Current account surplus dwindling due to remittance fall

The country’s current account surplus is decreasing which, economists believe, is the result of a fall in the inflow of remittance earnings.

The current account balance – a broad measure of trade, services and investment flows – recorded a surplus of US$701 million during July-October in 2013, down by $20 million from that of the corresponding period of last fiscal year.

current accntMany economists said it might deteriorate further in the days ahead due to restive politics. Some others argued that it will not affect the economy in the short term as long as there is significant rise in import payments, reports the Financial Express.

Bangladesh Development Studies (BIDS) chief Mustafa K Mujeri said, “This (plunge in current account surplus) is the outcome of weaker domestic economy.”

The political turmoil is impeding economic activities and it is helping build up pressure on country’s external trade, Mr Mujeri argued.

Many believe that crackdown against illegal immigrants in Saudi Arabia and Malaysia, coupled with ‘poor’ diplomatic relations with major manpower exporting nations are the key reasons behind fall in outflow of workers going abroad.

The country’s overall current account remained in a comfortable surplus, thanks to returns on its substantial earnings from remittances and foreign exchange reserves.

Some economists fear that remittance earnings will fall further in the months ahead as the outflow of local people has been falling each month.

“It will be difficult to make a rebound in current account surplus that had persisted in recent years if the ongoing political situation and falling trend in remittance continue,” Mr Mujeri, also Bangladesh Bank former chief economist said.

“In my view, current account surplus will squeeze further and at one stage it might go into negative territory,” Mr Mujeri noted.

Some economists argued that the economy will not be affected by the fall in current account surplus shortly as the volume of import remained lower than expected.

They expressed concern about the fall in remittance saying this will have impact on the current account balance.

“Our strength of external economy is remittances, its fall will definitely reflect in the current account,” said Policy Research Institute of Bangladesh (PRI) executive director Ahsan H Mansur.

The remittance inflow dropped by nearly 3.0 per cent in the just concluded calendar year against its corresponding period the preceding year.

The fall in remittance inflow was the first recorded in 12 years as only in 2001 the same dropped along with other remittance-driven economies following a bubble that had collapsed in 1999-2001 period.

“There’s a low chance that the current-account balance will turn to a deficit in the coming months as import is not rising,” said Mr Mansur.

The fall in the current account surplus reflects the slowdown of our economy, said University of Dhaka department of Economics chairman Professor MA Taslim.

A chronic trade deficit and a decline in foreign direct investment weighed on the country’s balance of payments.

Centre for Policy Dialogue (CPD) executive director Dr Mustafizur Rahman said, “I’m not worried about the fall in the current account as our foreign currency reserve remains too high.”

As of December 2013, Bangladesh’s foreign currency reserve stood at all-time high of $18 billion.

Mr Rahman said import has improved in recent months adding, “It has contributed to fall in the key component of the balance of payments.” Mr Rahman, however, put stress on the need to boost import of capital machinery and industrial raw-materials to keep the domestic economy buoyant.

If an economy is running a current account surplus it is absorbing less than that it is producing and vice-versa, he said.