Respite from fall in forex reserves, dollar market stable 

Bangladesh has registered a slight improvement in its forex reserves owing to a robust flow of inward remittance. 

Since the political changeover in August, expatriates have been sending increased amounts of remittance through legal channels. Besides, reduced import costs and increased commitments for foreign loans restored comfort in the external sector and facilitated stability in the dollar market to some extent, according to experts.  

There was a sharp rise in fuel, food and transportation costs in the global market following the commencement of the Russia-Ukraine war in February 2022. In Bangladesh, it drove up import costs, triggered a dollar crisis, and reversed different financial indicators. 

To deal with the situation, the central bank – Bangladesh Bank – started selling dollars from its reserves, depleting them from a peak of $46 billion to almost half. At one point, usable reserves fell below $13 billion.

The situation improved slightly as the central bank got new leadership following the downfall of the previous Awami League government through a student-led mass uprising. Within a short span of time, expatriate income increased and imports slowed down slightly. And, the central bank swiftly shifted away from the practice of offloading dollars from forex reserves. 

In the aftermath, the fall in forex reserves has stopped. The greenback is being traded at Tk 120 in banks and Tk 122 in the open market. 

Government statistics indicated a reduction in inflation, but essential commodities such as chicken, eggs, and vegetables have still been expensive, exacerbating the public’s financial hardships.

According to Bangladesh Bank data, remittances reached $2.4 billion in September, which is up by 80 per cent compared to the $1.33 billion in the same period last year. It came after another strong inflow of $2.22 billion in August. 

In the first 12 days of the current month, a total of $990 million entered the country in the form of expatriate income. Remittance is crucial for an economy as it comes in foreign currency and gets deposited immediately. The government settles import bills and meets other expenses with the remittance. 

According to the National Board of Revenue (NBR), exports amounted to $3.86 billion in September, marking a 16 per cent increase from the $3.32 billion exported in the same month last year.. Earlier, July witnessed exports of $3.82 billion, with a growth rate of 3 per cent, while August posted exports of $4.07 billion, with a growth rate of 5 per cent. 

Over the first quarter of the current fiscal year, exports reached $11.75 billion, up 7.89 per cent compared to the same period last year.

According to the central bank data, there was a year-on-year decline of 5.89 per cent in overall exports – $40.81 billion – in the fiscal year 2023-24. The previous year saw exports worth $43.36 billion. 

Imports also declined by 1.16 per cent during the July-August period, compared to the same period last year.

Expatriate income rose significantly during the Covid-19 pandemic, boosting forex reserves to over $46 billion in June, 2021. Later, the central bank started selling dollars to deal with the financial crisis, squeezing the total to $23.77 billion by May, 2023. And, the usable reserves fell below the threshold of $13 billion.

On 4 August, forex reserves were $25.96 billion, with usable reserves at $15.53 billion. It dipped slightly to $25.04 billion, with usable reserves at $14.87 billion, following the settlement of the bills of the Asian Clearing Union on 9 October. 

In July 2022, Bangladesh sought loans from the International Monetary Fund (IMF) to address deficits in the financial and current accounts. The IMF approved a $4.7 billion loan in January 2023, disbursing $476.3 million in the first installment and $681 million in the second.

A total of $1.15 million was disbursed in the third installment in June, while the fourth is expected later this month. These funds are directly added to the forex reserves.

According to bank officials, the pressure on the dollar has eased to a significant extent, with many overdue foreign bills settled. Still, there is $3 billion due to be paid off. 

Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB) and managing director of Mutual Trust Bank, said the instability over dollars is over now, and there is no longer the same frenzy over prices. 

Some state-run banks have due bills, and it is pushing the dollar price up to over Tk 120. Once these liabilities are settled and incentives are lifted, the rate may fall below Tk 120, he added.