High imports negate rise in FDI, aid
Rejaul Karim Byron
Although foreign aid and foreign direct investment (FDI) have seen rise in the last fiscal year (FY), the huge import has caused a deficit of about half a billion dollar in the current account balance.
According to Bangladesh Bank (BB) sources, foreign aid swelled by 32 percent and stood at $1.259 billion in the last fiscal against $953 million of the previous fiscal. On the other hand, the FDI rose by 40 percent and stood at $540 million in FY04-05, which was $385 million in the previous fiscal year.
But the huge rise in import resulted in a negative current account balance with a deficit of $518 million in the last fiscal. In FY03-04, however, the picture was absolutely different with a surplus of $176 million.
The current account balances aside, the trade deficit stood at $3.29 billion in the last fiscal year while it was $2.31 billion in the previous fiscal.
The sharp rise in import to $11.87 billion--a 21 percent rise from that of the previous year--was behind this trade deficit. In FY03-04, the import growth was recorded at 13 percent.
The price hike of fuel as well as many other items in the international market is mainly responsible for such a drastic rise in import expenditure.
Banking sources said the government has gone for an expansionary policy since FY03-04. The banks reduced their interest rates due to the government and BB pressure, while at the same time the credit grew in the private sector.
In FY03-04, disbursement of the industrial term loan rose by 68 percent while in the last fiscal it rose by 36 percent. At the same time, in FY03-04, the agriculture credit also increased by 23 percent, while the rise was recorded 21 percent last fiscal.
These are actually affecting the import growth.
Since March 2004, the letter of credit (LC) opening has surpassed $1 billion every month. But in comparison to the rise in import, export growth has significantly fallen. In FY03-04 the rise in export was 16 percent while it came down to 13.83 percent in the last fiscal.
However, a BB source said a large portion of the increased FDI was not in cash from outside but was actually reinvested locally. That is why, the current account balance is now in deficit after showing surplus in the previous two consecutive years, he said. |
