Reserves to slip to $19.29b after ACU payment next week

The country's foreign exchange reserves will stand at $19.29 billion after clearing the import bills of $1.21 billion for the September-October period with the Asian Clearing Union (ACU) next Monday, according to Bangladesh Bank sources.

Central bank data shows that the country's forex reserves stood at $20.50 billion on 31 October, as per the Balance of payments and international investment position manual (BPM6) calculation.

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The country cleared $1.1 billion in ACU payments for the May-June period in the first week of July and paid $1.2 billion for the July-August period in early September. 

The ACU payment gateway covers monetary transactions by its nine member countries — Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka — for regional imports. The bills are cleared every two months.

Central bank officials said that the country's dollar outflow is higher than its inflow, which is leading to a continuous erosion of foreign exchange reserves. The central bank has also been selling large amounts of dollars to banks to help them meet import bills for essential goods and energy.

They also said all indicators for increasing foreign exchange reserves are trending downward. Remittances are falling, export revenue is not meeting targets, and there is no new foreign investment. As a result, reserves are not increasing. The government has increased incentives for remittances to 5%, which is expected to boost remittance inflows in the coming months.

Remittance inflows have declined consistently in the first three months of the current financial year 2023-24, reaching a 41-month low of $1.34 billion in September. Expatriates sent $1.97 billion last July and $1.60 billion in August. However, remittances from 1 to 27 October stood at $1.64 billion, suggesting a possible rebound.

Export earnings have not been much better. While July, August, and September each saw small increases, four of the top five export products (other than ready-made garments) had negative growth.

The country's overall Letter of Credit (LC) opening declined significantly in September 2023 due to the dollar crisis, falling 28% year-on-year to $4.69 billion in September.

Dr Zahid Hussain, the former chief economist of the World Bank's Dhaka office, told TBS that it is very important to bring the exchange rate to a normal level to solve the financial crisis. 

The economist mentioned that dictating the exchange rate for a long period of time has caused volatility in the dollar market. He recommended that the central bank allow the rate to be fully market-determined.