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Bank & Finance - World wide - April 11, 2023

Dollar spending more than income

Reserves under pressure

Mahfuja Mukul: The country’s foreign exchange reserves are under pressure from short-term foreign loans. Due to increase in such loan repayments, reserves are decreasing. In the last one month, the reserves have decreased by $124 million. $12.98 billion decreased as of one year. Although it has increased by $16 million in the last one week. As early as next month, the Asian Clearing Union (ACU) will have to pay more than $1 billion in debt together. Then the reserves may decrease further.
Sources said imports have been heavily curbed to reduce pressure on reserves. Earlier, it used to cost about $800 on average for import every month. Now it has come down to $45 billion. Imports fell by an average of about 40 percent. Control continues on opening of new LCs. There is some relaxation in import of fasting related products only.
LC opening has decreased by 36 percent in February this year compared to February last year. LC openings fell by nearly 25 percent in July to February. Imports decreased by 10 and a half percent. However, the pressure on reserves is not easing. According to a Central Bank report, the short-term debt repayment pressure has increased.
Although these loans were supposed to be repaid earlier, the repayment was postponed due to Corona and global recession. They have to be paid now. Out of this, private sector debt is the largest due to imports. Along with this there are long term loans.
Short term loans are generally taken for a period of six months to one year. If for any reason the repayment of the loan is not possible, its term can be extended by one more year on the basis of agreement between the lender and the borrower.
Due to Corona and global recession reducing the ability of entrepreneurs to repay loans, the repayment period has already been extended from one year to two years. Now those debts have to be paid. At present, the total short-term debt for import and project loans is $21 billion.
Of this, $3 billion in the public sector and $18 billion in the private sector. Out of the total loan, $5 billion is given as project loan. The remaining $1600 million are taken in the import sector.
Out of the total debt, about $16 billion will have to be repaid this year. An average of $1.5 billion has to be paid every month. Besides, there is a long-term debt of $75.2 billion. Of this, the debt of $200 million has to be paid in the next financial year. $1.7 billion have to be paid in the current financial year.
An average of $7 billion is being spent every month to meet debt repayments and imports. In contrast, the foreign currency income is $650 to 670 million. There is a deficit of $30 million to $50 million per month. Dollars have to be sold from reserves to meet this deficit. Due to this, the reserve is under pressure. Dollars are not being added to reserves due to deficit.
Meanwhile, Bangladesh received $470 million for the first installment of the loan from the IMF last February. Reserves increased slightly. Later it started to decrease again.
According to the report of the central bank, the reserve of the country was $3,122 million on Thursday. It had fallen to $3,066 million in the previous week. Reserves increased by $16 dollars in a week.
About $7 billion will have to be deducted from the reserve. Those funds have been invested in various sector funds. The usable reserve will decrease to $24.22 billion. A year ago, the reserves were $44.22 billion. Reserves decreased by $1298 million as of one year.
Meanwhile, remittances increased slightly due to fasting and Eid. After the last six months, remittances left the house of $2 billion. However, the trend of export earnings has again turned positive. 70 percent of the total foreign exchange earnings of the country comes from the export sector, 28 percent comes from remittances. The remaining 2 percent is from other sectors. Due to this, if the export income decreases, the pressure on the reserves will increase.
Last October, export income was $436 million. It increased to $509 million in November. It further increased to $537 million in December. It fell again to $5.14 billion in January. In February, it further decreased to $4.63 billion. In March, it rose by $1 to $4.64 billion.
Compared to March of last year, the export earnings in March this year decreased by 3.50 percent. In March last year, there was an increase of 55 percent. It increased by 33.5 percent in July-March of the last financial year. It has increased by only 8 percent during the same period of the current financial year.
Raw materials for export industries are imported through back-to-back LC. Back-to-back LC openings have declined by 34 percent in the same period of the current fiscal compared to July-February of the previous fiscal. Imports fell by 10 percent. That is, the import of raw materials for export industries has decreased.
This may reduce exports in the coming days. Besides, due to recession in Europe and America, the export income of the country is decreasing. Remittances increased due to fasting and Eid. It is assumed that this trend will continue until the next Eid al-Adha. Last July remittances came in at $210 million, in August $204 million. It has fallen below $200 million since September.
154 crores in September, $153 crores in October, $160 crores in November, $170 crores in December, $196 crores in January and $156 crores in February. In March, it rose again to $202 million.
Meanwhile, foreign investment increased slightly. In July-January of the last financial year, foreign investment came to $129 million, in the same period of the current financial year, $134 million came. Grants increased by 47 percent over the same period last fiscal year. It has decreased by more than 18 percent during the same period of the current financial year.

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