Country Report Bangladesh April 2011

Outlook for 2011-15: External sector

The trade deficit is expected to widen in 2011-15, partly because import prices will rise at a slightly faster rate than prices for exports. The trade deficit is forecast to average around US$9.1bn a year in the forecast period, to stand at US$11.3bn in 2015, compared with an estimated US$5.4bn in 2010. The import bill will also be pushed up by strong domestic demand, which is expected to suck in greater quantities of consumer and capital goods and raw materials. Export expansion is forecast to be slower than import growth. This assumption is based on our expectation that export-oriented firms will struggle to raise prices for their goods, in what will remain challenging external conditions as the country's major export markets remain on a low-growth trajectory. Concerned that the upward trend in imports will persist over the medium term and that inflows of workers' remittances may not swell as quickly as hoped, the government has decided to seek funds from the IMF to help to bolster the country's balance of payments, which posted a shortfall of US$686m in the first six months of the current fiscal year, compared with a surplus of US$2bn in the year-earlier period. At present Bangladesh has sufficient reserves to provide around five months of import cover; the government's decision to seek IMF funding hints at a determination to maintain this ratio, in part to support business and investor confidence.

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