Home Bank & Finance Dollar crisis yet not ending
Bank & Finance - Management - January 25, 2023

Dollar crisis yet not ending

Ibrahim Khalil Jewel: The dollar crisis has become more noticeable in the banks of the country. The supply of dollars from the central bank’s foreign exchange reserves to commercial banks has been reduced. The central bank is not releasing dollars except for essential commodity imports. Only consumer goods, baby food, medicines, energy and industrial raw materials are being supplied with dollars.
Apart from this, in case of import of other products, banks should open LC by providing dollars on their own initiative.
Even the installments of short-term foreign loans taken earlier are not being given dollars from Bangladesh Bank. The banks have to meet the dollar demand in these sectors. Meanwhile, because the banks do not have the supply of dollars as per demand, import LCs cannot be opened. The central bank has taken these steps to maintain foreign exchange reserves. According to sources, reserves are continuously decreasing. Earlier, the reserves used to go down and increase again within a few days after paying a huge amount of debt due to the Asian Clearing Union (ACU). That is no longer the case. On the other hand, the reserve is decreasing to pay the daily debt without paying the debt.
Reserves are shrinking by an average of $200 crore every two months. In this way, the reserve now stands at 3,220 crore dollars. If the allocation of 800 crore dollars to various funds is excluded from this, the net reserve remains 2,420 crore dollars. With which it is possible to meet the import expenses of 3.5 months.
In the first week of March, ACU will have to be paid more than 110 crore dollars in debt. Before this, there is a possibility of receiving 45 crore dollars for the first installment of the loan from the International Monetary Fund. But this will not reduce the reserve pressure much.
However, if loans from other organizations including the World Bank are available, the pressure may be reduced.
The central bank has adopted a new strategy in foreign exchange revenue and expenditure. They want to meet import expenses through exports and remittances. Earlier, the deficit between this income and expenditure was 230 crore dollars. Last November, this deficit decreased to 100 crore dollars. The deficit further decreased in December. The central bank expects exports to balance foreign exchange earnings and expenditure by March. Then the pressure on reserves will be reduced.
To implement this step, the central bank wants to further reduce imports. They forecast imports to average $4.5 billion in new LC openings through next March. In November, new LC opening eased to $4.63 billion, but rose to $5 billion in December. Now LC opening for import of food and energy products has increased. In particular, initiatives have been taken to open gas import LCs after being closed for four months.
Electricity will also be imported from India. Due to these reasons LC opening will increase again. If the LC increases, the pressure on the reserves will also increase.
Currently, dollar supply is being provided to sectors other than consumer staples, baby food, medicines, fertilizers, energy and industrial raw materials to reduce imports. In the import of these products, the central bank is giving dollars from the reserve. Banks have to raise dollars on their own initiative to import commercial goods. About 600 to 700 crore dollars worth of commercial goods are imported annually.
Industrial machinery is imported from 900 to 1000 crore dollars. Dollars are not matching in these sectors. Almost all of the dollars earned by exports are spent by exporters on importing raw materials and their by-products. With the dollars received in remittances, banks are opening LCs for importing commercial goods and repaying previous loans. But the remittance flow is increasing very less than the demand.
That is why the dollar crisis in the bank is also evident. To meet this crisis, banks are now buying remittance dollars at high prices.
In this case, the fixed rates of Bangladesh Foreign Exchange Dealers Association (BAFEDA), the organization of top executives of commercial banks, are not being implemented. Bafeda has fixed the maximum purchase price for remittances at Tk 107. But some weak banks are buying remittances at Tk112 to Tk114. As a result, expatriates are sending more remittances through small banks at higher prices. This has increased remittance flow to small banks in recent times.
Remittances of relatively large banks with large networks in different countries have declined. By buying remittances at higher prices, they are also selling dollars at higher prices for imports. All in all, new instability has appeared in the dollar market.
According to the information obtained from the Central Bank report, remittances are coming in at 170 crore dollars every month. 536 crore dollars are coming in terms of export earnings.
Apart from this, foreign donations are coming in at 36 crore dollars. Foreign investment is 15 crore dollars. All together, the monthly foreign currency income is 757 crore dollars. Import expenditure in November was 704 crore dollars. It increased further in December. Apart from this, an average of 43 lakh dollars is being withdrawn from the stock market abroad. 60 to 70 crore dollars are being spent on foreign debt repayment.
Apart from this, the spending of dollars in foreign travel, medical and education sectors is also increasing. All together there is a deficit.
This shortfall is now being adjusted by foreign short-term borrowings and by extending the repayment period of previous loans. But further pressure on the dollar is likely to come due to new debt and deferred repayments. The central bank says that the price of goods in the international market is decreasing.
If this trend continues, the cost of imports will decrease. Then the pressure of foreign exchange will also reduce.

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