Mounting trade deficit and trade diplomacy

According to the Export Promotion Bureau (EPB), trade deficit increased due to sharp rise in the import volume of petroleum products, consumer goods, and capital machinery. As the dollar maintained a steady rise in rate against the taka and the taka depreciated by 8 percent during the last fiscal, the cost of all import items went up to a great extent. The country's export policy, which is led more by political consideration than by commercial and economic ones, has also contributed in widening the trade deficit. According to the official statistics, the country's trade deficit has tripled during the last 10 years.

Product-wise import figures during the FY 2004-05, released by Bangladesh

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Bank, reveals that petroleum products worth Tk 9,665.81 crore were imported, which was higher by Tk 3,699.42 crore than FY 2003-04. Consumer goods worth Tk 7,839.66 crore were imported as against Tk 5,416.62 crore in FY 2003-04. Foodstuff worth Tk 3,530.

11 crore was imported as against Tk 2,363.80 crore in FY 2003-04. Industrial raw materials worth Tk 29,661.72 crore were imported, while it was Tk 28,546.12 crore in FY 2003-04. The import of capital machinery increased at Tk 6,673.55 crore as against Tk 4,688.10 crore in the last fiscal. The import of edible oil, which was Tk 3,243.44 crore in FY 2003-04, alone decreased by Tk 229.79 crore. Import of petroleum products recorded 62 percent increase while the consumer goods import recorded 44.73 percent rise in FY 2004-05.

According to the statistics available with the Export Promotion Bureau (EPB), the country's export volume rose to 8.655 billion US dollars while the import value increased to 12.663 billion, creating the ever highest trade deficit of 4.008 billion US dollars in FY 2004-05. Exports grew only by 14 percent while imports increased by 25 percent during the period. The growing trade deficit has already crated pressure on the exchange rate and the taka has been devaluated by 8 percent against the volatile dollar. The country's foreign currency reserve also reduced to 2.85 billion US dollars which is equivalent to import bill for three months. Prof. Muzaffar Ahmed, an eminent economist of the country, has ascribed the situation to the speedy trade liberalisation policy adopted by the government.

The country's trade deficit with 20 major countries in FY 2002-03 was over Tk 30,449 crore. Commerce Minister Air Vice Marshal (retd) Altaf Hossain Chowdhury disclosed it in Parliament in June last year. Of the total, deficit with India only was Tk 7,358.53 crore followed by Singapore at Tk 5,006.59 crore, and China at Tk 4,408.28 crore. Over the last few years, in fact, Bangladesh has been recording a 20 to 25 percent increase in trade deficit on the average.

According to available information, Bangladesh imported goods worth US dollar 101.06 crore from India during the FY 2001-02 as against its export to India goods for US dollar 5.02 crore, and thus suffered a bilateral deficit of US dollars 96.03 crore. Trade deficit now stands at US dollars 166.00 crore favouring India which is a 72.86 percent increase in three years. Trade deficit with China was only US dollars 9.24 crore in the FY 1990-91 when Bangladesh exported goods worth US dollars 3.32 crore to China. The bilateral trade deficit now stands at US dollars 115.47 crore favouring China, which is an increase by 1,150 percent in the last 12 years.

Bangladesh export policy has suffered from misplaced priorities for long. It is guided by an unrealistic emphasis on sectors where things are growing more competitive and benefits are diminishing. There are also traditional bottlenecks that affect rather negatively on the competitiveness of our exporters and these are in the areas of finance, cost of energy and utilities, infrastructure, and government incentives. Exporters have been bearing up with the situation and certainly are in need of helpful policies to boost up exports.

A World Bank study also found an anti-export bias in Bangladesh policy. The study observed that transaction costs, rent seeking, and corruption are throwing challenge to the exportable items of Bangladesh in the competitive global market. World Bank Country Director Christine Wallich emphasised export attractive trade policy for Bangladesh to achieve 6-7 percent growth, as the domestic market of the country is too small for attaining such growth. She believes that merely access to market is not the whole story for developing countries like Bangladesh.

On the other hand, the final version of the poverty reduction strategy paper (PRSP) has revised the export growth projection upward for the next three fiscal years, as recent export performance has made the policy-markers optimistic. The final version of the PRSP also acknowledged the fact that the export sector performed much better than anticipated and a 14 percent growth was registered because of higher growth of knitwear exports to the European Union. The PRSP projection of export earning in the ongoing fiscal year is 9.9 billion US dollars while the real export earning was 8.65 billion US dollars in the FY 2004-05. The export growth rate will decline to 13 percent in FY 2006-07 and 12 percent in FY 2007-08, according to the PRSP projections.

The hard reality is that the country's export earnings, on a continued lackluster performance, fell short by Tk 3,362 crore in FY 2001-02. No single item attained the export target set for the period. The country's total export earnings in the FY 2002-03 was 6.54 billion US dollars which was nearly 10 percent higher than the previous year. Though the export earnings from knitwear and frozen food increased during the period, earnings from other major export items like leather, textile fabrics, raw jute, and footwear, declined significantly. Export target for FY 2003-04 was set at 7.49 billion US dollars, but the real export earnings during the period was 3 percent less than the target fixed. To reduce trade deficit, improving quality of export items and controlling import of unnecessary and luxury goods is a must.

The mounting trade deficit, which is a consequence of unplanned trade liberalisation policy adopted in the early nineties, has become a concern for the country. Now the country needs to do the needful to increase its export volume to cope with the growing trade deficit. Pursuing trade diplomacy with right earnest, the country can go a long way to recovering its export market in the gloomy scenario of global trade.

But the performance of Bangladesh's missions abroad remains disappointing, as the commercial wings of the embassies do not function properly because the officials who are posted there for promoting trade and investment are mostly appointed on political consideration, ignoring their incompetence and inefficiency. These officials of the commercial wings hardly make any effort in promoting trade and investment except distribution of some stereotype booklets. Most of the commercial counselors in Bangladesh missions abroad have been found reluctant in lobbying with the influential business people abroad to buy goods from Bangladesh. For strengthening trade diplomacy in the pursuit of a more aggressive and result generative trade outcome, the country would require among other things, a world wide network of honorary trade consuls.

At present Bangladesh runs 34 consular, labour, trade, economic, and press wings in its 58 missions abroad. The main task of these wings is to provide importers and investors with the details of the country's trade incentives and other facilities and also to project its image. According to the Export Promotion Bureau, 24 out 46 missions abroad missed their export target in the first nine months of FY 2004-05. The commerce ministry has proposed to set up consular offices or appoint honorary consuls in 46 territories across the world to safeguard the country's trade interests in a complex global trade scenario.

But setting up of consuls and appointment of trade officials will help the country to promote trade and investment abroad, only when these consular offices are manned with competent and dynamic people. In this era of trade diplomacy, the exporters of Bangladesh need to develop trade links with their foreign counterparts.

ANM Nurul Haque is an Assistant General Manager, Sonali Bank Head Office.