ABB, BAFEDA seek central bank's help to quell dollar crisis

 
Association of Bankers Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) have sought help from Bangladesh Bank (BB) to mitigate the ongoing dollar crisis. Leaders of ABB and BAFEDA had a meeting to discuss this issue with BB Governor Abdur Rouf Talukder on Thursday. It was informed in the meeting that a number of decisions have been so far taken in such meetings but the directives from the authorities concerned are not being followed by many banks and exchange houses. Managing Directors and Chief Executive Officers (CEO) of twenty one banks attended the meeting.

Bangladesh Bank sold $3.75 billion to banks in the period between July 1 and October 8 as the country's banks were struggling with a severe dollar crisis which made the settling of letter of credit payments difficult for the banks.

This substantial dollar intervention exerted a notable pressure on the country's foreign exchange reserve, which, in line with the International Monetary Fund (IMF) guidelines, plummeted to $21.07 billion on October 8.

Presently, the net reserve hovers at $19 billion. The reserve was $41.8 billion on June 30, 2022 and $46.2 billion in September 2021.
Over the past two financial years, a total of $21.12 billion was drawn from the reserve, with $13.5 billion in FY23 and $7.62 billion in FY22, meaning approximately $25 billion being utilized in the past 27 months.

Experts raised concerns about the sustained dollar sales, cautioning that while it might temporarily address the current crisis, it could exacerbate the situation in the future. In FY23, the Bangladesh Bank withdrew approximately Tk 1.45 lakh crore and Tk 82,300 crore in FY22 through dollar sales. Therefore, the banking sector also witnessed persistent liquidity shortage.

Settling high import payments was the main reason for the depletion of the foreign exchange reserve, BB officials said.
The situation was further compounded by sluggish growth in remittances and export earnings.

The remittance inflow dropped from $1.59 billion in August to $1.34 billion in September, marking the lowest since April 2020 when the Covid pandemic had prompted a global and domestic shutdown.

The remittance inflow edged up to $21.43 billion in FY23 compared with that of $21.03 billion in FY22.
Bangladesh's export earnings in July-August of FY24 rose by 9 per cent to $8.85 billion compared with those of $8.11 billion in the same period of FY23.

Due to the severe dollar crisis, the banks encountered difficulties in settling import payments and initiating LCs.
Since April 2022, the government and the Bangladesh Bank have implemented a series of initiatives to curb a significant growth of imports.
In the first two months of FY24, the country's import payments declined by 22.3 per cent to $9.86 billion compared with those of $12.69 billion in the same period in the previous year.

The current dollar shortage has already forced the government to secure $4.7 billion in loans from the International Monetary Fund (IMF) over a period of three years.