The Bangladesh Bank has further slashed the Export Development Fund (EDF) to below $3 billion, in a bid to reduce further pressure on foreign exchange reserves as per the International Monetary Fund prescription.
A senior Bangladesh Bank official, on condition of anonymity, said the EDF was reduced to the current figure on January 9.
On the issue, Policy Research Institute Executive Director Ahsan H Mansur said, “The banking regulator slashed the EDF as the forex reserves situation is still tight. The Bangladesh Bank is trying to keep the reserves as high as possible.
“The regulator may have to halt the EDF facility. So, the exporters should look towards alternative means for funds.”
Another central bank official, preferring to be anonymous, said, “The banking regulator is now cautious about lending foreign currency under the EDF facility, as some borrowers are not repaying the loans on time.”
“Though the EDF size is decreasing, the central bank has not suspended releasing loans under this facility.”
According to Bangladesh Bank sources, Janata Bank’s overdue in EDF stood at $113.54 million, First Security Islami Bank’s overdue was $23.97 million, and overdue of premier bank’s was $34.38 million.
Industry insiders say if the loans and interests are not repaid within the deadline, the Bangladesh Bank can debit the overdue amount from the foreign currency clearing accounts that the Authorized Dealer (AD) banks maintain with it.
Foreign exchange reserves have dropped below $21 billion again after the central bank paid around $1.27 billion of the Asian Clearing Union (ACU) bills for the months of November and December on Monday this week.
According to the central bank's latest data, the foreign reserves stood at $20.18 billion on January 10 this year.
EDF decreasing gradually
The EDF has been decreasing gradually since December 2022. The figure stood at $7 billion at the beginning of December 2022, and then dropped to $6 billion in January 2023. This fund then further dropped to $5 billion in April 2023.
Bangladesh secured $3 billion in loans from the IMF after following a number of recommendations, one of which suggested that the Bangladesh Bank should exclude the existing EDF loans from its reserve calculations.
This prompted the regulator to reduce the EDF size, and introduce in January 2023 a new fund of Tk 10,000 crore in local currency to help exporters by providing loans at a 4 per cent interest.
The central bank senior official further said, “The regulator will calculate the foreign exchange reserves as per the method prescribed by the IMF.
“So, the central bank will have to calculate reserves by excluding the EDF, and other loans and funds. It will also have to publish this data on the central bank website from July.”
In March last year, the central bank decided to impose a 4 per cent interest as penalty on the banks’ unpaid amount of loans disbursed from the EDF.
The EDF was created in 1989 to facilitate access to financing in foreign exchange for input procurement by exporters. Banks can borrow USD funds from the EDF against their foreign currency loans given to exporters.
The central bank has now taken a careful approach to release loans from EDF as the forex reserve is declining steadily due to high import payments, amid the global economic crisis triggered by the Russia-Ukraine war.
