The country’s foreign exchange reserves are in rapid decline, with growing import payments being one of the main drivers behind this declining trend.
Bangladesh Bank sold $3.75 billion from reserves in the first quarter (July-September) of the 2023-24 fiscal, mostly for the purpose of meeting the country’s import liabilities.
At the end of September, the country’s forex reserves stood at $21.05 billion. According to Bangladesh Bank’s own data, at the end of the financial year 2020-21, the reserves stood at $46.39 billion. It means the amount has more than halved in the space of 27 months (July 2021 to September 2023).
Central bank data shows it sold close to $25 billion from reserves in these 27 months. Apart from the $3.75 billion sold in the first quarter of the current fiscal, $13.58 billion was sold in the last fiscal (2022-23), and $7.62 billion in 2021-22.
The central bank sold these dollars mainly for the import of fuel, fertiliser, and food. The government has been providing assistance in the form of selling dollars from its forex reserves for importing some items. This has exacerbated the dollar crisis in the country.
Bangladesh reportedly missed its June 30 target for net foreign exchange reserves set with the IMF, as part of the conditions for the country’s $4.7 billion loan program with the Washington-based lender.
Economists also point out that the dues to the Asian Clearing Union (ACU) for the months of September and October have to be paid in early November. After that the reserves could fall further to around $18 billion, ex-lead economist of the World Bank office in Dhaka, Zahid Hussain, warned recently.
Economist and former IMF official Ahsan H Mansur told UNB that the dollar crisis has been going on in the country for one-and-a-half years. Despite various measures taken by the government to try and end it, the crisis persists.
One of the measures was to impose restrictions on the import of various items considered non-essential or luxury items, through increased duties and tariffs. However, it has clearly not worked in terms of trying to stem the tide of dwindling reserves.
The dollar crisis has put a range of macroeconomic indicators in a bad state and affected various sectors, Mansur, executive director of leading think tank the Policy Research Institute, pointed out.
He believes that the decline in inward remittances and a rise in trade-based money laundering, in the face of political uncertainty, are the two major factors behind the declining reserves.
The country recorded its lowest inflow of inward remittances in almost 3-and-a-half years in September. The dollar crisis in fact contributes to the lower remittances since there is a wide gap that has opened up between the dollar price offered by banks and other formal channels, and the price on the open or kerb market.
Banks currently offer Tk 110 for each dollar remitted, but on the open market, they are likely to get upwards of Tk 122 for each dollar. So the decline in remittances despite increased export of manpower is thought to be due to expatriate workers switching to the informal hundi channel as their preferred way to send money home.
Ahsan Mansur said the situation would not improve before the election, as the uncertainty in the political arena would continue to be a factor.
Once it passes, if a stable government is formed through a credible election, then the economy could recover on the strength of improving confidence levels, he added.
In September, Customs authorities reported trade-based money laundering worth Tk 3.0 billion, or $30 million, by ten ghost companies. But this is thought to be just the tip of the iceberg.