Remittance growth strengthens current account balance

FT ONLINE

Despite the fall in export earnings, Bangladesh's current account balance has improved in the first two months of the current fiscal year supported by strong remittance growth. 

Increased inflow from remitters also helped Bangladesh narrow its trade deficit by 6 percent.  

In July and August this fiscal year, there was a surplus of $313 million in the country's current account balance. During the same period last year, there was a deficit of $7 million.

The current account balance was showing a deficit for the past three years, but it turned to positive in July this fiscal year due to a significant drop in import expenditure.

On the other hand, the trade deficit narrowed to $1.97 billion in the first two months of the current fiscal year compared to $2 billion in the same period last year, according to data from Bangladesh Bank.

However, despite the positive current account balance, the import of capital machinery decreased by 24 percent in July-August this fiscal year, compared to the same period in the previous fiscal year.

A number of industrialists said capital machinery is needed to set up new industries, and the decline in import of such machinery means that no new industry is being set up in the country. 

Investment stagnation continues and entrepreneurs are turning away from further investment. If investment continues to go down, then unemployment will go up. 

According to a senior official of the central bank, the reason behind the narrowing trade deficit and a surplus of the current account balance is the increase of remittance inflow. 

"From this year and for the first time in the budget, the government announced two percent incentive for sending remittance. Therefore, it played a positive role," the official added.

"The central bank is also trying to increase remittance inflow through the banking channel instead of hundi [illegal remittance]," said Abu Reza Md Yeahia, Deputy Managing Director of the Islami Bank Bangladesh Ltd.

Islami Bank is the largest remittance collecting bank in Bangladesh.

"Presently, the agent banking system is allowing more and more people to receive remittance easily. Therefore, it has become easy for expatriates to send remittance through the banking channel. We have a total of 650 banking agents," Abu Reza said.

Dr. Nazneen Ahmed, a senior research fellow at the Bangladesh Institute of Development Studies, said, "Imports that were increasing before, are now decreasing. In the first two months of the current fiscal year, the account balance has been positive.

"Meanwhile, a decrease in trade deficit is also a positive sign for the country's economy."