Export dev fund cut by $400m in May to increase net reserves

The Bangladesh Bank reduced the outlay of the Export Development Fund, widely known as EDF, by $400 million in May this year just to increase net foreign exchange reserves following the International Monetary Fund (IMF) conditions.

The IMF, while granting $4.7 billion loans at the end of January this year, suggested Bangladesh increase its net reserves to over $24 billion by June, which is currently a bit lower than the prescribed amount, according to officials.

The central bank, however, does not publish data on net reserves. Rather, it calculates gross foreign exchange reserves, which were $29.87 billion as of Thursday last. The gross reserves include the export development fund – meaning that the cut has no impact on disclosed reserves.

With the latest adjustment, the EDF size stood at $4.6 billion, which was $7 billion until the first cut in December last.  The fund was reduced by $2.4 billion over the span of 6 months.

"According to the IMF conditions, we have to keep a net foreign currency reserve of $24 billion by June. To follow these, we have brought down imports but exports could not be boosted expectedly. Now, we have limited alternatives to increasing the reserves. So, the adjustment was a must," explained a senior Bangladesh Bank official, who wished to remain unnamed.

"Yet, our net reserves may be under the $24 billion mark at the end of June," he told The Business Standard and hinted that such adjustments will continue in the coming days.

Another official said that the central bank sold $12.73 billion from the reserves in the current fiscal year to pay for government imports amid the dollar crisis. As such, the reserves were supposed to decrease further but the initial IMF support of $400 million halted it, he added.

Meanwhile, exporters said the cut in the EDF size will increase their struggle.

"Our work orders have decreased a lot. On top of that, our cost of production has increased for gas and electricity price hikes. In this situation, if the EDF outlay is reduced, our problems will worsen further," Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association, told TBS.

The export development fund loans are for supporting exporters to import their raw materials. The loans are repaid when export proceeds come home.

According to the Bangladesh Bank, the demand for loans from the EDF has been on the decline in line with the reduced imports amid the dollar crisis. Imports of goods, which used to be worth $7 billion per month on average, fell to a 32-month low of $4.69 billion last April.

Besides, the central bank's tougher initiatives in bringing export proceeds also contributed to the fall in EDF loans, bankers said.

"We now get fewer applications for loans from EDP. The demand for EDF loans is decreasing due to several reasons including increasing interest rates. Besides, a taka fund named EFPF has been constituted for exporters, where they can take loans at 4% interest," Md Zakir Hossain Chowdhury, acting spokesperson of the Bangladesh Bank, told TBS.

He noted that exporters borrowed Tk3,885 crore from the EFPF fund until Sunday last.