Despite a bullish trend in the export sector, the country's trade deficit has increased by an enormous proportion due to a massive import cost and a slow pace in remittance inflow. According to Bangladesh Bank's (BB) latest statistics on the balance of payment, the trade deficit in the first 11 months (July-May) of the fiscal 2010-2011 increased by 46 percent in comparison with the corresponding period of the previous fiscal. The BB released this information on 14 July 2011.
Difference Between Import and Export
According to the BB information, the import cost during the July-May period of the fiscal 2010-2011 stood at $27.710billion. The export earning during the same period was at $20.610 billion. The difference between import and export that means the trade deficit stood $7.1 billion. The deficit during the corresponding period of the previous fiscal was $4.87 billion. And as a result, pressure has been created on the balance of payment because of the rise in the trade deficit.
The balance in the current account surplus for the said period was only $610 million. The current account surplus for the same period of the previous fiscal year (2009-10) was at $2.970 million. On the other hand, a deficit of $750 million has been created in the overall balance. During the same period of the previous fiscal, there was a $2.66 billion surplus in the overall balance.
Balance of Payment
The BB while preparing the report on the balance of payment adjusts the export earning as the FOB (excluding transport cost of goods before loading ships and shipping cost). And as a result, the figure of export earning in the BB report is comparatively lower than that of the Export Promotion Bureau (EPB).
However, a 10 percent deduction on account of insurance and shipping cost is made from the statistics of import cost received on the basis of C and F (shipping fare and other cost) to include the import cost in the statistics of balance of payment on FOB basis.
About this state of the balance of payment private research organization, Prof Mustafizur Rahman, executive director of the CPD (Center for Policy Dialogue), said that though there has been a big growth in the export the import cost also increased very significantly due to a rise in the prices of commodities in the international market. He said that a big chunk of our export earning is spent for importing the raw materials of the export items. He said that the current account balance has come under a tremendous pressure due to a rise in the trade deficit side by side with a slow pace in the remittance inflow. He said this pressure will continue in the coming says in the wake of the present state of commodity prices in the international market. To overcome this situation, he suggested diversification of the export items and export market in one hand and taking effective measures for increasing remittance inflow on the other.
According to the BB statistics, the deficit in the service sector has also increased side by side with the trading sector. In the first 11 months of the last fiscal year, the trade deficit in the service sector stood at $2.23 billion. The figure was $1.58 billion during the same period of the previous fiscal. At present there is a surplus of $11.14 billion in the current transfer account. Of the amount, remittance inflow was $10.61 billion. A 5 percent growth was registered in the remittance inflow in the first 11 months of the last fiscal year. On the other hand, a deficit of $1.1 billion was recorded during the same period. The deficit in the previous fiscal was $290 million.
FDI Decreasing
According to information in the BB report, in the first 11 months of the last fiscal year a $720 million net Foreign Direct Investment (FDI) came to the country. The net FDI in the previous fiscal was $820million. Meanwhile, a $22 million portfolio foreign investment was withdrawn from the share market. During the same period of the previous fiscal, the portfolio foreign investment withdrawal was $85 million.
Pressure Mounted on Reserve
Pressure has been mounted on foreign exchange reserve because of a rise in the trade deficit and a overall negative impact on the balance of payment. The reserve at the end of May 2011 was increased by a minor proportion in comparison with the same period of the previous fiscal. But the situation has been deteriorated in consideration of the ability of meeting the import cost. The reserve at the end of May 2011 stood at $10.43 billion, which is equivalent to meeting the import cost for 3.6 months. The reserve had the capacity of meeting the import cost for 4.9 months in the previous fiscal.
Difference Between Import and Export
According to the BB information, the import cost during the July-May period of the fiscal 2010-2011 stood at $27.710billion. The export earning during the same period was at $20.610 billion. The difference between import and export that means the trade deficit stood $7.1 billion. The deficit during the corresponding period of the previous fiscal was $4.87 billion. And as a result, pressure has been created on the balance of payment because of the rise in the trade deficit.
The balance in the current account surplus for the said period was only $610 million. The current account surplus for the same period of the previous fiscal year (2009-10) was at $2.970 million. On the other hand, a deficit of $750 million has been created in the overall balance. During the same period of the previous fiscal, there was a $2.66 billion surplus in the overall balance.
Balance of Payment
The BB while preparing the report on the balance of payment adjusts the export earning as the FOB (excluding transport cost of goods before loading ships and shipping cost). And as a result, the figure of export earning in the BB report is comparatively lower than that of the Export Promotion Bureau (EPB).
However, a 10 percent deduction on account of insurance and shipping cost is made from the statistics of import cost received on the basis of C and F (shipping fare and other cost) to include the import cost in the statistics of balance of payment on FOB basis.
About this state of the balance of payment private research organization, Prof Mustafizur Rahman, executive director of the CPD (Center for Policy Dialogue), said that though there has been a big growth in the export the import cost also increased very significantly due to a rise in the prices of commodities in the international market. He said that a big chunk of our export earning is spent for importing the raw materials of the export items. He said that the current account balance has come under a tremendous pressure due to a rise in the trade deficit side by side with a slow pace in the remittance inflow. He said this pressure will continue in the coming says in the wake of the present state of commodity prices in the international market. To overcome this situation, he suggested diversification of the export items and export market in one hand and taking effective measures for increasing remittance inflow on the other.
According to the BB statistics, the deficit in the service sector has also increased side by side with the trading sector. In the first 11 months of the last fiscal year, the trade deficit in the service sector stood at $2.23 billion. The figure was $1.58 billion during the same period of the previous fiscal. At present there is a surplus of $11.14 billion in the current transfer account. Of the amount, remittance inflow was $10.61 billion. A 5 percent growth was registered in the remittance inflow in the first 11 months of the last fiscal year. On the other hand, a deficit of $1.1 billion was recorded during the same period. The deficit in the previous fiscal was $290 million.
FDI Decreasing
According to information in the BB report, in the first 11 months of the last fiscal year a $720 million net Foreign Direct Investment (FDI) came to the country. The net FDI in the previous fiscal was $820million. Meanwhile, a $22 million portfolio foreign investment was withdrawn from the share market. During the same period of the previous fiscal, the portfolio foreign investment withdrawal was $85 million.
Pressure Mounted on Reserve
Pressure has been mounted on foreign exchange reserve because of a rise in the trade deficit and a overall negative impact on the balance of payment. The reserve at the end of May 2011 was increased by a minor proportion in comparison with the same period of the previous fiscal. But the situation has been deteriorated in consideration of the ability of meeting the import cost. The reserve at the end of May 2011 stood at $10.43 billion, which is equivalent to meeting the import cost for 3.6 months. The reserve had the capacity of meeting the import cost for 4.9 months in the previous fiscal.
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