Home ›› 06 Dec 2021 ›› Front
Gone are the days when the stigma of international ‘Basket Case’ was tagged to Bangladesh – an infamous title the country was once faced with, but the wheel of time has changed everything for good.
The emerging economic powerhouse, Bangladesh, is now going to be a lender to other economy.
By the time the country won the war of liberation against Pakistan, many heads of states were of the view that Bangladesh could hardly survive as an independent state without the financial help from the developed nations.
Smarting from the defeat of its ally, then US Secretary of State Henry Kissinger branded Bangladesh as a ‘Basket Case’.
But today at the cross-roads of Golden Jubilee celebration of independence, the country reckons on becoming a lender from a borrower, which is an exception in the world.
In accordance with the first-ever currency swap on August 3 this year, Bangladesh will lend a total of $ 250 million to Sri Lanka – the South Asian island nation – struggling to maintain a moderate foreign exchange reserves.
Talking to The Business Post, former central bank governor Salehuddin Ahmed, said Bangladesh can help Sri Lanka as the former was also in similar crisis in the eighties when it took help from another country.
“I see no risk to helping Sri Lanka,” he said, adding that a careful approach in this regard is advisable.
$48 billion mark
According to the Bangladesh Bank data, in Fiscal Year 1994-95, the amount of foreign exchange reserves was $ 3.06 billion that increased to $ 5 billion in FY07 which crossed $ 10 billion for the first time in FY2009-10.
Over the last decade, reserves went up by more than four times and reached an all-time high of $ 48 billion on August 24, 2021.
Earlier, it crossed the $ 46-billion mark on June 28, $ 45.01-billion mark on May 3, $ 44-billion mark on February 24 this year and $ 40-billion mark on October 28 last year.
A rise in export and remittance earning is the key to the swelling reserves.
Analysts say strong foreign exchange reserves always help maintain stable exchange rate and macroeconomic stability.
Despite the pandemic, Bangladesh didn’t face a major volatility of exchange rate because of high reserves and remittance inflow which witnessed 36 per cent growth in last financial year over the previous year.
Target $50 billion
Bangladesh set up an objective of $ 50 billion in reserves by 2030. In November last year, the finance minister announced the target in a virtual press conference after the purchase committee meeting.
“The main basis of reserves is remittance, which comes through banks that sell foreign exchange in the market. When remittance exceeds demand, Bangladesh Bank buys it from the market,” he said.
But according to the finance ministry document published in the media last month, it showed the government set the target $ 48.37 billion in reserves for the current fiscal with the projections of $ 50.74 billion and $ 53.99 billion for FY2022-23 and FY2023-24 respectively.
Zahid Hussain, former lead economist of the World Bank (Dhaka office), told The Business Post that reserves act as a big tool for financial stability without which financial instability happens that hurts investment.
“A country’s economy cannot be said to be very good if its reserves are high. Even amid high reserves, if the investment continues to decline, it should be understood that the economy is in a weak position,” observed the seasoned economist.
Bangladesh vs Pakistan
Bangladesh got separated from Pakistan to get rid of economic inequality. It has been identified as one of the emerging countries in Asia today as all successive governments continued to adopt policies for economic development since independence.
Meanwhile, due to political instability, militancy, China-US duality, Pakistan is facing a lot of trouble economically. As a result, the country’s foreign exchange reserves are rapidly declining. Pakistan now has less than one-third of its reserves than Bangladesh.
The country’s foreign exchange reserves were measured at $ 15.5 billion in October 2021, compared with $17.6 billion in the previous month. The reserves will meet only 2.4 months of import payment.
Comparatively, Bangladesh has $ 46 billion reserves recorded in October 2021 and can meet more than 7 months of import payment.
According to the central bank’s latest data, during the first quarter (July-September) of the current fiscal, Bangladesh can meet 6.7 months of import payment by its forex reserves.
A country should have a minimum amount of reserves equivalent to at least a three-month import payment.
India and the rest of world
In South Asia, India is the highest forex reserves holder with, its world position being fourth in October with $ 639.516 billion in reserves.
China tops the list in the world with $ 3.39 trillion reserves followed by Japan and Switzerland occupying second and third position respectively with $ 1.4 trillion and $ 1.07 trillion in October this year.
Nepal has $ 11.96 in reserves in April this year while Sri Lanka’s reserves stood at $ 2.8 billion in September 2021.
Investment from reserves
Bangladesh Infrastructure Development Fund (BIDF) launched in March this year aims to finance different development projects from the country’s own fund. The fund has an investment target of $ 2 billion yearly.
The BIDF formed with the fund from foreign exchange reserves began its journey through financing the capital and maintenance dredging at Ramnabad Channel in Paira Port.
The debt amounts to Tk 5,417 crore, which will be paid in Euros, the single currency of the European Union. Sonali Bank will provide the amount for a period of 10 years. The grace period is three years.
Earlier, Tk 300 crore was given to Bangladesh Biman from the reserves.
In this regard, Salehuddin Ahmed said reserves are not the government’s own money. Foreign currencies which come from abroad are kept in the central bank against which customers are paid in local currency.
Excess reserves can be carefully invested in a particular sector without holding back too long, he pointed out, adding that the government has taken that course.
“However, this money should not be default in any way,” he warned.
“In many parts of the world, reserves are invested as sovereign funds. It would be good if Bangladesh could follow the suit.”
Bangladesh Bank invests a portion of its reserves in various foreign banks. From that investment, it earned Tk 427 crore in FY20, which was Tk 1,390 crore a year ago.
