Forex reserve drops by whopping $2 billion in a month

Bangladesh has registered a significant $2 billion decline in its foreign exchange reserves in a single month, according to the Bangladesh Bank data.

The reserves fell by $1.91 billion in the first 26 days of September, while the following week saw another $99 million decline.

The central bank released the latest data on its forex reserves on Thursday, saying the reserves were at $23.06 billion on 31 August and it stood at $21.05 billion on Wednesday (4 October).

In total, the reserves dipped by $2.01 billion in the last 34 days.

There is another calculation of the net forex reserve of the central bank, which is disclosed only to the IMF. The IMF says according to that calculation the current forex reserve of the country is below $17 billion. The reserve has been declining by $1 billion per month for the last two years.

The remaining forex reserve of the central bank can cover three month’s import cost. Generally, a country must have three month’s import cost in its reserve. As such, Bangladesh is now on the edge.

The forex reserve is one of the key indicators of a country’s economy. However, the government is yet to find a way to stop its fall.

One of the major conditions for the $4.7 billion loan from the IMF was maintaining a net reserve of $24.46 billion in June last year, $25.30 billion in September and $26.80 billion in December.

The IMF also provided the method of calculating net reserve to Bangladesh in writing. Bangladesh has started informing the IMF about the actual reserve based on the method provided by them. However, Bangladesh is failing to maintain the reserve as per the conditions set by the IMF.

According to the BPM6 of IMF, the expenses for the liability of the Asian Clearing Union (ACU) and the foreign currency clearing of the bank and dollars under the special drawing rights are excluded in the calculation of the net reserve.

In all, it is being observed that the government has failed to maintain the reserve as asked by the IMF. An IMF delegation is currently visiting the country. Their main agendas will be preventing the decline of the forex reserve and situation regarding fulfilling the conditions set by the IMF.

The economists have also raised concerns regarding the reserve situation. Addressing the annual council of the International Business Forum of Bangladesh (IBFB), former lead economist of the World Bank’s Dhaka office Zahid Hussain said there is no actual calculation of the amount of foreign currencies entering or going out of the country. The reserve is on decline due to the deficit in the balance of payment. Although the current reserve has not reached the dangerous level yet, it is quite concerning, he added.

He insisted the reserve is being declined by $1 billion per month. If this trend continues, then our reserve will be empty at one point. In that case, there will be no way out of it.

The Bangladesh Bank doesn’t keep the reserve to itself. It invests in different sectors. The central bank profits from these investments. Sometimes it incurs loss as well.

A major part of the reserve is in dollars now. The amount of this is around $18.45 billion, which was $31.90 billion in June last year. Besides, the central bank has invested in Euro, pound, Australian dollar, Canadian dollar, Japanese yen, Chinese yuan and in Singapore dollars. The central bank has also purchased gold worth $860 million, which was $820 million last year.

Apart from preserving, the BB has also spent from the reserve. For instance, the BB has created the Export Development Fund (EDF) with the money from reserves. However, they had to cut the size of the fund to $3.7 billion from $7 billion as the IMF told the BB to exclude the money for EDF to calculate the actual reserve.

Besides, several funds created with money from the reserve, including the Long Term Fund (LTF) and Green Transformation Fund (GTF), the money provided to the Sonali Bank to purchase aeroplane for the Biman Bangladesh Airlines and the money given for the excavation of Rabnabad Channel of the Payra port were excluded while assessing the net reserve of the country following the instructions of the IMF.

However, speaking to Prothom Alo, Mezbaul Haque, spokesperson of the central bank said, “The dollar crisis has decreased. There have been improvements in the balance of the transaction. The situation will improve further as a result of various initiatives taken up by the government.”