Economists cite reasonsWhy Bangladesh’s forex reserves dipped to $21.15 billion?

Macroeconomists and policy analysts have listed paying deferred dues, the tendency of FDI profits taken abroad by investors, declining inward remittance flow, capital flight, and money laundering as reasons behind Bangladesh's foreign exchange reserves slipping to US$ 21.15 billion.

Bangladesh’s foreign exchange reserves stood at $21.15 billion on Tuesday in line with the IMF reserve calculation method, Bangladesh Bank shared the information on Wednesday.

According to the central bank, a week ago on September 21, the reserve was $21.45 billion. The forex reserves dipped by $300 million to $21.15 billion within a few days.

Dr Debapriya Bhattacharya, a macroeconomist and public policy analyst, said that this happened due to deferred payments of fuel import and FDI profits of the western investors being taken abroad.

He said Bangladesh’s imports, particularly fuel, in some cases may close unless deferred dues are cleared. Foreign investors are also under pressure to take their profits abroad considering political uncertainty.

Economist Dr Ahsan H Mansur said that the declining inward remittance flow and rise in money laundering are contributing to depleting reserves.

He said the situation would not improve before the next national election as there is uncertainty. If a stable government is formed through a credible election, then the economy will recover fast due to improved confidence level, he pointed out.

According to the central bank, the gross reserves (which include EDF funds and loans from reserves) of the country at the beginning of September were $29.23 billion. 

At the beginning of Wednesday (September 27), it decreased to $27.06 billion. 

Currently, the average monthly import expenditure is $6 billion. According to this, $18 billion will be required to meet three months of import demand. That is, with the current reserves, the import expenses of little over three months can be met under the Bangladesh Bank policy of a controlled spending system. A further reduction in imports will cover four months of import expenses.

According to sources, the inflow of dollars in the market has decreased due to a decrease in export earnings and remittance flow.

Meanwhile, new LC has to be opened and the debt of the previous LC has to be paid. Apart from this, foreign loans and other debts also have to be paid.

The Asian Clearing Union (ACU) dues for the months of September and October have to be paid in early November. Then the reserves could fall further.

The second installment of the IMF loan could be waived by $480 million in November. 

In addition, some loans from the World Bank and Asian Development Bank may also be exempted at that time. Then the foreign exchange reserve may increase slightly. By the end of the year, Bangladesh’s export earnings are expected to increase.