Forex reserves slump to $20 billion

 
Bangladesh Bank (BB) had projected that foreign exchange reserves would reach 70 billion dollars in 2023 but in reality it has gone down to 20 billion dollars.

According to the Bangladesh Bank Order 1972, Bangladesh Bank exercises the authority on the type and management of foreign currency. Reserve functions as the protection to the settlement of import payment. Usually, a country should have the reserve enough to pay the import liability for three months as per the international standard.

Speaking to journalists, private research organization South Asian Network on Economic Modeling (SANEM) Selim Rayhan said it is alarming that how the reserve is declining. Earnings from export and remittance will increase, but there is a fear over what the state of export will be in Bangladesh because of economic slowdown in Europe.

The government has taken many steps to control import in a bid to tackle the situation and may reduce growth. At present, macroeconomic stability must be emphasized more than GDP growth and the government must take further measures considering the overall situations, he added.

Dollar crisis is contributing to decline in reserve. Prices of fuel oil and food products increase following the Russia-Ukraine War. As a result, additional $2 billion from export earnings and remittance are spent for import in April, thus, beginning dollar crisis. Central bank controlled the dollar price, triggering the crisis. Besides, the government also started selling dollar from reserves to meet import liability of fuel oil and foods.

Amid this situation, Bangladesh Bank starts raising dollar price depreciating value of taka. Opening of LC (letter of credit) was halted to discourage import of several products while 100 per cent margin was given in some products to encourage import. The National Board of Revenue (NBR) also imposes additional duty on import of several products. Still dollar crisis is yet to go away. Speaking to reporters, former Managing Director of Bank Asia Arfan Ali said, "Reserves that had increased during coronavirus outbreak are being spent now. It is adequate to have import cost for three months in reserve. However, it is better not to build any infrastructure and make any investment that spends dollars for now."

Bangladesh Bank has started selling dollar since April to tackle the currency crisis. However, the central bank did not sell dollars as much as there was the deficit. So, banks start receiving remittance at higher price, resulting in dollar price hike. The exchange rate of the US dollar was at Tk 85 in April. Now, banks are providing maximum Tk 107.50 a dollar for remittance.

Banks have been given the responsibility to fix the exchange rate since 12 September in a bid to check the soaring dollar price.

Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers' Association (BAFEDA) set the exchange rate at Tk 99 and Tk 107.50 a dollar for exporters and remitters respectively. Banks have set the rate by Tk 1 more than the average of these two exchange rates for import cost.

As a result, rise in dollar price stops for now, with import decreasing as well as export earnings and remittance increasing.

Speaking to journalists, BAFEDA Chairman and Sonali Bank Managing Director Afzal Karim said dollar supply has increased and demand also decreased. As a result, price is dropping. In between, price was raised artificially; fear that persisted over dollar price has gone away and crisis will also be eased slowly, he added.

There is a growing pressure on the foreign currency reserve of Bangladesh Bank because of selling dollar from reserve, which dropped to $36.40 billon now from $46 billion in February since about $10 billion have been sold from the reserve over the past seven months.

Bangladesh Bank still sells dollars from reserve at an exchange rate of Tk 96 though the inter-bank exchange rate, as mentioned on the central bank's website, is Tk 101-103 a dollar. Likewise, reserve surpasses $36 billion, but the actual useable amount is $29 billion. So, there is confusion over both amount of reserves and price of dollars.

On the other hand, India can meet 15 months of its import liability with its reserve, Switzerland 39 months, Japan 22 months, Russia 20 months and China can meet 16 months of its import liability.

Besides the reserves, Bangladesh Bank has also invested dollars in various bonds, currencies and gold at foreign countries. The central bank has also created a fund with money from the reserve in the country and that include an export development fund of $7 billion, a long term fund (LTF) and a green transformation fund (GTF).

Funds from the reserves were also provided to Biman Bangladesh Airlines and Sonali Bank to purchase airplanes as well as to Rabnabad channel dredging project of Payra port. Some $8 billion altogether have been used on these purposes.

Other than this, $2 million has been provided to Sri Lanka from the reserve and the International Monetary Fund (IMF) has questioned the counting method of foreign reserves and asked to count the amount of actual reserves.

UNDP Country Economist Dr. Nazneen Ahmed said, "It is right that the present amount of foreign exchange reserves is enough to pay import bills for a few months but strong initiatives should be exercised to increase foreign currencies reserves. Economic diplomacy should be efficiently carried out to boost remittances from expatriate Bangladeshis. At the same time Export Promotion Bureau should take up required measures to enhance export earnings."

Former adviser to caretaker government Dr. Hossain Zillur Rahman said, "A sound amount of foreign currencies reserves should be available in the hands of the government to ensure the payment of import bills for several months. Simultaneously, effective steps need to be taken to keep soaring dollar price under control."