The country’s terms of trade have been deteriorating unabated, reflecting a major structural weakness of the economy, reveals the Unnayan Onneshan, an independent multidisciplinary think-tank, in its latest monthly economic update released on Wednesday.
The terms of trade, the value of exports relative to that of imports, reached at 70.1 per cent in FY 2011-12 from 70.8 per cent in FY 2010-11 and the leading think-tank projects further weakening in the upcoming years to reach at 69.2 per cent, 68 per cent, 66.7 per cent and 65.5 per cent in FY 2012-13, FY 2013-14, FY 2014-15 and FY 2015-16 respectively, if radical actions are not taken.
Explaining that the terms of trade are influenced by a number of factors, the research organisation said that the deterioration means that the gap between country’s dependency on export of low-value products and import of high-value products are increasing, disfavouring the rise of export prices comparative to import prices.
Referring to the dominance of seven low-value labour intensive export items of the country, the research organisation also states that although exports of woven garments, jute goods increased slightly in FY 2012-13 compared to the previous FY 2011-12, the exports of frozen food, knitwear, raw jute, chemical products, engineering and electric goods, and tea witnessed a decline compared to FY 2011-12.
Of the main five import items, excepting food grains, the remaining four – crude petroleum, raw cotton, capital machinery and iron, steel and other base metals – are, on the other hand, comparatively high-value industrial goods, adds the report.
Urging for a structural shift and transcending from the current practice of government taking policies on an adhoc basis, the Unnayan Onneshan suggests to opt for coordinated monetary and fiscal policies by way of fiscal incentives, subsidies and tax breaks to embark upon technological catching up and manufacturing high value-added products to stave off further deterioration of terms of trade.
The research organisation also points out that trade openness is increasing while terms of trade is decreasing which casts doubt over the efficacies of trade liberalisation. In FY 2012-13, the trade openness index reached at the highest level of 49.9 since FY 2001-02.
Trade deficit declined to $ 7,010 million in FY 2012-13 from $ 9,310 million in FY 2011-12. If the recent business scenario remains as usual, trade deficit might decline to $ 2,494.33 million in 2013-14 and to $ 2667.71 million in 2015-16.
The Unnayan Onneshan notes that the surplus of current account has risen due to increase in remittances and fall in import payments. The country recorded a surplus of $ 2525 million in FY 2012-13 against $ 447 million deficits in FY 2011-12 as import payment decreased to $ 34083.6 million in FY 2012-13 from $ 35516.3 million in FY 2011-12, witnessing a negative growth of 4.03 per cent.
The think-tank, however, observes that surplus achieved through reducing import of raw materials and capital machinery for its industrial sector may not be considered a blessing and this surplus has also appreciated the national currency, leading to loss in export competitiveness.
The import of raw materials and capital machinery declined to $ 6408 million in FY 2012-13 from $ 11268 million in FY 2011-12, making a negative growth of 43.13 per cent. The Taka has appreciated by 0.01 per cent at the end of August, 2013 compared to July, 2013.
The portfolio investment and foreign direct investment (FDI) witnessed a negative rate of growth. The portfolio investment stood at $ 110 million in FY 2012-13 from $ 198 million in FY 2011-12, observing a negative rate of growth of 44 per cent. The net FDI experienced a negative rate of growth of 24.6 per cent in FY 2012-13, from a positive rate of growth of 28.4 per cent in FY 2011-12. The net FDI decreased to $ 750 million in FY 2012-13 from $ 995 million in FY 2011-13.
The Unnayan Onneshan also notes that net foreign inflow increased to $ 1887 million in FY 2012-13, from $ 1169 million in FY 2011-12. Furthermore, in July of FY 2012-13, the total foreign aid was $ 209.99 million and principal payment was $ 53.17 million for which net foreign aid was positive as $ 156.82 million. The net flow of foreign aid stood at $41.84 million in July, 2013 compared to the same period of the previous fiscal year.
-Courtesy: the Independent.