Forex reserves to grow by $1.25b this month

The government is set to receive $1.25 billion budget support as loan from various development partners this month for the current fiscal year, which will significantly boost its foreign exchange reserves, officials of the Ministry of Finance have said.

This assistance, aimed at bridging the gaps in reserves and revenue collection, comes as the country grapples with economic challenges exacerbated by the pandemic and geopolitical tensions.

Key contributors to this loan include the Asian Development Bank – $250 million, the World Bank – $500 million, the Asian Infrastructure Investment Bank – $400 million, and South Korea – $100 million, according to the Economic Relations Division (ERD) data.

This influx of funds marks a significant achievement, with the government receiving budgetary support exceeding $2 billion from development partners in a single fiscal year for the second time.

The previous record was $2.60 billion in the fiscal year 2021-22, said ERD sources.

The ERD data reveals that the government received $1.77 billion in FY23, $2.60 billion in FY22, $1.09 billion in FY21, and $1 billion in FY20. In the preceding fiscal year, the budget support was $0.25 billion.

The latest injection of funds underscores the ongoing partnership between Bangladesh and its development allies, with a focus on initiatives ranging from social protection to climate-resilient development.

Despite a decrease in reserves since the onset of the pandemic, Bangladesh remains proactive in securing financial aid to bolster its economy.

However, experts caution on the importance of effective utilisation of these funds to ensure optimal returns and long-term economic stability.

Bangladesh’s foreign exchange reserves have experienced a significant decline from their peak of $48 billion in August 2021 during the COVID-19 pandemic to $18.72 billion till 5 June, based on the International Monetary Fund’s reserve accounting method PPM-6. According to the Bangladesh Bank, the country’s usable reserves currently stand at $13 billion.

In response to this sharp decrease in reserves, the government has implemented stringent restrictions on imports for the current fiscal year to manage the reserve crisis and stabilise the economy. These measures aim to curb the outflow of foreign currency and preserve the nation’s financial stability amid ongoing economic challenges.

ERD sources said on 10 June, ADB and the Bangladesh government signed a $250 million budget support loan agreement to further strengthen the country’s social protection system.
Additionally, South Korea will provide $100 million in budget support in conjunction with the ADB's package, with an agreement expected to be signed soon.

A budget support loan agreement titled “Promoting Climate Resilient Development Program (Subprogram 1)” was signed in December last year, including $400 million from the Asian Infrastructure Investment Bank (AIIB). ERD officials indicated that this budget support loan agreement, part of the ‘Climate-Resilient Inclusive Development Program (Subprogram 1)’, will also be signed this month.

Furthermore, the World Bank’s $500 million budget support under the “Second Recovery and Resilience Development Policy (R&R DPC-2)” will be presented at the World Bank’s board meeting on 21 June, with the loan agreement expected to be signed by the end of this month. The World Bank’s officials confirmed this timeline to the reporters.