Trade deficit hits all-time high
Bangladesh's trade deficit hit an all-time high of $22.8 billion last fiscal year due to a rise in commodity prices in the global market.
In fiscal 2019-20, this trade gap, which occurs when imports outweigh exports, swelled 27.66 per cent year-on-year to stand at $17.85 billion, showed data from Bangladesh Bank.
Economists however assured that the record deficit would not have any adverse impact on the economy as the country's foreign exchange reserve was now in a good condition.
In addition, exports went up in fiscal 2020-21, which pushed up imports as well.
Last fiscal year, imports increased 12.55 per cent year-on-year to $60.68 billion while exports 15.38 per cent to $37.88 billion.
The increase in imports is one of the factors for the record deficit last fiscal year, said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
Import of raw materials for the manufacture of garments, the country's prime export item, increased substantially during the period, he said.
For instance, import of intermediate goods, which includes raw cotton, yarn, textile and dyeing and tanning materials, stood at $13.02 billion, up 9.14 per cent year-on-year.
Export earnings from the garment sector increased 12.55 per cent year-on-year to $31.45 billion last fiscal year.
The country's economy tried to make a turnaround last year before the pandemic's second wave came about, Rahman said.
This has had a good reflection on the major indicators of the balance of payments – trade deficit, exports, imports and so on, he said.
He, however, said commodity prices in the global market had gone up, which was another cause for the record deficit.
This means import volumes of certain products did not go up, rather their prices did.
The import cost of petroleum products stood at $8.98 billion in FY21, up 67.71 per cent year-on-year.
The country also imported a huge amount of food grain to offset local shortages, Rahman said.
Bangladesh counted $850.9 million in rice import costs last fiscal year in contrast to $21.5 million a year ago.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said commodity prices in the global market hit a decade high, pushing up the trade deficit.
He said the cost of a majority of imported products had escalated in recent times, inflating the overall import payments of the country.
Some Western countries have recently been able to contain the pandemic, creating a demand for products, he said.
Against this backdrop, Bangladesh had to spend more money to import the same amount of products compared to that one year ago, he said.
The pandemic has also disrupted the supply of essential products, meaning the goods were not readily available everywhere.
This has also played a vital role in increasing the cost of importing products, said Mansur, also a former official of the International Monetary Fund.
He, however, said the large trade deficit would not turn into a matter of concern for the economy.
The large volume of the foreign exchange reserve and increasing inflow of remittance will counter the adverse impacts stemming from the trade deficit.
The foreign exchange reserve stood at $46.39 billion as of June, up 28.73 per cent year-on-year.
Remittance grew 36.11 per cent year-on-year to $24.77 billion last fiscal year.
Md Habibur Rahman, an executive director of Bangladesh Bank, said the rise in imports was a good sign, indicating recovering demand for products and services.
The government is also importing goods to materialise infrastructural projects, he said.