Bangladesh's forex reserve, which witnessed a rapid surge during the pandemic, has now fallen to the $41 billion-mark thanks to higher imports and lower remittance inflow. This has caused concerns for the country in the matter of spending foreign currencies.
After paying the Asian Clearing Union $2.24 billion on Tuesday, the reserve stood at $41.95 billion which central bank officials believe will meet the liabilities of imports for the next six months.
In such a situation, the central bank on Wednesday took several strict steps to keep holding the foreign currency reserve by reducing spending on development projects. It decided to delay payments for at least six months for the projects that have no urgency right now.
Earlier on Tuesday, the central bank instructed the scheduled banks to keep the minimum 50% margin against letters of credit (LC), which is double the previous margin set only a month ago.
Meanwhile, Prime Minister Sheikh Hasina has ordered the authorities not to approve government officials' travels abroad except in emergencies.
The forex reserve has been on a gradual rise in the past couple of years, according to the Bangladesh Bank data. It was some $15 billion in 2013 and jumped to $36 in 2019.
With the rapid higher remittance inflow during the pandemic, the reserve hit an all-time high of $48.06 billion in August 2021. However, the reserve has been on the decline since then, due mainly to increased imports amid the ease of the pandemic.
In the nine months (July-March) of the current fiscal year (FY22), the import costs increased by 43.86% to $61.5 billion, leading to a wide trade deficit, as exports during the period surged by only 32.92% to $36.62 billion.
In the meantime, remittance inflow decreased by 17.74% to $15.30 billion.
By international standards, a country has to have reserves equal to three months of import expenditure. With the amount of reserves that Bangladesh has now, it is possible to pay import costs for at least 6 months at the rate of $6 billion worth of imports per month on average.
To maintain a healthy reserve, the Bangladesh Bank also raised the interbank exchange rate by Tk0.25 to Tk86.7 per dollar on Monday, the second increase in less than two months. It is the rate between two banks. Customers have to pay at least Tk7 more per dollar.