EDF size cut further to $4.77 billion

The Bangladesh Bank (BB) has further cut down the size of the Export Development Fund (EDF) from $5 billion, to reduce the pressure on foreign exchange reserves in line with the International Monetary Fund’s (IMF) suggestion.

The outstanding size of EDF loans now stands at $4.77 billion, said BB Executive Director and spokesperson Md Mezbaul Haque on Sunday.

The fund has gradually decreased since December last year. It was at $7 billion at the beginning of December and reduced to $6 billion later that month. The fund then dropped to $5 billion in April this year and finally, it’s now been brought down to $4.77 billion.

Another senior official of the central bank told The Business Post that the banking regulator is now cautious about foreign currency lending under the EDF as some clients are not repaying the loans on time.

The official said that the size is continuing to reduce but they did not suspend the release of EDF loans.

Bangladesh secured $4.7 billion in loans from IMF after meeting some conditions, one of which suggested that BB should exclude the existing EDF loans from its reserve calculations.

That prompted the central bank to reduce the EDF size and introduce on January 2 this year a new fund of Tk 10,000 crore in local currency to help exporters by providing loans at 4 per cent interest.

The senior BB official said that the central bank will calculate the foreign exchange reserve as per the method prescribed by IMF.

To meet the IMF condition, the central bank will have to calculate the reserves by excluding the EDF and other loans and funds and show that data on the BB website from July, the official added.

On May 10, the country’s forex reserves stood at $30.34 billion and the net reserve was below $25 billion.

In March this year, the central bank decided to impose a 4 per cent interest as penalty on the banks’ unpaid amount of loans disbursed from EDF.

The BB has taken the decision as it observed that EDF loans are not being realised in line with its instructions, officials said.

The EDF was created in 1989 to facilitate access to financing in foreign exchange for input procurement by exporters. Banks can borrow US dollar funds from EDF against their foreign currency loans given to exporters.

Now the central bank has taken cautious measures to release loans from EDF as the forex reserve is falling due to high import payments amid the unstable global economy created by the Russia-Ukraine war.