturday, depreciation of taka against dollar was increasing at a staggering rate, which ultimately increased the trade deficit. In December 2011, depreciation was 6.09 per cent and it was 3.07 per cent in January 2012.
‘The slower rate of current account surplus was mainly due to the increase in deficits of trade and primary income,’ said Unnayan Onneshan.
During July-April of FY 2011-12, current account surplus was $509 million which is 35.37 per cent lower than that of the same period of the previous fiscal year (2010-11).
In the meantime, a larger deficit in trade and primary income increased by 9.87 per cent and 19 per cent respectively over that of July-April 2010-11.
During July-April of FY 2011-12, capital account was in surplus at $429 million, which is 2.27 per cent lower than that of the same period of the previous fiscal year.
In FY 2010-11, capital transfer was $600 million which was 22.95 per cent higher than that of FY 2009-10. Under the business as usual scenario, the Unnayan Onneshan stated it might reach $ 631 million in FY 2012-13.
In spite of a capital account surplus of $ 429 million, a financial account deficit of $934 million and a large negative errors and omissions contribute to the overall account balance deficits of $ 106 million during July-April of FY 2011-12 against a deficit of $502 million during July-April of FY 2010-11.
For the first time in a decade, the overall balance of payments slipped to a deficit in FY 2010-11 and might drive down further in the upcoming fiscal years, cautioned Unnayan Onneshan.
comments powered by Disqus