Net forex reserve now below $18b: Zahid Hussain

The foreign exchange reserves are depleting due to a deficit in the balance of payments.

The net forex reserves now stand below the threshold of $18 billion, said Zahid Hussain, former lead economist of the World Bank's Dhaka office.

Addressing the annual conference of the International Business Forum of Bangladesh (IBFB) on Wednesday, the noted economist pointed out that there is no clear picture of foreign exchange earnings and expenses, which is exacerbating the ongoing financial woes.

Pranay Kumar Verma, the high commissioner of India to Bangladesh, attended the event as the chief guest.

Zahid Hussain said one of the external reasons behind the current macroeconomic instability is the high price of greenback.

The US dollar index, which remained below 100 in 2021, surpassed the threshold in September 2022 and continues to remain above 100, except for some minor fluctuations.

He voiced concern that the recorded inflow and outflow of foreign currency seem inconsistent with the actual reserve figures, indicating a potential unknown factor at play. He noted that the balance of payments has been in the red for quite some time, though it was supposed to go through regular fluctuations.

The rise in oil prices and the exchange rate of the US dollar in the global market led to a deficit in the balance of payment in Bangladesh, significantly impacting the economy. The exchange rate of the local currency declined in the aftermath, which eventually squeezed the forex reserve, he observed.

Citing these issues, Zahid Hussain said the forex reserves now stand below the threshold of $18 billion according to the International Monetary Fund's (IMF) BPM6 method.

He also highlighted some internal factors, including a shift in government policy, that contributed to the country's macroeconomic instability. According to him, a significant portion of the reserves, roughly $1 billion per month over the past 24 months, decreased due to unconventional policies.

Bangladesh used to receive roughly $2 billion per month in remittances in 2022, but it plunged to $1.5 to 1.6 billion in the first three months of the current year.

Regarding the currency exchange rate, Zahid Hussain expressed skepticism about the effectiveness of setting a competitive, floating, flexible, and uniform exchange rate if there is a shortage of foreign currency in the market.

He also criticised the monetary policy of the Bangladesh Bank, describing it as "unique" due to its simultaneous contractionary and expansionary natures, which he found difficult to explain.

The programme was presided over by Humayun Rashid, the president of IBFB and managing director of Energypac Power Generation Limited.