Bangladesh’s foreign exchange reserve, which grew rapidly during the pandemic, has now fallen to $41 billion on the back of rising imports and falling remittances. This has raised concerns for the country over foreign currency spending.
After paying $2.24 billion to the Asian Clearing Union on Tuesday, the reserve stood at $41.95 billion, which central bank officials say will cover import liabilities for the next six months. month.
In such a situation, the central bank on Wednesday took several strict measures to maintain the foreign exchange reserve by reducing spending on development projects. It has decided to delay payments for at least six months for projects that currently have no urgency.
Earlier on Tuesday, the central bank instructed scheduled banks to keep the minimum margin of 50% against letters of credit (LC), double the previous margin set only a month ago.
Meanwhile, Prime Minister Sheikh Hasina has ordered authorities not to approve government officials’ trips abroad except in emergencies.
The foreign exchange reserve has increased gradually over the past two years, according to data from the Bangladesh Bank. It was around $15 billion in 2013 and jumped to $36 in 2019.
With the rapid increase in remittances during the pandemic, the reserve reached an all-time high of $48.06 billion in August 2021. However, the reserve has been declining since then, mainly due to increased imports in the context of the ease of the pandemic.
In the nine months (July-March) of the current fiscal year (FY22), import costs increased by 43.86% to $61.5 billion, resulting in a large trade deficit, exports during the period having increased by only 32.92% to reach $36.62 billion.
Meanwhile, remittances fell by 17.74% to $15.30 billion.
According to international standards, a country must have reserves equal to three months of import expenditure. With the amount of reserves that Bangladesh currently has, it is possible to pay import costs for at least 6 months at the rate of $6 billion in imports per month on average.
To maintain a healthy reserve, the Bangladesh Bank also raised the interbank exchange rate by Tk 0.25 to Tk 86.7 per dollar on Monday, the second increase in less than two months. This is the rate between two banks. Customers must pay at least Tk 7 more per dollar.