Forex reserves fall short of even relaxed IMF targets in 2023

Bangladesh could not meet the targeted net reserve amount set by the International Monetary Fund (IMF) at the end of 2023, as stipulated in its loan conditions. The prescribed amount was supposed to be USD 17.78 billion, but it stood at $16.75 billion, according to a source at the Bangladesh Bank.

Net forex reserve is the amount of reserve without any liability. The IMF provided a method to Bangladesh to calculate the amount during providing the loan and set the amount of reserve to be retained at a certain time.

Prior to the December shortfall, the Bangladesh Bank had also faced a failure in September. Subsequently, the International Monetary Fund (IMF) revised the amount following a request from the Bangladesh side. However, the authorities were unable to retain that reduced amount at the end of December as well.

The net reserve is calculated by deducting all the liabilities. Besides this net reserve, there are two more methods to calculate the forex reserves - one is total reserve and another is calculated as per the BPM-6 method of the IMF. The net reserve at the end of 2023 was $27 billion but the IMF wants to know the net reserve amount only.

Speaking to Prothom Alo, Bangladesh Bank spokesperson Mezbaul Haque said, “We have been trying to keep the amount of reserve over $17 billion. That was possible. The net reserve stands over $17 billion now. What the IMF has specified is a time-bound target, and the reserve could fluctuate around that amount. The Bangladesh Bank has implemented all possible measures to meet the set target.”

Bangladesh asked for a loan from the IMF when the deficit arose in financial balance and current account balance amid the dollar crisis in the country. After six months the organisation on 30 January last year decided to lend $4.7 billion to Bangladesh and released $476.3 million in the first tranche on 2 February and $681 million in the second tranche in December that year.

The global lender at that time spoke about maintaining a few conditions that include initiating reforms in the financial sector. As per that condition, the net reserve was supposed to stand at $24.46 billion at the end of June in 2023 but the amount was $20.47 billion that time.

The Bangladesh side informed the IMF that meeting the targets of reserve and tax revenue will be possible after the forthcoming parliamentary elections. In this context, the global lender relaxed the loan conditions.

According to the revised target, the net reserve amount was supposed to stand at $17.78 in December in 2023, which will have to be raised to $19.26 in March in 2024 and $20.10 billion in June this year.

But the people involved with the sector doubt this.

Speaking to Prothom Alo, Policy Research Institute (PRI) executive director Ahsan H Mansur said failure to meet even the reduced targeted amount of forex reserve is unwarranted. Now the IMF will observe the steps the Bangladesh Bank takes to maintain the expected amount of forex reserves and manage the dollar market.

He further said what has been done through interference so far has actually created chaos in the dollar market. As a result, the difference in exchange rate in the banking system and market is more than Tk 10 now.

Bangladesh Bank has bought the dollar from the market at a lower price which is not warranted at all, he stressed.

Ahsan H Mansur observed that the IMF will consider these issues alongside the net amount of reserve in March before releasing the next tranche of money.

Meanwhile, the ongoing dollar crisis for the last one-and-a-half year is yet to be resolved. The price of each dollar in the banking system is Tk 109.5 for remittance and export income while Tk 110 for import. But actually, the banks have been buying dollars at Tk 122-123 and selling those at a higher price.

* This report, actually published in the print and online editions of Prothom Alo, has been rewritten in English by Shameem Reza