Vigilance needed to maintain forex reserve!

The imploding Sri Lankan economy with a dwindling Dollar reserve working as a warning sign, the gradual fall of forex reserve in Bangladesh has been a major cause of disquiet in the last three months. Last year, the reserve was a robust $ 48 billion which was presented as a key indicator of Bangladesh’s strong economy. However, the war in Ukraine could not be envisaged along with its repercussion. The conflict, which is not showing signs of a protracted affair, has disrupted supply chains, resulted in the soaring cost of fuel, triggered inflation and created a pressure on forex reserves. As per a TBP report, Forex reserves of Bangladesh slid to $37.06 billion on Thursday, following the routine payment worth $1.73 billion made to the Asian Clearing Union (ACU) against imports.

The Foreign exchange reserves were $38.94 billion on Wednesday and the payment of import bills to ACU brought down the reserves to $37.06 billion on Thursday.

The central bank also sold $ 80 million to banks to meet Dollar shortage. Now while there is no immediate cause for concern there is always a need to be cautious, shedding complacency.

The fall of forex reserve is unavoidable because the global economic operation has been choking under the impact of the Ukraine conflict. From food shortages to fuel price hike to looming recessions – situations that encapsulate ‘hard times’ are but the consequences of the war and most countries are feeling the heat.

At this juncture, contingency planning plus austerity in all areas should be the priority.

As per an earlier TBP report, Bangladesh received $2.04 billion in remittances for the second consecutive month in the current financial year. Earlier, in July, the country received $2.09 billion in inward remittances, an 11.17 per cent growth compared to the same month of the previous year.

The sector which has brought in the much needed foreign currency is the manpower export sector that saw a boom since last year as Bangladesh recovered faster than other nations from Covid pandemic. Countries which were main competitors in exporting manpower either put a cap on all manpower export due to health restrictions or were shunned by manpower importing countries.

In a time of financial volatility, remittance from workers abroad is proving to be the lifeline. Since economists have given a bleak picture of the future, with warnings of a recession in developed nations, the priority of the Bangladesh government will be to explore new countries in need of skilled workers.

On July 27 last, ten inspection teams of the central bank started visiting money changers in Dhaka City. The main motives are to prevent hoarding of Dollar, and, most importantly, check the whitening of illegally stashed wealth through clandestine conversion.

Reportedly, 235 licensed money changers and around 1000 authorized dealers’ branches of banks are permitted for selling and buying foreign currency to travelers.

However, around 600 money changers are buying and selling foreign currency illegally.

Bangladesh Bank suspended the licenses of five money changers and sent show-cause notices to 42 others for irregularities including keeping dollars beyond limit.

The step to prevent hoarding of Dollar is commendable.

The PM had earlier exhorted the nation to brace austerity in order to ride out the storm and therefore, country wide belt tightening should be dominate the current social ethos.

Putting a curb on unnecessary foreign travel, suspension of the import of non-essential items, curtailing the urge to be ostentatious on social occasions plus opting for higher education within the country instead of going overseas will ease pressure on the foreign reserve.

The war, involving major powers of the world, is having a detrimental impact everywhere and instead of catastrophizing the conflict created crisis, efforts should be on mitigating the adverse results.