Forex reserves fall below $36b

Bangladesh's foreign exchange reserves have dropped below $36 billion because of higher import payments against falling export earnings and remittance inflows.

The reserves stood at $35.98 billion after the Bangladesh Bank sold $60 million to banks for settling government import payments on Thursday, according to data from the central bank.

In the first week of July 2020, the country's reserves touched a milestone of $36 billion. Since then, it had kept on rising and reached $48 billion in August last year.

But this year the reserves have begun to deplete mainly because of swelling import expenses amid rising commodity and fuel prices in the global market.

There is still nothing to worry as a central bank official, seeking anonymity, told The Business Standard, "Our reserve is good enough to meet import bills for the next five months."

According to the international standard, a country's capacity to make three months of import payments is considered enough.

To tackle the greenback crisis on the market, since July this fiscal year, the central banks injected $4.58 billion into the market – more than $1 billion each month. In FY21, the total dollar sales to banks amounted to $7.62 billion.

Alongside analysing different central bank measures to take the pressure off the forex reserves, a research team led by Bangladesh Bank Governor Abdur Rauf Talukder is now at work to find ways to shore up the falling reserves.

In July, letter of credit settlements fell to $7.42 billion from $7.75 billion a month ago, thanks to the central bank's various measures, such as 100% LC margin on imports of luxury products and requirement to take permission for opening an LC worth $3 million or more. Similarly, LC settlements also dropped to $5.93 billion in August.

Yet, imports rose 17% year-on-year in July-August of FY23 because of soaring commodity prices in the international market, while export earnings increased by 13.38%.

In the first two months of the current fiscal year, the trade deficit stood at $4.55 billion, an increase of 6.30% or $27 million in contrast to $4.28 billion in the same period of the last fiscal year, according to the latest monthly balance of payments of the central bank.

With imports outpacing exports, demand for dollars has increased significantly in recent times.

The country's inward remittance, one of the two prime tools for meeting the foreign currency demand, is falling too. In September, remittance inflows stood at $1.54 billion, down from an average of $2 billion in the previous two months.

But the remittances rose nearly 5% year-on-year in the last month. As of 13 October, expatriates sent home $770 million.

Treasury heads of several banks said it is true that remittances have decreased slightly owing to fixing the dollar price for remittances. Banks now offer a maximum of Tk108 for a US dollar for remittances.

Banks are less competitive in collecting remittances due to this fixing of the dollar rate. As a result, the dollar rate in import LC settlements is falling.

Dr Selim Raihan, executive director of South Asian Network on Economic Modeling (Sanem), told TBS, "The current status of the forex reserves is not alarming, but its declining trend is a matter of concern for us."

Exports and remittances fell in September, which led to a pressure on the reserves, he said, adding, "The opening of import LCs is decreasing, but we have to wait for a few months to have its positive impact."