Bangladesh Witnesses Surge in Financial Deficit at Start of FY24

Bangladesh Witnesses Surge in Financial Deficit at Start of FY24

Bangladesh’s Financial Account Deficit – July FY24

Bangladesh’s financial account experienced a substantial deficit in July of FY24, recording a staggering $895 million, in contrast to the $66 million deficit in the same period of FY23. Such a pronounced disparity has sounded alarm bells for the Bangladesh Bank. This isn’t an isolated occurrence, as the financial account also showed a deficit of $2.14 billion in FY23, sharply deviating from the impressive surplus of $15.45 billion in FY22.

Central Bank’s Mitigative Measures

In response to the escalating financial strain, the Bangladesh Bank has been actively intervening in the forex market. To mitigate the impact of this financial turbulence, the central bank sold a whopping $23 billion from its foreign exchange reserves over the past 26 months. To break it down, they allocated $2 billion to banks in the initial months (July and August) of FY24. This followed a significant $13.5 billion disbursement in FY23 and $7.62 billion in FY22.

Several factors are speculated to have contributed to this deficit. A potential decline in foreign loans, attributable to the ongoing economic downturn, coupled with accumulating deferred payments and recent downgrades of sovereign and bank ratings by international agency Moody’s, are possibly responsible. It’s essential to understand that the financial account encompasses a diverse array of capital flows, including foreign direct investments, foreign loans and grants, portfolio investments, and, crucially, variations in reserves.

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Trade Services and Current Account Adjustments

Another facet of the economy showing a deficit escalation is the trade services, marking $429 million in July of FY24. This figure surpasses the $283 million documented in the same month of the preceding fiscal year. However, not all indicators are bleak; the country’s trade deficit exhibited a contraction. By July FY24, the deficit stood at $636 million, a notable shrinkage from the $2,098 million reported in the same month of FY23. A primary reason behind this contraction is the recent decline in imports.

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Governmental and central banking policies have recently tightened the reins on imports due to the prevailing dollar scarcity, consequently leading to a reduced trade deficit. This strategic curbing of imports seems to be a measure to stabilize the economy amid the ongoing financial challenges.

Furthermore, there is a silver lining when examining the current account figures. July showcased the country’s resilience with the current account displaying a surplus of $537 million. This stands in stark contrast to the deficit of $449 million reported in July of 2022. A robust surge in export earnings during this period is credited for this positive turnaround.

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