The situation regarding the reserves has seen some improvement due to the increase in remittances from expatriates. Since August, following a political shift, expatriates have been sending a larger amount of money through legal channels, resulting in good growth in this sector. Alongside this, the decrease in import expenses and the promise of increased foreign loans have provided some relief in the foreign exchange sector. Overall, a form of stability has returned to the exchange rate, according to financial sector insiders.
Following the start of the Russia-Ukraine war in February 2022, global markets saw a rise in energy, food prices, and transportation costs. This led to increased import costs in Bangladesh, causing a dollar crisis. This crisis disrupted nearly all financial indicators in the country, severely affecting trade and commerce. In response to this crisis, Bangladesh Bank began selling dollars from foreign currency reserves. As a result, the reserves, which had once reached $46 billion, fell to almost half. At one point, the usable reserves dropped to about $13 billion.
Following the fall of the Awami League government due to public uprisings, there was a change in leadership at the central bank. Remittances began to increase, and imports decreased somewhat, leading to stability in the foreign currency market. The sale of dollars from reserves has completely stopped, halting the decline in foreign currency reserves. Currently, dollars are being sold at 120 taka in banks and 122 taka in the open market. However, despite a decrease in inflation according to government statistics, prices for chicken, eggs, and various vegetables remain high, increasing the burden on the public.
Increase in Expatriate Income, Decrease in Imports and Exports
According to Bangladesh Bank, a total of $24 billion in remittances came in September. In September of the previous year, the amount was $13.3 billion. This means that expatriates sent 80% more money back home in comparison to the same time last year. Earlier in August, $22.2 billion in remittances was received. In the first 12 days of the current month, $9.9 billion in remittances have been received. All the money that comes into the country as remittances is in actual foreign currency and is immediately available for domestic use. The remittance income is used to cover import liabilities and various expenses.
Meanwhile, according to the National Board of Revenue, exports worth $38.6 billion were made in September. Last September, the amount was $33.2 billion. This indicates that exports increased by $5.4 billion, or 16%, compared to the same month last year. In July, exports were $38.2 billion, and in August, they were $40.7 billion, showing growth rates of 3% and 5%, respectively. Overall, during the first three months of the current fiscal year (July-September), exports totaled $117.5 billion, which is 7.89% more than the same period last year.
The unstable situation regarding dollars has eased. There is not much commotion regarding prices as before. Some overdue bills of state-owned banks remain, which is why the price of the dollar has risen above 120 takas, according to Syed Mahbubur Rahman, a former chairman of the Association of Bankers Bangladesh (ABB).
However, according to Bangladesh Bank, the export volume for the fiscal year 2023-24 was $40.81 billion, which is 5.89% less than the previous year. In the fiscal year 2022-23, nearly $43.36 billion in goods were exported. Additionally, in July-August, imports decreased by 1.16% compared to the same period last year.
Situation of Reserves
After the outbreak of the coronavirus pandemic in 2020, global communication ceased, leading to an increase in remittances to the country. This resulted in total reserves surpassing $46 billion in June 2021. However, as Bangladesh Bank began selling dollars to manage the crisis, the reserve situation deteriorated to the point where, in May, total reserves fell to $23.77 billion. According to the International Monetary Fund (IMF) accounting method BPM 6, reserves during this period stood at $18.32 billion. However, the usable reserves were slightly less than $13 billion.
On August 4, total reserves stood at $25.96 billion, of which usable reserves were $15.53 billion. Following the payment of Asian Clearing Union debts on October 9, total reserves decreased to $25.04 billion, and usable reserves dropped to $14.87 billion.
Due to the dollar crisis and deficits in financial and current accounts, Bangladesh sought loans from the IMF in July 2022. Six months later, on January 30 of the following year, the IMF approved a loan of $4.7 billion. During that year, the first tranche of $470.63 million and the second tranche of $680.10 million were received by Bangladesh. In June, the third tranche of $1.15 billion was disbursed, with the fourth tranche expected to be received this month. The funds from this loan directly contribute to reserves.
Bank officials state that the panic regarding the dollar has significantly decreased. Many overdue foreign bills have been settled. Nevertheless, a debt of $3 billion remains, which will need to be repaid in the future.
Syed Mahbubur Rahman, a former chairman of the Association of Bankers Bangladesh and managing director of Mutual Trust Bank, told Prothom Alo that the unstable situation regarding the dollar has been resolved. There is not much commotion regarding prices as before. Some overdue bills from government banks remain, which is why the price of the dollar has risen above 120 takas. Once these debts are settled and incentives are removed, the price of the dollar may drop below 120 takas.
Source: Prothom Alo
