The Bangladesh Bank has further slashed the Export Development Fund (EDF) to below $4 billion, a bid to reduce further pressure on foreign exchange reserves as per the International Monetary Fund prescription.
The EDF has been decreasing gradually since December last year. The figure stood at $7 billion at the beginning of December 2022, and then dropped to $6 billion in January this year. This fund then further dropped to $5 billion in April.
A senior Bangladesh Bank official, on condition of anonymity, said the EDF was reduced to the current figure on August 29. The Business Post reached out to central bank spokesperson and Executive Director Mezbaul Haque, but he declined to comment on the matter.
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.”
Bangladesh secured $4 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 on January 2 this year 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 this 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 cautious measures 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.
