Reserves to fall below $30b after ACU payment

The downward trend in Bangladesh’s foreign exchange reserves continues unabated despite a series of initiatives put in place by the Bangladesh Bank, and it is going to fall below the $30 billion mark after the Asian Clearing Union (ACU) payment – which is scheduled next week.

Md Mezbaul Haque, executive director and spokesperson of Bangladesh Bank, said the regulator will clear $1.12 billion in ACU import bills for the months of March and April this year. After this payment, forex reserves may dip to $29 billion, from $30.98 billion on May 2.

The ACU is an arrangement to settle payments for intra-regional transactions among its member countries, including Bangladesh. The country’s forex reserves were at $41.82 billion on June 30, and at $44.01 billion in April last year.

A senior official of the central bank, on condition of anonymity, said, “The regulator continues to sell USD to banks so that they can cover their import bills, and it is impacting the forex exchange reserves despite initiatives to halt its steady decline.”

Banks, especially the state-run ones, are taking USD support to settle import payments of government entities such as the Bangladesh Petroleum Corporation, Bangladesh Agricultural Development Corporation, and Bangladesh Chemical Industries Corporation.

The central bank official said every day the regulator sells $60 million to $70 million to banks, and it sold $55 million on Wednesday. During the first ten months of FY23, the central bank pumped over $11 billion into the banks.

Import payments however have dropped owing to strengthening of the central bank’s monitoring, aimed at reducing the pressure on forex reserves.

But industry insiders say the forex market will suffer further pressure in the coming days as export and remittance have fallen in April.

Bangladesh’s export earnings in April declined by 16.52 per cent to $3.96 billion compared to the same period last year. Meanwhile, remittance inflow declined by 16.28 per cent to $1.68 billion in April, compared year-on-year, show latest data from the Bangladesh Bank.

Commenting on the issue, former governor of Bangladesh Bank Salehuddin Ahmed said, “The decline of export earnings and remittance inflow in April is concerning, and it will put further pressure on forex reserves.

“The central bank should take initiatives to raise remittance earnings to reduce the pressure on reserves as import payments will never stop.”

$ rate raised as per IMF recommendation

The Bangladesh Bank continues to raise the sale price of USD to achieve a uniform USD rate as per the International Monetary Fund (IMF) recommendation, to introduce a uniform exchange rate.

It now sells USD to banks at Tk 104.5 per greenback, which was at Tk 103 per USD in the first week of April.

The country’s banks at a meeting on April 30 had decided to pay Tk 110.70 per USD to migrant workers and non-resident Bangladeshis from May in order to encourage them to send money through formal channels.

In that meeting, two bodies of banks, Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers Bangladesh (ABB) also decided to raise the buying rate to Tk 106 from Tk 105 for exporters, to gradually arrive at a single exchange rate.