Forex reserves fall $8.6b in a year

Bangladesh’s foreign exchange reserves rose to an all-time high $48 billion in the last week of August 2021, but declined by $8.67 billion to $39.36 billion in the same period this year due to the USD shortage, and the need for regulator support to stabilise the country’s forex market.

Data from the central bank shows that the country’s foreign exchange reserves rose gradually till August 2020. But the Covid-19 pandemic disrupted economic activities after March 2020, causing Bangladesh’s domestic production, investment and import demand to decline.  

Moreover, an upward trend in export earnings and $24.77 billion in remittance earnings in FY21, helped the reserve position to reach $48 billion in August last year.

In stable economic conditions, a country is generally required to keep reserves equal to three months of import payments. At that period, Bangladesh had enough reserves to cover almost 9 months of imports.

Back in March 2021, the government formed an infrastructure development fund with money from the forex reserves. Initially, this fund was supposed to invest $2 billion USD per year.

In addition, the government lent Sri Lanka $200 million. Bangladesh had also planned to give $250 million to Maldives, but later withdrew from that decision.

Due to excess reserves compared to the requirement, the government made various plans to deal with it, but after the Russia-Ukraine war, import payment jumped due to the increase in the prices of goods around the world.

In the last FY, Bangladesh’s import payment rose 35.95 per cent to $82.49 billion, the highest in history. As a result, the demand for USD in the market increased and the price of the greenback skyrocketed.

The inter-bank USD price was Tk 85.14 ON August 24 last year, but it rose by Tk 10 or 11.58 per cent to Tk 95 on August 24. Although for opening LCs, the banks are selling the USD at above Tk 100, the open market price is around Tk 110.