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Forex reserves to fall to 7-year low next week
Economists see BB steps shake business confidence
Shakhawat Hossain | Published: 23:43, May 04,2023
The country’s foreign currency reserves are likely to fall to a seven-year low in the next week following a payment of $1.12 billion under the Asian Clearing Union.
Economists said that the reserves had been falling over the past 22 months despite multiple steps by the Bangladesh Bank as those could not give any major confidence to businesses involved in exports and imports.
Bangladesh Bank spokesperson Mezbaul Haque on Thursday said that the ACU payment had already been made for March and April.
The Bangladesh Bank along with other central banks of Bhutan, Iran, India, Maldives, Nepal, Pakistan, Sri Lanka and Myanmar is a member of the ACU that arranges intra-regional transactions among its members.
The BB spokesperson said that the clearance of the ACU payment was expected on Monday.
The BB officials said that the country’s gross forex reserves would fall to $29.86 billion from $30.98 billion calculated on Tuesday (May 2).
In financial year 2015-16, the country’s forex reserves were $30.35 billion, according to the BB data.
It showed that the forex reserves stood at $33.6 billion in FY2016-17, but went down to $32.9 billion in FY2017-18 and $32.7 billion in FY2018-19.
Since FY2019-20, the forex reserves maintained an upward trend and reached an all-time high of $48 billion in August 2021.
Former Bangladesh Bank governor Salehuddin Ahmed apprehended a further fall in the forex reserves in coming months because of downturn in export incomes and inflow of foreign remittance.
Export incomes which account almost 70 per cent of the forex reserves recorded negative growth for a second consecutive month.
In April, the exports declined by 16.52 per cent to $3.95 billion from $4.74 billion in 12 months.
The western economy is facing turmoil due to the Russia-Ukraine war and consumers are spending more for buying foods, medicines and other daily essentials.
The inflow of remittance that helps the country’s balance of payment dropped by more than 19 per cent in April.
The BB has imposed restrictions on imports and been able to bring down the opening of letters of credit to $51.36 billion in July-March of FY23 compared with $68.84 billion in the same period a year earlier.
But the BB initiatives did little because of less-than-expected improvement in export and remittance, said Selehuddin Ahmed.
The falling reserves are also concerning for keeping the country’s import payment at a comfortable level of four months as per recommendation of the International Monetary Fund.
The IMF has attached top priority to reserves buildup under its current $4.7 billion loan programme over the next three years.
It wanted the central bank to keep net reserves of some $24 billion by June.
In February, the IMF disbursed $476 million as the first tranche of its loan after successful negotiations with the government while the disbursement of next tranche of the remaining $4.2 billion loan in six installments is due in November.
Policy Research Institute executive director Ahsan H Mansur noted that the businesses were suffering a lack of confidence in the government measures taken to tackle the economic downturn since the previous year.
Exporters do not bring their export receipts timely, he said, adding that the Bangladeshi expatriates were reluctant to send money through official channel.
On Tuesday, an IMF mission at a meeting with commerce ministry officials found a gap of some $3 billion in export receipts.
The gap has been created as exporters did not bring the receipts back to the country within a stipulated time.
Besides, exporters brought home less than what was actually exported through under-invoicing linked to capital flight.
Mansur suggested that the BB should stop dollar sale to fix exchange rate and inflation to bring back business confidence in its steps.
The country’s foreign currency reserves are likely to fall to a seven-year low in the next week following a payment of $1.12 billion under the...