Current account surplus erodes 40pc in October

The current account surplus eroded almost 40 percent in October from the previous month due to an increase in investment.

At the end of October, the current account surplus stood at $936 million, which was $1.56 billion in September, according to Bangladesh Bank data.

However, the current account surplus in the first four months of the fiscal year was much higher year-on-year. During the period last fiscal year, the surplus was $135 million.

Capital machinery accounts for a major chunk of the imports. The surplus in the balance of payments shrank as import of capital machinery surged, a central bank official said.

Its impact has been felt on the exchange rate: after a long time the taka has started depreciating against the dollar. Since October the local currency became weaker as the demand for dollar increased, he said.

The average inter-bank exchange rate reached Tk 78.95 on November 30 from Tk 77.8 on June 30.

Capital machinery imports rose 24.92 percent in the first four months, according to letters of credit settlement statistics. Other imports increased about 14 percent. However, during the period, imports of raw materials dropped 0.61 percent.

The BB official said the capital machinery that is being imported will not go into production immediately, so their impact on raw material import will be manifested in future.

When the central bank announced its monetary policy in July, it predicted that the current account balance will be in deficit due to a pick-up in investment. The current account deficit would reach $3.55 billion this fiscal year, which was $1.64 billion last year.

At the beginning of last fiscal year, the current account had a huge surplus but it later turned into a sizeable deficit, the BB official said, adding that the same pattern might ensue this year too.

Modest current account deficits are usual and desirable in growing economies, said the central bank's monetary policy statement (MPS).

Bangladesh's current account deficit that turns out to be less than 1 percent of gross domestic product is comfortably manageable and it does not pose any risk at this moment, it said.

“Rather, it indicates the growing demand for capacity building and more productivity in the economy, since more than 65 percent of our imports comprise capital machinery, intermediate goods and raw materials.”

Recent sustained pick-up in investment and consumption imports will in the near-term ease appreciation pressures on the taka, enhancing its export competitiveness, the MPS said. The MPS projection also matches the recent increase in exchange rate against the taka.

The latest balance of payment data shows that in the first four months, trade deficit doubled over last month and stood at $1.98 billion, which was $804 million in the first three months of this fiscal year.

In the first four months, imports fell 2.3 percent, but the central bank projection says it will increase 14 percent this fiscal year.