Asjadul Kibra |
January 15, 2022 9:34:42 p.m.
Bangladesh’s economy is rebounding thanks to the recovery of its foreign trade. The country’s two-way merchandise trade with the rest of the world topped US$110 billion in the past calendar year, reflecting the resurgence. In 2020, the value of trade in goods was recorded at $86.40 billion. Thus, trade in goods increased by 34.50% in 2021 compared to the previous year. The country’s merchandise trade shrunk by around 12.20% in 2020, from $98.50 billion in 2019, due to the pandemic.
It is known to all that the country is strongly linked to international trade and therefore its economic dynamism largely depends on the movement of world trade. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) estimated that merchandise exports and imports in the Asia-Pacific region grew by 23.1% and 22.8% respectively in 2021. ESCAP also observed that international merchandise trade in the Asia-Pacific region rebounded strongly in 2021, surpassing pre-pandemic levels. The United Nations also estimated that “removing inflationary effects, Asia and the Pacific outperformed the rest of the world in 2021 with real export and import growth of 10% and 9.1%, compared to 7.7% and 6.7% in the world”.
Bangladesh’s merchandise exports jumped 31.60% last year compared to a 14.60% decline in 2020 when the pandemic shattered exports. As global demand had increased, export earnings from Bangladeshi products were recorded at $44.23 billion in 2021, compared to just $33.61 billion in 2020. The depreciation of the local currency, the Bangladeshi taka , to be precise, during the last quarter of the year, also contributed to the increase in export earnings.
Payments for importing goods into the country, however, recorded higher growth compared to export growth. Payments for merchandise imports (on a C&F basis) reached $72 billion in the first 11 months (Jan-Nov as last December’s figure is still not available) of 2021, or 36.40% more than annual import payments in 2020. Thus, for the first time, the country’s import value has crossed the $70 billion level and could finally touch $80 billion.
The rise in the value of trade, the sum of exports and imports, is clearly in line with the global trend. Analysis by the World Trade Organization (WTO) showed that the value of world merchandise trade continued to rise in the third quarter of last year, as both export and import prices rose sharply. He added that world trade, measured by the average of exports and imports, rose 24% year-on-year in the third quarter in nominal US dollar terms. Although there was a 46% jump in the second quarter, the first quarter of the year saw a 15% increase. “The value of trade was boosted by commodities, including fuels, whose prices more than doubled between the third quarter of 2020 and the third quarter of 2021,” the WTO report said.
For Bangladesh, the big jump in trade has several implications as well as some concerns. The strong resurgence was needed to put the economy back on a higher growth trajectory. Export growth generates demand for Bangladeshi products and helps earn foreign currency. The growth in imports indicates a surge in domestic economic activities and an increase in domestic consumption. The overall growth in trade shows that there are both reuses and new jobs.
Concerns exist, however, on the side of the balance of payments (BoP). As import growth significantly outpaces export growth, the country’s trade deficit with the rest of the world has also widened. A rise in world oil prices forced Bangladesh to pay more for imported oil. This is why the government has increased the price of oil on the domestic market. There is also a sharp increase in imports of food grains, especially during the July-November period when they jumped by 92%. Imports of consumer goods and capital goods, including capital goods, also increased significantly during the review period. All of these factors contributed to a sharp increase in import payments as well as an increase in the trade deficit.
A preliminary estimate showed the trade deficit in 2021 to be around $27 billion, up from $16 billion in 2020. The large trade deficit has also inflated the current account deficit, indicating that the country needs to finance the spread by more borrowing and investing abroad. The current account balance in the January-November period last year recorded a large deficit of $14 billion, according to the central bank’s provisional estimate. Compared to the deficit, the balance of the financial account and the capital account recorded a surplus of $15.68 billion. As net foreign direct investment (FDI) fell slightly, it is the increase in external debt that finances the deficit, reflecting the surplus in the financial account, creating a future burden of repayments.
Against development, the speculation of capital flight through mispricing of exchanges is also there. Over-invoicing of imports and under-invoicing of exports are two ancient techniques of illegal transfer of capital from one economy to another destination. The strong increase in imports over the past year is not entirely attributable to the strong rebound in domestic economic activity and consumption. Part of the surge in imports is linked to capital flight, although this is difficult to justify. Some indirect indicators can be useful in this regard.
For example, during the July-November period of the past year, only 693 people disclosed their hidden income by investing in real estate, stock markets and financial products. For this, the government received only 260 million Tk. Over the same period of 2020, some 7,055 people declared their income by taking advantage of the tax amnesty. One of the reasons for the sharp drop in the number of people declaring hidden income is the penalty with a flat tax rate of 10% for the declaration. Another reason may be the use of commercial mis-invoicing to transfer part of illegally earned income. While international business activities resumed fully in 2021 with some disruptions, it is not unlikely that some people took advantage of this to transfer assets to tax havens or offshore jurisdictions. The resurgence of trade over the past year therefore needs to be viewed with a critical eye.