Why doesn’t decline of reserve stop?

Syed Nasir Hossain: The Bangladesh’s reserves are continuously decreasing as the expenditure is more than the foreign exchange income. The central bank is imposing various restrictions including multilateral decisions to increase the flow of dollars in the market to prevent the collapse of reserves. But in reality, its benefits are not matching. The upside is making the dollar crisis more pronounced. The value of money is decreasing. Inflationary pressures are increasing.
The government has to cope with the pressure of foreign debt repayment since the beginning of the current financial year. Depletion of reserves increased exponentially as the dollar continued to be sold from reserves to repay debt. On the other hand, the International Monetary Fund (IMF) stipulated a certain amount of reserves. At present there are less reserves than that. The current gross reserves are the lowest in the last 9 years. Due to decrease in remittances, foreign exchange reserves are constantly decreasing.
A downward flow of remittances has accelerated this decline. Reserves fell by more than $2 billion in 26 days this month, the highest in a year. Those concerned believe that the decline in reserves is unlikely to reduce soon.
According to sources, the inflow of dollars in the market increased from export earnings, remittances, foreign investment and foreign grants. In these 4 sectors the flow of income is downward. Dollar crisis started in the country from April last year. As a result, the dollar price increased from Tk 88 to Tk 110.50. Dollar price is about Tk 7 to 8 more in curb market than in bank. As a result, a large part of the remittance is going to Hundi.
When money changers and curb markets began to conduct special operations to control the price of dollars, dollar transactions came to a standstill there. Now there are some transactions but the price is Tk 118 to Tk 119. It did not increase the flow of dollars. Rather decreased.
Officials of Bangladesh Bank believe that remittances are decreasing due to the current system of keeping the local currency taka strong rather than increasing the price of the dollar. This policy is not in effect at all. The top officials do not want to accept the matter, as a result the fall of the reserve is not prevented.
To increase the flow of dollars, the export income should increase. That is not possible. Export earnings are falling. Export earnings increased by 34.38 percent in FY 2021-22. The growth in the last financial year was only 6.67 percent. The growth in export earnings has fallen by around 27 percent in a year.
As of the last 3 months, remittances have reached $577 million. It increased by 12.27 percent in July-August of the last financial year. Instead of increasing in the same period of the current financial year, the growth has decreased by 13.56 percent.
Grants increased by 51.74 percent in FY 2021-22. Instead of increasing in the last financial year, it decreased by 11.5 percent. In July of the last financial year, there was an increase of 84.39 percent. It has decreased by 33.13 percent during the same period of the current financial year. Only $320 million in donations came in June and July.
Foreign investment in 2021-22 was $1.83 billion, compared to $1.61 billion in the previous fiscal year. However, investment increased slightly in July. $17 crores at the same time last year and $18 crores at the same time this year. On the contrary, the trend of withdrawing foreign investment from the stock market has increased.
Meanwhile, foreign exchange consumption has started to rise again even after controlling for imports. Meanwhile, prices of various products, including fuel oil, have started to rise in the international market. As a result, the expenditure in this sector will increase. This will put more pressure on the foreign exchange.
Apart from this, more dollars are being spent to take profits of foreign companies, pay royalties, take money from foreigners working in Bangladesh. Apart from this, deferred loans and short-term loans have to be paid. At least another $6 billion must be repaid by December this year. All these expenses are more than foreign exchange income.
Foreign borrowing has also declined in recent times. Because of this, the flow of dollars is not increasing. Earlier the interest rate on foreign loans was low. Now nobody wants to take loan at high interest rate.
According to ERD sources, in the first month (July) of the current financial year, the amount of foreign aid exemption has decreased. This month development partners have released $40.50 million. In the same period of the last financial year, the discount was $484 million. Besides, in July, Bangladesh actually paid Tk 25.30 crore in interest. Bangladesh paid $17.9 million during the same period last financial year. Compared to the last financial year, more than $7.4 crore have been paid in one month of this financial year.
Former Chief Economist of World Bank Dhaka Office Zahid Hossain said, about $350 million are being paid annually. But after 2026 it may increase to $450 to $500 million. But if the foreign exchange income does not increase compared to that then complications will arise.
In August 2021, when remittances increased, imports decreased and product prices decreased in the international market during the Corona period, the reserve increased to the maximum gross of $48 billion. Now it has reduced to $2,706 million as gross and $2,115 million as net. With which the import expenses of a little more than 3 months can be met in a controlled manner. The continuing downward trend in reserves is raising concerns among importers.
Bangladesh Bank has started publishing balance of payment-6 or BPM-6 balance of payment-6 along with gross according to the prescription of IMF since last June. In this case, net reserves are calculated by excluding loans given to various countries including EDF (Export Diversification Fund), IDF (Infrastructure Development Fund) and Sri Lanka from total (gross) reserves. On September 26, the country’s reserves fell to $27.06 billion gross and $21.15 billion net.
However, the country has repaid the $200 million loan to Sri Lanka in the last few months with interest, which has been added net to the reserves. However, Bangladesh has failed to preserve the reserves in compliance with the IMF conditions at the end of September. According to IMF loan conditions, real reserves were supposed to be $25.32 billion in September. However, there is $4.17 billion less than that.
Economist Dr. Ahsan H. Mansoor said the speed of export and remittance of the country is not good. Necessary goods must be imported. This will reduce the reserve further. However, there is no such initiative to increase the reserve. Different sources should be found to increase the income in dollars.