Forex reserves below $40bn after 21 months

Bangladesh’s foreign exchange reserves yet again dipped below $40 billion after nearly two years, as the central bank settled import payments with the Asian Clearing Union (ACU) last week.

The country cleared $1.99 billion as payment to the ACU, which reduced the forex reserves to $39.80 billion on Tuesday – a dip below the mark recorded for the first time since September 2020, a senior Bangladesh Bank official told The Business Post.

The ACU is an arrangement made by participating countries such as Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka to settle import payments for intra-regional transactions.

Its headquarters is situated in Tehran of Iran. The central banks of the ACU member countries have to make payments every two months.

According to the Bangladesh Bank data, the country’s reserve position was $39.31 billion in September 2020, which then rose to $48.06 billion in August last year – highest ever in the country’s history.

After the Covid crisis eased, Bangladesh’s import payments increased significantly as the economy recovered and the Ukraine-Russia war pushed up prices in the global market.

In July-May of FY22, Bangladesh’s import payments rose by 39.03 per cent to $75.40 billion, compared to the same period last FY.

This import pressure caused a hike in USD demand, which in turn created volatility in the exchange rate. In a bid to stabilise the exchange rate, the Bangladesh Bank provided more than $7 billion in support to the money market from the forex reserve.

The move caused the reserves to fall from $48 billion in August last year to $41 billion on May 10. The figure is now below $40 billion, and with this reserve, Bangladesh can meet over 4 months of import costs.

A country usually maintains enough reserves to cover three months of import costs.