Forex reserve falls by $110 million in a week

The foreign currency reserve has depleted by USD 110 million in the last week, shrinking the total reserve to less than USD 21 billion, according to the latest report of the Bangladesh Bank.

As per the BPM6 method of the International Monetary Fund (IMF), the central bank had a forex reserve of USD 21.07 billion on 11 October, but it fell to USD 20.96 on 18 October.

There is another method that the central bank exclusively uses while reporting the net reserve size to the IMF. It never discloses the net figure in public.

An IMF source, however, said the net reserve of Bangladesh now stands at less than USD 17 billion.

If the general reserve calculation method of Bangladesh Bank is taken into account, the forex reserve is still USD 26.68 billion.

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 USD 4.7 billion loan from the IMF was maintaining a net reserve of USD 24.46 billion in June last year, USD 25.30 billion in September and USD 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 UD 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.