Gross reserves now $23.5 billion officially
As the central bank adopts new calculation, net reserve falls $4.24 billion short of IMF threshold
![Infographic: TBS](https://www.tbsnews.net/sites/default/files/styles/infograph/public/images/2023/07/13/p1_foreign-exchange-reserve-gross.jpg)
Country's gross foreign exchange reserves dropped by $6.44 billion to $23.56 billion in the Bangladesh Bank's new reserve calculation, published on Thursday, as per the formula suggested by the International Monetary Fund.
The gross reserves was $29.92 billion as per the previous calculation, according to the central bank data posted on its website. The newly calculated figure is the real reflection of the country's reserves as the Bangladesh Bank started following the IMF's Balance of Payments and International Investment Position Manual (BPM6).
The new gross reserves can cover imports of nearly four months as per recent import trend. International standard on reserves requires three months' import bill coverage.
The government itself is now paying the price for inaccurate accountancy of the Bangladesh Bank, said Dr Zahid Hussain, former lead economist of the World Bank Dhaka office.
For instance, energy sufficiency was one of the most highlighted claims by the government. But now, the government is having difficulties in timely imports of fuel and coal due to the dollar crisis which damaged its image, he said.
Zahid Hussain said inflated reserves distorted the government's decision in using reserves. A sense grew among policymakers that the country was sitting on a mountain of reserves. The government moved to form an infrastructure development fund with reserve money. Moreover, the private sector also demanded loans from the reserves.
Even a segment of economists also advocated for forming sovereign wealth fund currency instead of keeping huge reserves idle, he added.
The IMF introduced the BPM6 manual in 2012, but the central bank so far did not comply with it fully, which helped its forex reserves look higher than actual, prompting the government to use it for different infrastructural projects.
According to BPM6 calculation, the Bangladesh Bank had to exclude foreign currency loans to local banks, known as the Export Development Fund (EDF); deposits with state-owned local banks; deposits with the IDB Group; fixed-income securities below investment grade; a loan to Sri Lanka; and other foreign currency assets in non-convertible currencies from its previous gross reserves figure to come to the actual reserves figure.
On the other hand, the net reserves, which refers to the amount readily available for intervention in the foreign exchange market, stood at $20.22 billion as per the new calculation, which can cover imports for less than three months.
However, the Bangladesh Bank has decided not to make the net reserves figure public.
The IMF says the central bank must exclude the reserve-related liabilities to estimate the net reserves.
The multilateral donor also set the floor on net reserves at $24.46 billion for June as a performance criteria of the central bank for the $4.7 billion loan package.
So, the country is now $4.24 billion short of the IMF ceiling.
While announcing the new monetary policy last month, Bangladesh Bank Governor Abdur Rouf Talukder emphasised that it is more important for the central bank to fulfil its payment obligations rather than simply accumulating reserves to adhere to the IMF's requirements.
Bangladesh's reserve-related liabilities declined to $3.34 billion in June from nearly $5 billion in the same period last year.
The Bangladesh Bank reduced its liabilities with the Asian Clearing Union (ACU) through restricting imports which ultimately helped the central bank to minimise the country's reserve liabilities.
The liabilities with the ACU declined sharply to $230 million in the last one year from $1.9 billion in June last year, central bank data shows.
The other liability components including the ACU are $938.74 million for FC Clearing Account, $2 billion SDR Allocation, $110.90 million for the IMF Trust Fund, and $1.12 million for the Japan Debt Relief Fund, according to Bangladesh Bank data.
Moody's in its latest report downgraded Bangladesh's credit rating due to heightening external vulnerability and liquidity risks amid deterioration in foreign exchange reserves.
The global rating agency forecast that Bangladesh's gross forex reserves might remain below $30 billion for the next two to three years with an import coverage for around three months.
A higher outflow of foreign funds than inflow put pressure on the country's balance of payment with the financial account turning to deficit.