Forex exchange reserves hit 6-yr low

Staff Reporter :
The country’s foreign exchange reserves hit six-year low after making payment to the Asian Clearing Union (ACU) worth $105 million as import liability on Tuesday.
As a result, the reserves stand at $31.15 billion and with the reserve balance, import expenditure of about four months ($8 billion per month) can be met.
The foreign exchange reserves exceeded $31 billion for the first time in January 2017. As such, the reserves are currently at the lowest position in the last six years.
The ACU is an international transaction settlement system, through which transactions between Bangladesh, Maldives, Myanmar, Nepal, Bhutan, India, Iran and Pakistan are settled.
Reducing pressure on the dollar, Bangladesh Bank imposed restrictions on the opening of letters of credit (LCs) and the National Board of Revenue (NBR) increased duty of more than hundred imported goods in June last year in order to curb imports.
Following the steps, the opening of new LCs has been reduced. But the liability of the previously opened LCs is now payable in terms of arrears or late payment and following this, the dollar crisis is becoming more acute.
On the other hand, payment for external debts is increasing. The overall debt repayment stood at $2.7 billion in current fiscal year, of which $1.9 billion is principal and the rest interest.
Besides, the central bank injected $12.61 billion in last fiscal year. But the injected amount has already crossed $10 billion so far in the current fiscal year.
As a result, the foreign exchange reserves are falling sharply, despite curbing imports.
“The fact that dollars are being sold by Bangladesh Bank means that demand for the greenback is still higher than the supply,” said Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh.
He suggested for market-driven dollar rate and for taking measures to increase remittance in or to stabilize the greenback market.
Although the Bangladesh Bank showed the total reserves is $31 billion, the actual
usable reserves are even less than $23 billion as the central bank has already spent worth $8 billion from the reserves.
Last March 1, the reserve was $32.30 billion and the reserves reached a record-high $48 billion mark in August 2021.
Earlier on January 30, the International Monetary Fund (IMF) projected that Bangladesh’s gross foreign exchange is likely to stand at $30 billion at the end of 2022-23 fiscal year.
The IMF first tranche of $470 million has been added to its reserves.
However, the global Covid-19 pandemic and the Russia-Ukraine war are costing more than the amount of foreign exchange that is coming in.
The central bank is constantly selling foreign currency reserves to meet the increased demand for dollars.