As per the calculation method of the International Monetary Fund (IMF), the ‘gross forex reserve’ of Bangladesh stands at USD 20.90 billion while the net reserve has come down below USD 17 billion, says a report Prothom Alo ran on 5 October in 2023. Expressing concerns, former lead economist at Dhaka office of the World Bank, Zahid Hussain said the reserve even could slump to zero if the rate of this fall continues.
The Bangladesh government claimed that the reserve reached $48.06 billion in August of 2021 but the IMF disregarded that claim. The global lender said $7.5 billion, used through the export development fund (EDF), has to be deducted from the claimed amount of reserve. At the same time, the $200 million Bangladesh lent to Sri Lanka from the reserve also has to be deducted, money spent for dredging Rabnabad channel of Payra port and loan to the Biman Bangladesh Airlines for procuring aeroplanes.
The Bangladesh Bank and the top leadership of the government did not pay heed to the objections of the IMF for two long years. But last July the Bangladesh Bank had to accept the latest method of calculation of reserve, BPM6, as one of the conditions to get the second instalment of the IMF’s $4.7 billion loan.
The government took some injudicious decisions in the last two years as it was overwhelmed by the whim of showing “inflated foreign currency reserves’ following the older BPM5 calculation method. But there was no reason for the government to lend through EDF, spend money for dredging Rabnabad channel and lend to Biman for procuring aeroplanes from the reserve had it followed the norm. But the news reports published in 2021 and 2021 will show that the top leadership of the government was time and again saying that Bangladesh is maintaining such a high forex reserve for nothing. That time I wrote columns in newspapers arguing that the concept is illogical. But who would pay heed to such words?
Due to overlooking the cautionary words, the government is not being able to tackle the steep fall of forex reserve. “Net reserve” is now below $17 billion and the Bangladesh Bank is selling over $1 billion each month. Such a trend of fall in reserve must be considered as very dangerous. The Bangladesh Bank could not stop the fall in forex reserve by controlling import stringently for more than one and a half years. The reason is the government has failed to increase remittance inflow through formal channels as hundi business has proliferated. The remittance in August decreased by 21 per cent on a-year-on-year basis. In September, the remittance was over 1.34 billion, which is the lowest in the last 41 months.
Whereas just a few days ago the government boldly said there is nothing to be worried about the reserve, we have capacity to pay six months’ import cost. Now the IMF is saying that actually the reserve of Bangladesh is sufficient to pay the bills of three months’ import. The IMF gave a condition of increasing the net amount of forex reserve to $24.46 billion at the end of July this year to release the second instalment of its $4.7 billion loan. In October, 2023 we are lagging behind by $7 billion from the stipulated amount of reserve.
Though over 15 million people of Bangladesh work abroad and most of them remit their income to the country through hundi. It is not that letting the market to fix the dollar price will provide a solution to the problem. If the hundi structure remains strong, whatever be the price of dollars in the market, the hundi traders will always be in a position to pay Tk 7-8 more for each dollar than the formal channels. The money launderers have been keeping the hundi dollar demand strong. That is why capital flight has turned into the prime problem for the country. The number of money launderers will not be more than several thousands. Most of them belong to the upper middle class, upper class and “elite” section of the Bangladeshi society.
It cannot be said that they are compelled to launder money abroad due to economic strains. Despite their belonging to the social, political and economic “elites” of Bangladesh, they are taking initiatives to migrate from the country for more peace. Most of them are corrupt bureaucrats, businesspersons and industrialists (a number of them are apparel factory owners), engineers and political leaders. Their “common characteristics” include most of them are “black money owners”, owners of higher quality city properties, or owners of factories and industries who have the power to secure bank loans.
I have been terming them as the “number 1 enemies of the nation” in my write-ups. Terming them as “enemy of the people” would not have been reasonable had they been involved in the migration process by selling their inherited properties hoping to get foreign citizenship. Neither it would have been appropriate to scold them had they decided to migrate abroad along with their families by selling their properties bought in the country from the savings from their legal income.
But I called them ‘enemies of the nation’, those who borrow from banks misusing the banking system of the country and do not pay the loans year after year and launder those money abroad. They are playing the role of bank looters as ‘willful loan defaulters’. They engage in the process of fleeing to foreign countries after looting billions of taka from banks using their political identity. They have amassed black money through looting capital and corruption, which has been the number 1 problem in 52 years of post-independence Bangladesh, and they are laundering that money to the US, Canada, the UK, Australia, Singapore, Malaysia and Dubai. They are building their second home in Malaysia and Begumpara in Toronto, Canada.
The government must accept as soon as possible that capital flight will not drop and the inflow of remittance will not increase unless the hundi business is prevented with an iron hand. Otherwise, earnings from exports and remittances will fall short of meeting the deficit in the balance of trade, and that is why the country will need to spend the foreign currency reserve to meet the deficit of the current account of the balance of payment, meaning that reserve will continue to shrink.
The masterminds of this ring, money launders and hundi traders are taking advantage. Since most expatriates are choosing hundi to send money home, capital flight through hundi from Bangladesh has reached a great danger level. Bangladesh's government must immediately adopt a policy against corruption, looting of money and capital flight to prevent the fall of foreign exchange reserves and to rein in the dollar crisis. That means, on the one hand, stern action must be taken against hundi traders, and on the other hand implementation of a zero-tolerance policy against corruption and looting capital must start.