Bangladesh has now requested the International Monetary Fund to lower the requirement of foreign exchange reserves at $20 billion as a condition of releasing the second installment of the $4.7 billion loans, an official of Bangladesh Bank confirmed this on Monday (October 16, 2023). The request was made to the visiting IMF delegation that reviewed with the officials the progress in meeting its conditions. Read: Myanmar ambassador meets with FBCCI, keen to start direct flight Despite different measures taken by including cutting unnecessary and luxury goods imports, in the last three months, gross reserves declined by $2.58 billion. Two main sources of foreign exchange earnings –inward remittances flow saw a record decline to $1.34 billion in September and export earnings failed to achieve the target. Considering the situation the central bank proposed to the IMF mission led by Rahul Anand to revise the reserves down to $20 billion. Under the terms of the $4.7 billion IMF loan, the actual reserves were supposed to be maintained at $24.46 billion last June and $25.30 billion in September. At the end of December, Bangladesh must maintain at least $26.81 billion in net reserves. Read: PGCB, GIZ set up lab to advance country’s clean energy transition  The net forex reserves are now less than $18 billion, according to the calculations of Dr Zahid Hussain, a former lead economist of the World Bank's Dhaka office. However, the IMF also suggested that BB fix the exchange rate of US dollars on competitive market price, which is now being set by the Bangladesh Foreign Exchange Dealers’ Association (BAFEDA) in the concentration of the BB. The central bank earlier relaxed the exchange rate of the US dollar gradually and now the official exchange rate is Tk112 per dollar. Economist Dr Ahsan H Mansur said that Bangladesh has to maintain strict monitoring of trade-based money laundering along with cutting unnecessary imports to check the downslide. Read: IMF lowers growth forecast for current fiscal to 6 percent

Economists have expressed concern just after Bangladesh’s foreign exchange reserves slipped below $40 billion, even though that should be capable of meeting three months import payments, based on imports for the immediate past fiscal.  Such concern was not seen 12 years ago, when Bangladesh’s forex reserves were only $10.60 billion in the FY2010 (2009-10 fiscal). That is roughly the same level, since imports back then were also lower, at around $23 billion, meaning the reserve was enough to cover 4-5 months.    What is worrying now is a surge in imports driven by both demand for raw materials by export-oriented industries and growing consumption among the domestic consumers.  That, allied to an energy crisis caused by both domestic and international factors, is causing significant downward pressure on the forex reserve. Bangladeshis were used to hearing about the reserve rising gradually, reaching a peak of $48 billion a year ago.  But now, these two factors have combined to bring the reserve down quite rapidly below $40 billion, and it is likely even lower, given that exporters have started defaulting on dollar loans taken out of the Export Development Fund, which is funded out of the reserve.   Many economists now believe that foreign exchange reserves in Bangladesh have gone to dangerous levels. Read: Forex reserves drop below $40 billion for the first time since 2020 They say, now that the reserves have fallen below $40 billion dollars, it is not possible to cover more than three months of import expenses. Talking with UNB, Dr Debapriya Bhattacharya of CPD said how much in foreign exchange reserve is secure for a country depends on the price of energy and commodities in the global markets, dollars required in a month to meet import payments, and whether the demand for import will go up in the coming months or not. Though the Bangladesh Bank (BB) is showing forex reserves near $40 billion, unencumbered reserves is actually around $31 or $32 billion after excluding dollar support to the export sector (the Export Development Fund is worth $7 billion), he said. Dr Debapriya said the government is taking the right measures to face the situation, but it is not enough considering the global and domestic situation. He suggested taking a loan of $1.5 or $2 billion from the IMF as a cautionary step to avert any worsening situation. Debapriya also pointed out that the current situation (depreciation of taka) would create some opportunities to boost exports and encourage expatriates to send remittances. But the overall macroeconomic stability has undoubtedly weakened. There is a danger of slowing down the ongoing development activities in the country. However, the government does not consider the situation to be critical yet. To reduce the pressure on reserves, several cost-effective measures, including load shedding in the power sector, have been taken so that the cost of fuel imports can be kept under control. The central bank is also dismissing economists' concerns about current forex reserves. Md Serajul Islam, executive director and spokesperson of BB, said that if the reserves are enough meet the import expenses for three months, there is no danger. "The reserves we have now will cover more than three months of import expenses. Now we have increased the import duty on all luxury goods. Hopefully, we will reap the benefits," he added.  Bangladesh’s import expenses grew to $80 billion in the immediate past fiscal, but even then, $40 billion should be enough to meet the Bangladesh Bank benchmark of 3 months, and possibly up to six months (half a year). The inward remittance flow also slipped to $21 billion in FY 22 from $24.77 billion in FY 21. The real concern stems from the fact that there are now issues beyond the government’s control at play. With gas reserves dwindling fast, Bangladesh has suddenly become highly dependent on energy imports, and their prices have been rising to record levels in the international market, with a pandemic-ending rally exacerbated by the war in Ukraine. Bangladesh was forced to sit out two rounds of purchasing LNG on the international market recently due to exceptionally high price, and that directly led to the country’s energy crisis, as production of gas from the country’s own gasfields is nowhere near enough these days to meet demand. That led to the return of load shedding.  There is also the issue of export income not being fully repatriated to the country. Besides, the garment sector also imports 60 percent of its export volume. In the face of all this, the government’s steps to cut imports of luxury goods is also a step in the right direction. But whether they will be enough, only time will tell. 

Finance Minister AHM Mustafa Kamal has said that Bangladesh is in the safe zone in terms of receiving the foreign loans. He made the remarks while briefing reporters after the two consecutive meetings of the Cabinet Committee on Economic Affairs (CCEA) and Cabinet Committee on Public Purchase (CCPP) on Thursday. Also read:Govt to consult with all on proposed universal pension scheme: Finance Minister Defending his remarks, he said Bangladesh’s debt-GDP ratio is 34 percent which is lowest in the world. Our foreign exchange reserves are much higher than requirement, remittance is increasing, export is growing, and inflation is under control. We’re in the safe zone”, he said. Kamal said the whole world is appreciating Bangladesh for its economic performances. He said the countries having debt higher than their GDP (gross domestic products) are currently in danger. “But we are not at that level. Rather, our debt is much lower than GDP,” he asserted. Responding to another question, the finance minister said the toll rates of the Padma Bridge have not been fixed yet. But a joint venture of South Korea and China has been awarded a contract to collect the tolls from the Padma Bridge project. Also read:NBR works for win-win tax in upcoming budget: Finance Minister “We didn’t do any detailed work on it. But we have a plan to make some profits by collecting revenue from the Padma Bridge project in order to implement more similar projects”, he said. He said both the government and the users of the Padma Bridge will benefit from the project. “We hope we could collect more revenue than the requirements to meet its expenditures”, he added.

Finance Minister AHM Mustafa Kamal has said that no decision has been taken yet to lend the private sector from the country’s foreign currency reserves. “So far we haven’t taken any decision to provide loans to the private sector from the forex reserve”, he told reporters while briefing on the proceedings of the Cabinet Committee on Public Purchase on Wednesday. Also read: Finance minister goes to Singapore for treatment He, however, said the government decided to lend from the forex reserve only to the public sector entities. “But no policy guideline is yet to be formulated in this regard. The government entities will get the fund once a policy is formulated and the issue is incorporated in the policy,”he said. The finance minister’s remarks came against the backdrop of a recent decision taken by the government to finance the Payra port development project from the foreign exchange reserves, now remaining under custody of the Bangladesh Bank.     Also read:Finance Minister optimistic about achieving huge revenue collection target  A number of private companies, especially those in the power sector, has been pursuing the government to allow the Bangladesh Bank to lend them from the forex reserves.    Defending the government’s decision, Mustafa Kamal said it is like transferring a public fund from government’s one hand to another hand. “It’s good finance public sector project from the government fund as it will be less costly”, he claimed. Referring to a decision of the Cabinet Committee on Economic Affairs Committee, the Finance Minister said the committee approved a proposal of the Ministry of Shipping that capital and maintenance dredging at Ranadabad Channel of the Payra port project will be implemented by the government fund through awarding contract to a bidder through direct procurement method (DPM). Earlier, there was a proposal to implement the project under public private partnership. The committee also approved a proposal of the Bangladesh Agriculture Development Corporation (BADC) under Agriculture Ministry to purchase 800 metric tons of JR-524 standard jute seeds from National Seed Corporation (NSC) of India through direct procurement method. Also read:Fix your problems before govt starts taking action: FnM to bankers The Finance Minister said Bangladesh has consistently been doing well in achieving economic growth. Bangladesh would have been 5th Asian Tiger if the Covid-19 situation had not arisen, he said.

Finance Minister AHM Mustafa Kamal has said that Prime Minister Sheikh Hasina will make her decision on utilising foreign exchange reserves even the next national budget.