Home ›› 18 Nov 2022 ›› Editorial
A team of International Monetary Fund (IMF) paid a 15-day visit to Bangladesh to discuss a $4.5 dollar loan sought by Bangladesh in August this year. The team left on November 9 after a staff-level agreement was reached between the IMF team and Bangladesh.
Since then the question about the real picture of the central currency reserve in Bangladesh Bank has been the subject of much discussion. The government cited one figure while others doubted about the government version. The IMF also came up with a figure in sharp contrast to the claim of the government.
According to Bangladesh Bank and the government, the foreign exchange reserve stood at $48.60 billion as 25 August last year. After that the reserve began to dwindle steadily. The visiting team of the IMF did not agree with the figure provided by the government.
As per the claim of Bangladesh Bank, the forex reserve now stands at $34.24 billion including Export Development Fund (EDF). But very recently Rahul Anand who led the IMF mission in Bangladesh told the media that Bangladesh’s gross international reserve is about $27.5 billion dollar as per internationally accepted statistical definition.
Now, the gross reserve includes gold, cash US dollar, bonds and treasury bills, reserve position in the IMF and special drawing rights holdings. There is a loophole in the way Bangladesh Bank projects its forex reserve. The IMF mission wanted a report on the net reserve rather than gross reserve as the net international reserve has to be measured after the short-term foreign currency drains are excluded from the gross reserve.
That is why the IMF termed the gross forex reserve a misleading way of projecting it. Be that as it may the reserve situation, if not alarming, is a definite cause for worry.
The reserve is plummeting putting the government in trouble and which is why the government sought the loan of $4.5 billion dollar from the IMF as a preemptive measure to ensure things do not deteriorate in the future. The government too might have heaved a sigh of relief after the sanction of the loan but mounting pressure of new Letter of Credit (LC) settlement is now rubbing salt into its wound.
A report published in The Business Post on Thursday revealed that the LC settlements had jumped by $7.74 billion dollar or 38.3 per cent in the first four months of the current fiscal year. The forex reserve is obviously going to buckle under the pressure of new LC settlements as it will make a big dent in the dollar reserve.
Import bills were deferred in the previous months as part of a series of measurements by the central bank to reduce import in a bid to save the central currency reserve. But it has eventually failed to stop the surge of import after a pretty long interval.
Zahid Hussain, former lead economist of World Bank told The Business Post that both the deferred payments and rising commodity prices in the global market were the keys to growing trend of LC settlements. He also said: “The issue will put further pressure on our foreign exchange reserve.”
The LC settlements spree has started at a time when the government is taking strict austerity measures to reduce import to lighten the burden of dollar expenditure. The Planning Commission of the government has already sent back 30 development project proposals to the ministries concerned as part of its austerity measures. The commission even didn’t hold any meeting of the Project Evaluation Committee to cancel those proposals.
Now, we have to wait and see how the government tackles the new surge of LC settlements to protect and increase its fund of the forex reserve. We don’t think only a few austerity measures can do the magic. The authorities concerned have to get deeper down to the economic ailment to find a cure.
