Forex reserve drops to 17 months low 

Bangladesh’s foreign exchange reserve fell to $42 billion on Tuesday, the lowest in 17 months, after making a routine payment of $2.3 billion to the Asian Clearing Union for imports during March-April of this year.

A high official of the Bangladesh Bank confirmed this to The Business Post.

The reserve amount was $41.26 billion in November 2020 and $44.08 billion on April 30 this year, according to the central bank data.

On the other hand, forex reserve reached $48 billion, an all-time high, in August last year.

As the Covid-19 pandemic is subsiding and the economy is recovering, import payments are rising, putting pressure on reserve. That is why the reserve amount continues to decline.

According to the central bank data, import payments increased by 43.86 per cent to $61.52 billion during the July-March period of the current financial year compared to the same period of the previous year.

To tackle this, the central bank is supporting the money market by supplying dollar from the reserve. The support amount stood at $5 billion till Tuesday from August last year, according to an official of the Bangladesh Bank.   

The Bangladeshi currency continues to depreciate against the US dollar due to additional import spending. The greenback’s official rate was set at Tk 86.7 on Monday, up from Tk 86.45 on the previous day. It was Tk 86.2 on April 26.

But the real scenario is different as some banks are allegedly charging more than Tk 93 per dollar for opening letters of credit (LCs).

Former lead economist of the World Bank’s Dhaka office Zahid Hussain told The Business Post the demand for dollar was still higher than supply despite the Bangladesh Bank’s support from the reserve.

“As reserve is rapidly declining, it is necessary to reduce this support and increase the exchange rate. There is no alternative at the moment,” he said.

He also said it was now risky to provide support from reserve and liquidity crisis in the money market would increase if support continued.

“The call money rate and interest on treasury bills have already risen. In this situation, there is no alternative to reducing the value of money.”

Bangladesh’s export earnings increased by 32.92 per cent to $36.62 billion during the first nine months of FY22 compared to the same period a year ago.

Besides, remittance earnings declined by 17.74 per cent to $15.3 billion in this period of FY22 compared to the same period of FY21.

Moreover, trade gap widened to $24.91 billion and current account deficit stood at $14 billion during this period of FY22.  Zahid said import payments would reduce if the depreciation of taka continued.

“Besides, increasing the LC margin for importing non-essential goods is a better initiative. In the upcoming budget, the government should take further measures to discourage non-essential imports,” he explained.

The economist suggested the government provide cash assistance for the poor to help them cope with the inflationary pressure created by the depreciation of taka.