Economy still not firing on all cylinders: Trade deficit narrows 21.4% in H1 of FY21

Bangladesh’s trade deficit narrowed about 21.4 per cent year-on-year to $6.5 billion in the first six months of the fiscal year thanks to the falling trend of import and export owing to the ongoing pandemic.

The deficit fell by $1.75 billion to about $6.5 billion during the July-December period, according to data from the Bangladesh Bank (BB).

“This indicates that the economic activities did not return to normal,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.

The falling trend of trade deficit has both negative and positive aspects.

The trade deficit narrowed due to the negative import growth, which indicates stagnated economic activities and weak domestic demand, he said.

Import growth dropped 6.8 per cent from a year earlier to $25.2 billion during the period.

Investment-related imports like capital machinery and industrial raw materials have dropped significantly owing to the pandemic, Hussain said.

“Import of intermediate goods has also dropped.”

The country’s export earnings also dropped 0.4 per cent to about $18.8 billion in the first six months of the fiscal year. 

Of them, garment exports dropped about 3 per cent to $15.5 billion, according to data from the BB.

“There will not be any sustainable economic recovery from the economic slowdown for the next six months,” he added.

The country's current account balance posted a surplus of $4.3 billion in the first six months of the fiscal year owing to the sharp decline in the trade gap. 

The surplus in the current account will fall when the country’s economic activities pick up, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The record foreign exchange reserve is also a reflection of the lower trade deficit and surplus in the current account.

The country's foreign exchange reserves on December 15 crossed the $42 billion-mark for the first time amid the pandemic.

Even though some may interpret the shrinking of the trade deficit as a good indication, a deeper analysis of the country’s import-dependent nature would reveal that it was not sending out a satisfactory message to the economy at all, said AB Mirza Azizul Islam, a former caretaker government adviser. 

The negative trend of import growth, especially capital machinery and industrial raw material, indicates that the entrepreneurs and industries did not go for business expansion and fresh investment, he added. 

The country’s net foreign direct investments dropped about 22 per cent during the period.

The BB data also showed that the country attained $455 million in net foreign direct investment in the first six months of fiscal 2020-21 against $583 million a year earlier.