Bangladesh's net forex reserves dip below $14B

By Faisal Mahmud

DHAKA, Bangladesh (AA) – Bangladesh’s net foreign exchange reserves fell to $13.76 billion as of May 12 based on International Monetary Fund (IMF) guidelines, hitting a 10-year low, according to data from the country’s central bank.

Reserves dropped further in May as import payments of $1.63 billion were made to the Asian Clearing Union (ACU) for March and April which cleared on Tuesday.

This raises concerns about the country's ability to meet its short-term financing needs, especially as import bills are expected to remain elevated in the coming months.

Bangladesh Bank reported a significant drop in imports over the past two years due to a shortage of US dollars, but this decline hasn't been sufficient to counter the outflow of dollars exceeding the inflow, leading to a concerning decrease in foreign exchange reserves.

Central bank sources attribute the higher import bill for March-April compared to January-February to increased spending during the Muslim holy month of Ramadan and Eid festivities. Bangladesh's import bill rose to $1.6 billion in March-April from $1.29 billion in January-February, contributing to the drop in the reserves.

A spokesperson for Bangladesh Bank, Mezbah Ul Haque, told Anadolu that the recent decline in reserves is mainly due to seasonal factors such as increased import payments and project disbursements.

He assured, however, that the overall forex situation remains stable and that the bank is closely monitoring the situation.

Last Wednesday, the central bank announced three major policy changes to check rising inflation and dwindling foreign reserves. The centerpiece was the introduction of a crawling peg system for foreign currencies which allows the value of the local currency, the Taka, to fluctuate more freely against the US dollar based on market forces.

Bangladesh Bank also implemented a complete overhaul of the interest rate setting system for loans and further tightened its grip on monetary policy by increasing the overnight repurchase agreement (repo) rate by 50 basis points.

These seemingly bold decisions came amid a crucial juncture for the country’s economy. They were announced the same day that a 15-day visit by a team from the IMF concluded.

The IMF delegation, led by mission chief Chris Papageorgiou, held discussions with Bangladeshi authorities throughout their stay, focusing on economic and financial policies as part of the second review of a loan program between the two parties.

During the wrap-ups, the IMF pledged a $1.15 billion loan to the crisis-stricken South Asian nation. It has also significantly lowered Bangladesh's Net International Reserves (NIR) target for a $4.7 billion loan tranche from $20.11 billion to $14.76 billion, suggesting approval of Bangladesh's planned reforms.

Speaking with Anadolu, Zahid Hussain, former lead economist of the World Bank’s Bangladesh office, said “foreign exchange market stability will depend on how Bangladesh Bank enforces the policy.”

“It will not be easy to make this work to alleviate the pressure on reserves without more transparency, flexibility and credibility,” he added.