The Bangladesh Bank (BB) has controlled imports in various ways to tackle the dollar crisis. Besides, it is selling dollars from foreign reserves for government import. As a result, the foreign reserve of the country has dwindled to $ 34 billion from $ 48 billion.

Speaking regarding what should be done in this situation, Salehuddin Ahmed, former governor of Bangladesh Bank, told Prothom Alo, “The banks have reduced opening new LCs mainly due to the dollar crisis. Now, the BB may offer loans in dollars for three to six months for importing food products, raw materials and intermediate products. This may solve the problem for the time being. The banks will focus on collecting dollars as none of the banks wants to default loans in dollars from Bangladesh Bank.”

Salehuddin Ahmed further said, “The fixed price of dollars in remittance can be raised by Tk 4 to 5. This may increase the income to some extent in a legitimate way. In addition to that, the procedures of bringing in the remittance should be made easier.”

The reasons behind the crisis

The outbreak of coronavirus emerged in the country in March 2020. At the time, the central bank had given various concessions to keep the economy and trade running. The time limit for paying the import liabilities was extended from 180 days to 360 days. Besides, an additional time was given to bring in remittance to the country. As a result, a large sum of liabilities remained unpaid. At the same time, a huge amount of export income didn’t reach the country.

However, during the coronavirus pandemic, the country witnessed several records in remittance as it was coming through legal channels. Therefore, the foreign reserve of the country reached a record amount of $ 48 billion. Although several countries in the world depreciated local currencies during the pandemic, Bangladesh Bank maintained the value of taka against dollars artificially.

According to the figures of the central bank, the import cost crossed to $ 8 billion-mark for the first time in the country’s history in December 2021, which increased to $ 8.3 billion last January and February.

The prices of fuel and food products rose exponentially after the start of the Russia-Ukraine war last February. Therefore, the import cost didn’t come down. On the other hand the remittance and export didn’t increase. As a result, the dollar crisis became severe.

Not all the money from the export income every month reaches the country. Although the country had exported products worth $ 13.9 billion from January to March this year, it received some $ 11.34 billion in return. And from March to June, the country had exported products worth $ 13.58 billion, but received some $ 11.98 billion in return. As such, an export income of $ 4 billion got stuck in the last six months. According to the law, the export income should be brought in within 120 days after the shipment of products.

The country does not spend dollars only for import. Dollar is required for different purposes, including repaying government and private loans, technological services, returning the profit to foreign companies, education and medical facilities. Around $ 1 billion is needed every month for these purposes.

Sales of $ 12 billion in 15 months

The country received a record amount of remittance during the pandemic. Therefore, the central bank bought around $ 8 billion from the market to maintain the price of dollars in the 2020-21 fiscal. After that, it had sold a total of $ 7.62 billion from the reserve till August 2021.

That trend is still on in the current fiscal. So far, the Bangladesh Bank has sold around $ 5 billion in the current 2022-23 fiscal. In all, the central bank of Bangladesh has sold around $ 12 billion from the reserve in the last 15 months. As a result, the reserve has decreased to $ 34.25 billion. Therefore, the Bangladesh Bank is not selling dollars in the private sector now.

Although the amount of the reserve is $ 34.25 billion as per the figures of BB, the real amount is a bit more than $ 26 billion as some $ 8 billion has been invested in different sectors from the reserve.

The International Monetary Fund (IMF) delegation, who visited Bangladesh in recent times, had recommended disclosing the real amount of reserve. Bangladesh Bank too agreed to do that.

Crisis of dollar sources

The dollar crisis in the banks has intensified further. Therefore, more than half of the banks are starting their daily activities without any dollars. Consequently, only the banks with export incomes have the scope to open new LCs. Several banks are deferring the payments for import liabilities amid the dollar crisis. Already the foreign banks have reduced the ceiling of using dollars for the banks in the country.

On condition of anonymity, a chairman of a private bank on Wednesday said that he has been trying to open a LC for importing cotton worth $ 200,000 in one of the first generation banks in the country. However, he has not been able to open it as yet.

He said, “Opening of LCs has almost stopped except for fuel and fertiliser imports.”

Meanwhile, LCs for import were reduced to less than $ 4.5 billion last October as a result of different initiatives of the BB. Therefore, the central bank officials are expecting the ongoing dollar crisis to end by the start of next year.

Bangladesh Bank spokesperson GM Abul Kalam Azad told Prothom Alo, “The policy of Bangladesh Bank is that the bank can open LCs equal to the dollar that it earns. Monitoring over the opening of LCs over 3 million dollars is ongoing to control the import. And the government assistance in import of energy, food and fertiliser will continue.

Two major sources of dollars are remittance and export incomes. The amount of dollars coming through the formal channels has declined as its price is less in the banks as compared to the spot market. At the same time, the country’s export is on decline due to the high prices in big export markets like the USA and Europe.

On condition of anonymity, managing director of a third generation bank told Prothom Alo, lifting the ceiling of dollar prices in remittance may solve the crisis to some extent at least.

Now all the banks are giving a maximum price of 107 taka per dollar in remittance. The price of dollars is fixed at Tk 100 for encashment of export income.

Speaking to Prothom Alo, Syed Mahbubur Rahman, MD of Mutual Trust Bank, said, “At present, none of the banks is opening any LC more than the amount of dollars that the bank is earning. It is quite normal as none of the banks do not want to default on any foreign loan. The foreign banks are not raising the ceiling for loans in this time of crisis either. As a result, the sources of dollars have become limited.”

*This report appeared on the print and online versions of Prothom Alo and has been re-written in English by Ashish Basu