Pressure on reserves unlikely to come down

Pressure on reserves mounts due to the slowing growth of exports and remittances as well as decrease in foreign debt payment.

Reserves have decreased by USD 10 billion in one year.

As a result, the government is looking for alternative sources for dollars to decrease pressure on the reserves.

Under such a circumstance, Bangladesh sought Chinese yuan worth USD 5 billion as loans to lessen the expenditure of dollars.

There was an expectation of a positive declaration during prime minister Sheikh Hasina's recent visit to China. There were negotiations over this between two parties for the last two months. As there was no announcement over this loan, the reserve crisis remains.

As a result, budget assistance now depends on the World Bank, Asian Development Bank, JICA, Asian Infrastructure Investment Bank (AIIB).

The reserve was USD 31.2 billion on 30 June 2023. According to IMF BPM-6, reserve stands at USD 21.78 billion on 30 June 2024.

Economists feel pressure on reserves will mount further in future and the demand for dollars will also increase as the government wants to increase gross domestic product (GDP).

For this businesses have to be expanded and production has to be increased. As a result, import will increase resulting in increasing demand for dollars. Moreover, foreign debt payment is also rising.

Policy Research Institute (PRI) executive director Ahsan H Mansur, speaking to Prothom Alo, said, "When a country becomes poor, friends also do not stay beside it. We have not got anything significant from China and India. If we had got yuan worth USD 5 billion from China, we could have met import expenses."

Dollars could be saved. I heard about another line of credit (LOC) from India. That was also not obtained. If these loans could be obtained, reserves could increase by USD 4-5 billion."

He said there is no alternative to reforms. The financial sector and revenue sector have to be reformed. Export has to be increased. Only then the foundation of the economy will be strengthened.

State minister for finance Waseqa Ayesha Khan was contacted on Saturday afternoon. As per her advice, questions were sent to her mobile phone. Later, she couldn't be contacted any more.

Sources concerned said a loan agreement could not be signed with China as negotiations could not be reached over the type of loans and conditions. China wanted to provide loans as a trade facility. But the interest of this type of loan is higher and the duration of loan payment is 14-15 years.

As a result, the pressure of loan payments will increase. On the contrary, if the loans are availed as budget support, the interest becomes less and the duration of loan payment is long. This loan can be used in any sector. The entire loan is received two weeks after the loan approval.

China is one of the big trade partners. As a result, if the loan could be availed, the import bill would have been paid in Chinese yuan. Dollars from reserved need not to be spent. But the scope has not been lost yet. A technical team from China will come soon to hold a thorough discussion over the matter.

Currently, the trade gap with China stands at USD 19 billion. Entire payment of import and export is made in dollars.

There are three sources of dollars – export earnings, remittances, and foreign loans. The Bangladesh Bank has recently created a huge buzz by exposing discrepancies in export data. It noted that the actual export earnings in the first 10 months of the last fiscal year, 2023-24, was lower by $14 billion than the reported figure. It would affect other financial estimates, including the GDP and per capita income.

Remittance is now in a relatively better shape due to the rising price of dollars, but there is no significant growth in disbursement of foreign loans. The economic relations division (ERD) reported an year-on-year rise of $40 million in foreign loan disbursements during the first 11 months of the last fiscal year.

An increased amount of dollars is being spent on overseas trade and loan repayment. Importers are purchasing a greenback at Tk 117 to import products. The government is controlling imports and discouraging importers amid the dollar crisis. According to the central bank, the country’s total imports were $60.73 billion during the July-May period, down by $10 billion from the previous year.

Meanwhile, the ERD reported a 25 per cent or $600 million rise in foreign loan repayment in the first 11 months of the last fiscal year as the country spent $3.06 billion to repay foreign debts.

With this, the amount of overseas loans repayment crossed the threshold of $3 billion for the first time in history. The rising trend is expected to persist in the coming years.

The government is planning to borrow Tk 1272 billion from overseas sources in the current fiscal year, to tackle the budget deficits. At an exchange rate of Tk 117 per dollar, it amounts to nearly $11 billion.

However, Bangladesh has never received such a big amount in foreign loans in a single fiscal year. According to ERD sources, the country annually receives an average of $9 to 10 billion in foreign loans. Of the amount, a big portion, usually ranging from $7 to 8 billion, comes as project assistance from the Asian Development Bank (ADB), Japan International Cooperation Agency (JAICA), and other giant lenders, and the rest as budget support, commercial loans, or supplier credit.

Bangladesh has recently requested the World Bank for a new budget support programme worth $500 million, but is yet to receive any response. Earlier, it received $500 million in budget support from the World Bank in June.

Besides, the authorities are negotiating with the ADB for two budget supports worth $1.37 billion, and are expecting to receive it by December.

In this regard, former planning minister Shamsul Alam told Prothom Alo that the government approaches the foreign sources for budget support as interest rates on local loans are higher. It is an usual process.

He also noted that obtaining budget support is now being stressed as the financial sector is now facing some difficulties. He suggested maintaining caution as the forex reserves has been stable throughout the last few months.

*This report, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam and Misbahul Haque.