Country Report Bangladesh January 1996 Main report

Outlook: The trade gap is widening--

The trade deficit, which widened to more than $2.5bn in 1994/95, will deteriorate further in 1995/96, to reach $3.6bn. The main reason will continue to be the very rapid rate of import growth. In 1994/95 imports rose by 39% to $5.8bn, with food imports a very significant item at nearly $500m because of the poor harvests, and in 1995/96, despite a slowing in purchases in the second half of the year as the food situation in the country improves, total imports are forecast to reach $7.3bn, a rise of 25%. Moreover, much of the import growth is due to "success" in the economy, with big increases recorded in capital goods and production inputs (fuels, chemicals and textiles, the latter due to external demand for Bangladesh's garments manufactures). But the pace of export growth is likely to ease in 1995/96 and 1996/97, as economic growth in the major market, the USA, slackens, reaching 11-12% per year in dollar terms compared with the 33% rate recorded in 1994/95. This will take some of the steam out of import demand, as will the continued depreciation of the taka and official measures to discourage "unnecessary" imports. So import growth is likely to slacken to around 10% in 1996/97, and the trade deficit will consequently increase only slightly, to $3.8bn.

--keeping the current account in deficit--

Mainly as a result of the widening trade gap, and despite continued healthy growth in remittances from Bangladeshis working abroad, the current account, which had been in surplus from 1991/92 to 1993/94, is estimated to have gone into a $200m deficit in 1994/95. This year the deficit is forecast to reach $800m, the worst outturn since 1989/90. In 1996/97 the slower deterioration in the trade deficit will feed through to a slight improvement on the current-account balance, with a forecast deficit of $700m. Grant aid is assumed to remain constant at around $800m during this fiscal year and next, with remittances growing by around 15% in both years, to reach $1.7bn in 1996/97.

--with a further weakening in the taka

Reflecting the deterioration in the current account and the unlikelihood of any improvement in capital inflows until the political situation improves, the currency will remain under pressure. After falling in value very slightly in the last months of 1995, the taka is expected to continue its gradual downward path against the US dollar, particularly after the devaluation of both the Indian and Pakistani currencies against the dollar in late 1995.

Forecast summary(a) (% real change on previous year unless otherwise indicated) 1993/94(b) 1994/95© 1995/96© 1996/97(d) GDP 4.6 4.8 4.6 5.7 of which: agriculture 1.8 0.2 1.5 2.0 industry 9.1 11.0 10.0 11.5 Merchandise exports 2,450 3,269(b) 3,660 4,200 ($ m) Merchandise imports 4,190 5,838(b) 7,300 8,000 ($ m) Current-account balance 280 50 -400 -300 ($ m) Average exchange rate 40.01 40.20(b) 41.50 42.50 (Tk:$) (a) Fiscal years July-June. (b) Actual. © EIU estimates. (d) EIU forecasts.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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