Bangladesh Bank sells record $8.5b to banks

Staff Reporter :
Amid dollar crisis, the Bangladesh Bank (BB) has sold record $8.5 billion to banks in seven months from July to January 23 of the financial year 2022-23 as banks faced problems in settling letter of credit (L/C) payments due to a dollar crisis in the country.
In the country’s banking history, such amount of dollars has not been sold from the reserve in any financial year before.
Bangladesh is facing acute dollar crisis for a long time and it has been discouraging the import of ambitious products as per various steps taken by the central bank to overcome the crisis.
According to multiple sources, the ongoing dollar crisis is not going away soon. Moreover, the Bangladesh Bank is constantly providing dollar support to banks from its foreign currency reserves to meet the urgent import obligations.
Meanwhile, the importers have failed to unload imported sugar, soybean oil and lentil from ships which are now staying outer anchorage of Chattogram port for 54 days as the importers are yet to settle letter of credit payments as banks are failing to meet the demand of importers due to dollar crisis, sources said.
According to importers, these essential items have imported to meet the domestic demand during the holy month of Ramzan likely to begin on March 22.
Considering the problems, the Bangladesh Bank has sold $8.50 billion in seven months of 2022-23 financial year (July-January 23) to solve the problem as billions of taka worth of goods are still stuck in different ports.
Earlier, the BB sold over $7.8 billion to banks in between July to December period while in the whole year of 2021-22, it had injected $7.62 billion into the financial market.
According to BB sources, despite rising the export earnings and expatriate remittances, reserves are shrinking due to dollar support to banks from foreign exchange reserves.
On January 23, the Bangladesh Bank has sold five crore dollars from the Reserve to state-owned banks. At the end of the day, the amount of reserves dropped to $ 32.47 billion.
Experts say that remittances should be increased through banking channels.
Besides, if exports can be increased, domestic dollar crisis will be reduced to a large extent, they observed.
However, Bangladesh received $ 1,315 million as remittances in the first 20 days of January this month.
The central bank has sold about $752 million to banks in January 1-19.
The gross foreign currency balance with the banks dropped to $4,811.1 million in December 2022 from $5,205.9 million in June 2022.
According to a suggestion made by the International Monetary Fund, if $8 billion used as export development fund is excluded from the foreign exchange reserve, the reserve stands at $24.4 billion.
In addition to the dollar sales, the reserve fell such a level as the BB continued paying import bills to the Asian Clearing Union for every two months.
The state-run banks, in particular, are taking the dollar support from the central bank for settling import payments for the Bangladesh Petroleum Corporation, the Bangladesh Agricultural Development Corporation and Bangladesh Chemical Industries Corporation and others.
The reserve was $39.06 billion on August 31, 2022 and $46.2 billion in September 2021. An increase in remittance inflow and export earnings saved the country’s foreign exchange reserve from falling further at the end of December 2022.
Remittance inflow increased slightly to $10.5 billion in the first half (July-December) of the current financial year 2022-2023 compared with that of $10.23 billion in the same period of FY 2021-22.
The export earnings in the first half (July-December) of FY23 increased by 10.58 per cent to $27.31 billion compared with that of $24.70 billion in the same period of FY22.
Settling high import payments was the main reason for the depletion of the forex reserve, BB officials said. They said that imports were surging amid rising commodity prices, global supply chain disruptions and the Russia-Ukraine war.
The country’s import payments increased to $32.53 billion in July-November of FY23 from $31.16 billion in the same period of the past financial year.
The trade deficit was $11.79 billion in the July-November period of FY23 compared with that of $12.6 billion in the same period in the past financial year.
Amid increasing balance of payment pressure and falling foreign exchange reserve, the government requested financial support from the International Monetary Fund in July 2022.
The exchange rate rose sharply to Tk 107 from Tk 84.8 against the US dollar within a year.