The decline in the country’s foreign exchange reserves during the Awami League government, which was ousted in the July mass uprising, has been stopped. Reserves are now at a fairly strong level. This is a major source of relief for the country.
The reason is that prices of fuel oil, gas, fertiliser and other commodities have risen significantly in the international market. Yet we have been able to purchase fuel oil, gas and fertiliser despite the higher prices.
During the Awami League government, the country’s actual reserves fell below $20 billion. During the interim government, Bangladesh Bank took several initiatives to halt the decline.
Those measures succeeded in stopping the fall, and reserves began to rise. Reserves are now at a comfortable level. There is no disagreement about that.
But there is also cause for concern. Investment in the country remains stagnant, and the desired level of investment is not taking place. Entrepreneurs in the private sector are not getting enough credit. Export-oriented industries are facing shortages of gas and electricity. Steps must be taken to resolve these shortages.
Without addressing the gas and electricity crisis, it will be difficult to attract new investment into export-oriented industries. If the crisis continues, production at existing factories could decline. As a result, export earnings from abroad could also fall.
We have to import fuel oil, gas, fertiliser and other essential commodities. That will require spending dollars. But if exports are not sufficient, the supply of dollars will decline. At that point, it will no longer be possible to maintain reserves.
During the interim government, the exchange rate was allowed to be determined by market forces. As a result, the exchange rate remained stable. Now, however, it appears that we are effectively fixing the exchange rate.
The trading band is being set, and we are once again intervening to control the foreign exchange market, as we did in the past. Bangladesh Bank needs to focus on preserving the reserves.
*Ahsan H Mansur, former governor, Bangladesh Bank