Reserves stand at $20.38b after $1.27b ACU payment

The country's foreign exchange reserves stood at $20.38 billion on Tuesday after clearing of the import bills of $1.27 billion for the November-December period with the Asian Clearing Union (ACU), according to Bangladesh Bank officials.

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.

After the previous ACU payment of $1.21 billion for the September-October period, the reserves stood at $19.30 billion in the first week of November.

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

As per instruction of the International Monetary Fund, the Bangladesh Bank is now following the reserve calculation as per international standard called BPM-6 manual.

Bangladesh Bank Spokesperson Mezbaul Haque told The Business Standard, "Due to the increase in our imports from Asian countries, the amount of ACU payment is also increasing slightly."

He also said the government has to sell huge dollars to the banks to meet the cost of daily necessities and energy imports. "Our reserves and export earnings still have some growth," he said.

The Bangladesh Bank sold $6.7 billion to banks in the first six months of the current fiscal year 2023-24. However, it also bought $1.04 billion from banks during the period.

Remittance inflow, export earnings remain sluggish

The treasury head of a private bank told TBS, "The indicators for increasing reserves are currently all pointing downwards. There is a need to pay more in comparison to receiving higher repayments from the private sector foreign loans. On the other hand, there is no significant increase in the country's remittances and export income."

Central bank data shows in the first six months of FY24, the country received $10.79 billion in remittances, showing only a 2.85% growth compared to the same period in the previous fiscal year.

The treasury head said, "Due to the strict conditions on import payments to reduce the decline in reserves, the country's imports have been significantly reduced for almost a year. Most of our export income relies on back-to-back LCs (letters of credit). The dollar crisis in many banks is preventing sufficient LC openings, indicating that there may not be a substantial increase in exports in the coming days."

Bangladeshi businesses repaid $5.21 billion more in principal and interest for short-term foreign debt than loan receipt in the first 11 months of 2023, putting pressure on the dwindling reserves.

The businesses received short-term private sector foreign debt totalling $23.70 billion in the January-November period while their repayment of loan and interest amounted to $28.92 billion.

A senior central bank official told TBS, "In the first 11 months of 2023, we have experienced a significant decline in our forex reserves. One of the reasons for this is the reduction in short-term foreign loans in the private sector. Imports were funded through these short-term loans. The current decrease in imports has also led to a somewhat reduced demand for these loans."

According to the central bank data, the country's LC openings in the first five months of FY24 stood at $27.53 billion, a decrease of about 14% compared to the same period of the previous fiscal year.

Besides, during the period of the current financial year, the import of consumer goods, capital machinery and intermediate goods decreased by 27.47%, 16.98% and 16.75% respectively.