Economy at crossroads

Deteriorating trade balance

In FY2020/21, current account deficit is projected to worsen to 9% of Gross Domestic Product (GDP) from 5.9% in FY2019/20 reflecting, a worsening trade deficit, partly driven by government spending that boosted imports while tourism receipts remained weak; higher interest payments on public debt, partly driven by rising yields on government bonds; and remittances that have recovered somewhat but remain 33% below the pre-pandemic level, according to the latest BoU monetary policy report published on June 16.

Although the current account deficit is expected to narrow because of improving global conditions, it is expected to remain large at 7.9% of GDP in FY2021/22, the report adds.

The gradual improvement in tourism and remittance receipts is expected to continue supporting the narrowing of the current account deficit;  nonetheless, imports of investment goods associated with the oil project, while mostly financed by Foreign Direct Investment is expected to weigh on the current account from FY22/23 onwards.

In the quarter to Apr-21, Current Account deficit narrowed compared to widening in same period of 2020, supported mainly by improvements in services deficit.

Also, all other accounts improved quarter on quarter, services deficit lower by 38% to US$394.8million supported by decrease in payments to non-residents, increase in travel services receipts (moderate recovery in tourism sector).

Trade deficit was lower by US$126.3million to US$638.6million driven mainly by higher export earnings coupled with lower import bill due to lower gold and government imports.

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