Current account deficit records steep rise

[bluesky]

Current account deficit records steep rise on higher imports
Crosses $7.0b in nine months of FY '18
FE Report | Published: May 16, 2018 09:51:49 | Updated: May 16, 2018 10:30:06

Photo courtesy: ADB

The country's current account deficit widened, reaching a record high in the first nine months of the current fiscal year (FY) as imports grew faster than exports.

Central bank statistics, released on Tuesday, showed that the current account deficit hit $7.08 billion in July-March period of the fiscal 2018.

The amount of deficit is the highest in the country's history, which was only $1.37 billion in the same period of the past fiscal year.

The increasing gap in both the merchandise and service trades of the country is pushing the current account deficit higher.

The Bangladesh Bank data showed that the country's merchandise trade gap with the rest of the world exceeded $13 billion in the first nine months of the current fiscal year.

The deficit in merchandise trade stood at $13.20 billion in July-March period of FY18, which was $7.04 billion in the same period of the past fiscal year.

Trade deficit registered an 87.5 per cent growth in the nine months to March.

The Bangladesh Bank said that exports have recorded around 7.0 per cent growth in the first nine months of the current fiscal year, while imports surged by 24.50 per cent in the same period.

The considerable jump in imports over the moderate increase in exports has driven up the trade gap.

"Import growth is unsustainably high against the lacklustre growth in exports and so the trade gap is rising fast," said Dr Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh, a Dhaka-based think-tank.

He also said that while remittances are growing, the inflow remains the same level as was in 2016.

The soaring gap in trade as well as the current account reflects the growing imbalance of the country's external account, thus creating mounting pressure on the overall balance of payments.

The central bank data showed that the overall balance of payments has posted a negative balance of $1.40 billion in the first nine months of the current fiscal year against a positive balance of $2.60 billion in the same period of the last fiscal.

To make the connection, Dr Mansur argued that the country is accumulating foreign debt both in the public and private sectors and a portion of debt is likely to be used for financing the current account deficit. Dr Mansur was of the view that the government is heavily relying on debt financing to construct the mega infrastructure projects.

"This is unsustainable and going to put the economy under serious strain in the near future," he warned.

He suggested that the government opt for equity financing for different big infrastructure projects, meaning attracting Foreign Direct Investment (FDI) in these projects.

But the country does not fare well in attracting FDI.

The central bank statistics showed that the net inflow of FDI fell by 2.89 per cent to $ 1.36 billion in the first nine months of the current fiscal year, down from $ 1.41 billion in the same period of the last fiscal. Dr Mansur, a former senior executive of the International Monetary Fund, also underlined the need for right pricing and timely implementation of the projects so that costs could not rise abnormally.

 

[Homo Sapiens]

Extraordinary higher import growth in this fiscal year resulted from 3 following factors-
1.Import related to Rooppur nuclear power plant.
2.Higher cereal import due to crop damage last year mega flood.
3.Higher capital machinery import.

Import growth should be slow down from the next fiscal year.

 

[Nilgiri]

Extraordinary higher import growth in this fiscal year resulted from 3 following factors-
1.Import related to Rooppur nuclear power plant.
2.Higher cereal import due to crop damage last year mega flood.
3.Higher capital machinery import.

Import growth should be slow down from the next fiscal year.

LOL, falling for BAL propaganda hook line and sinker. Why don't you actually wait and see what happens?

At least 2 of those 3 factors are not one-off impulse loads to begin with...and newer ones will arise as well if BD consumption (cough cough inflation) nominal growth is to be believed.

 

[bluesky]

Extraordinary higher import growth in this fiscal year resulted from 3 following factors-
1.Import related to Rooppur nuclear power plant.
2.Higher cereal import due to crop damage last year mega flood.
3.Higher capital machinery import.

Import growth should be slow down from the next fiscal year.

Rooppur power plant expenditures are supposed to be covered by the Russian loan.

 

[Nilgiri]

Rooppur power plant expenditures are supposed to be covered by the Russian loan.

Yeah but the loan would show up in capital account. This is current account.

Actually its technically an illustration why capital account and current account balance each other out in theory.

 

[Skies]

Trade deficit registered an 87.5 per cent growth in the nine months to March.

It is very big and fast.

Rooppur power plant expenditures are supposed to be covered by the Russian loan.

Does not matter, as it will be shown up/get recorded in the final Balance of Payment (BoP).

BoP = Current Account + Capital Account + FOREX Reserve = 0

Where,
Current Account= (X – M) = Export - import.
Capital Account = (CI – CO) = capital inflows- capital out flows = international movement of ownership of financial assets.
FOREX = Official Reserve Transactions.

I am looking to the trend of BoP of BD in last 10 years, whether it is positive or negative most of the times.

 

[TopCat]

Rooppur power plant expenditures are supposed to be covered by the Russian loan.

Loan is not calculated in bop.

 

[bluesky]

It is very big and fast.

Does not matter, as it will be shown up/get recorded in the final Balance of Payment (BoP).

BoP = Current Account + Capital Account + FOREX Reserve = 0

Where,
Current Account= (X – M) = Export - import.
Capital Account = (CI – CO) = capital inflows- capital out flows = international movement of ownership of financial assets.
FOREX = Official Reserve Transactions.

I am looking to the trend of BoP of BD in last 10 years, whether it is positive or negative most of the times.

Can you combine the thinking in post#5 by @Nilgiri, your own post and Post #7 by @TopCat on the matter of Capital inflow. Will the Rooppur and other similar project loans should be categorized as "Capital Inflow" in the Capital Account and not in the Current Account? My own understanding is, both @Nilgiri and you are correct. If so, how about the opinion of @TopCat. Anyway, I am getting confused.

 

[bdslph]

slowly we will get screwed its bad really bad

 

[Skies]

Can you combine the thinking in post#5 by @Nilgiri, your own post and Post #7 by @TopCat on the matter of Capital inflow. Will the Rooppur and other similar project loans should be categorized as "Capital Inflow" in the Capital Account and not in the Current Account? My own understanding is, both @Nilgiri and you are correct. If so, how about the opinion of @TopCat. Anyway, I am getting confused.

After googling what I have understood is that loan is recorded in capital account of BOP. Because:

1. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items in BOP.
2. FDI inflows are reported under the capital account of BOP. (Here I am confused that if Russian loan would be considered as FDI or not, if yes, then FDI as loan would be catagorised under the capital account of BOP.)​

 

[Nilgiri]

Can you combine the thinking in post#5 by @Nilgiri, your own post and Post #7 by @TopCat on the matter of Capital inflow. Will the Rooppur and other similar project loans should be categorized as "Capital Inflow" in the Capital Account and not in the Current Account? My own understanding is, both @Nilgiri and you are correct. If so, how about the opinion of @TopCat. Anyway, I am getting confused.

Topcat is stupid. Loans are definitely included in balance of payments, just in capital account side (also alongside foreign investments and net change in forex etc).

Maybe topcat thinks balance of payments is same as current account solely (given normally a BoP crisis refers to the more immediate perceptible effects of current account side).

Basically you can think of current account as the short term flows (i.e largely liquid cash driven) and capital account as more long term flows (low velocity/ low liquid movements). One has to finance the other overall (thus adding them up will be 0) since a country cannot create things out of thin air.

Think of it this way....if you buy 100 billion worth of stuff from outside your country...and everyone outside buys 50 billion worth of stuff from you....you need some way to finance the extra 50 billion you are importing right? That part will show up in a transfer you make in the capital account (say net change in forex or stuff you do to keep forex the same but finance the deficit like a loan etc).

Only way you can create a net BoP that is not zero is to treat forex reserves as seperate (depending on convention you use) and not have a free floating exchange rate and thus your fixed exchange rate (or however much degree you decide to control it) will correlate to net forex reserve change.

 

[bluesky]

To make the connection, Dr Mansur argued that the country is accumulating foreign debt both in the public and private sectors and a portion of debt is likely to be used for financing the current account deficit. Dr Mansur was of the view that the government is heavily relying on debt financing to construct the mega infrastructure projects.

"This is unsustainable and going to put the economy under serious strain in the near future," he warned.

He suggested that the government opt for equity financing for different big infrastructure projects, meaning attracting Foreign Direct Investment (FDI) in these projects. But the country does not fare well in attracting FDI.

Bold parts: If a portion of foreign debts is used to finance the current account deficit, then it is a bad policy that will eventually overburden our economy. The solution lies with foreign direct investment. But, as usual, the country is unable to attract it. We read many news of MoU and agreements that finally do not materialize. This kind of news report ends only on papers.

Anyway, the country should focus on import of non-essentials and minimize the deficit in the service sector, such as reducing the number of pilgrimage to SA and medical treatment/pilgrimage to India. Service sector is in multi-billion dollar deficit. There is another thread on this.

 

[Skies]

reducing the number of pilgrimage to SA and medical treatment/pilgrimage to India.

May be things do not work in that way. Otherwise, there would not be any growing tourism industry.

If British govt. tell its citizens to travel less to deduce deficit, that would perhaps be a bad idea.

Plus, remittance from Middle East is far far more than the amount we spend for Hajj. Restricting the number of pilgrimage to SA will contradict with rituals of religion. Plus the local travel agencies will lose business.

And if people perceive better quality in India, then be it. Cos confidence is important in treatment and healing.

So instead of restricting going to other country for covering deficit, you can make a list of what services BD can internationally offer so that foreigners came here instead of India, Pakistan, Sri-Lanka and Thailand.

 

[Nike]

Bold parts: If a portion of foreign debts is used to finance the current account deficit, then it is a bad policy that will eventually overburden our economy. The solution lies with foreign direct investment. But, as usual, the country is unable to attract it. We read many news of MoU and agreements that finally do not materialize. This kind of news report ends only on papers.

Anyway, the country should focus on import of non-essentials and minimize the deficit in the service sector, such as reducing the number of pilgrimage to SA and medical treatment/pilgrimage to India. Service sector is in multi-billion dollar deficit. There is another thread on this.

Bad idea, instead Bangladesh must made self restrospect. If you lose money in services sector like medical tourism and hajj rites, you just need find a way on how to fill the gap like increasing tourism industry. Repairing your infrastructure, revitalize and rebuild your airport into modern standard like what we had here. How to get the fund? First you can trying to invite foreign investor to funding and operating your infrastructure and services sector (airport, ports, railway, electricity, hospital, or even school) by liberalizing those sector and creating an open and fair market. Reduce the red tape and chronic beaurocration systems which is analog to corruption and nepotism. Creating a better environment for tourism like educated the mass, make niche sector into comparative better alternative and so on

 

[Lego Jangkar]

Bad idea, instead Bangladesh must made self restrospect. If you lose money in services sector like medical tourism and hajj rites, you just need find a way on how to fill the gap like increasing tourism industry. Repairing your infrastructure, revitalize and rebuild your airport into modern standard like what we had here. How to get the fund? First you can trying to invite foreign investor to funding and operating your infrastructure and services sector (airport, ports, railway, electricity, hospital, or even school) by liberalizing those sector and creating an open and fair market. Reduce the red tape and chronic beaurocration systems which is analog to corruption and nepotism. Creating a better environment for tourism like educated the mass, make niche sector into comparative better alternative and so on

Surging April Imports Produce Indonesia's Biggest Trade Deficit in 4 Years

By : Maikel Jefriando and Nilufar Rizki | on 2:26 PM May 15, 2018
Category : Business, Economy

Jakarta. Indonesia posted its biggest trade deficit in four years in April as imports surged, wrong-footing analysts who expected a surplus for the month.

The statistics bureau said the April deficit reflected "seasonal factors" including this week's start of Ramadan, the Muslim fasting month.

Southeast Asia's largest economy had a deficit of $1.62 billion, the biggest since April 2014 while the Reuters poll forecast was for a $700 million surplus.

Imports in April soared 35 percent from a year earlier to $16.09 billion, compared with the poll forecast of 19 percent.

For the first four months of this year, there was a deficit of $1.3 billion, compared with a $5.4 billion surplus a year earlier.

Tuesday's surprise trade deficit came at time the rupiah has been under pressure due to rising US yields and oil prices and worries about capital outflows.

The trade data slightly widened its loss for the day, taking it to 14,030 to the dollar.

Although Indonesian authorities have so far just intervened in the currency market to put a floor under the rupiah, they have said they are willing to raise interest rates if need be to defend the currency. The central bank concludes a policy meeting on Thursday (15/05).

Myrdal Gunarto, an economist with Maybank Indonesia, said imports may continue to rise as domestic economic activities improve, while export growth may moderate due to a limited rebound in commodity prices.

That would lead to a bigger current account deficit of 2.2 percent of GDP in 2018, from 1.7 percent in 2017, he said, adding that this implies the dollar will strengthen against the rupiah.

In April, imports of most items rose, with notably high increases for oil and gas and some food, according to the statistics bureau.

"Imports usually rise before the start of the fasting month although I agree that [the April increase] is significant," bureau head Suhariyanto told reporters.

Suhariyanto said imports of raw materials and machinery also increased, which could mean Indonesia's manufacturing industry was boosting production.

In April, exports rose 9 percent from a year earlier to $14.47 billion, below the poll forecast of a 12 percent increase.

Reuters