Bangladesh
a year ago

Falling remittances push reserves below $31b

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The country's foreign-currency reserves dropped below US$ 31 billion due to a significant fall in inward remittance flow in April, according to central bank officials.

This fall in forex reserves has led to uncertainty in meeting the net reserve-threshold target of US$ 24.46 billion by June next, set by the International Monetary Fund (IMF).

According to sources at the Bangladesh Bank (BB), the gross stock of the country's foreign currencies was US$ 30.93 billion as of April 30, which was US$ 13.08 billion lower on a year-on-year basis.

The officials at BB said that the latest fall in the reserve is due mostly to two factors - growing sales of the greenback to banks to settle their LC-related payments amid forex dearth and comparatively lower earnings from the source of remittance in April.

Seeking anonymity, a BB official said the central bank sold a total of US$ 11.79 billion up to April 27 of this fiscal compared to US$ 7.62 billion in the entire financial year of 2021-2022. This put pressure on the reserve.

"But the less-than-expected level of earnings from remittance in the just-passed month, which is normally considered the peak remittance time," the official said.

According to the latest statistics from the BB, Bangladeshi nationals working abroad remitted foreign currencies worth US$ 1.68 billion in April, a decrease of 16.76 per cent compared to the earnings in the previous month of March when the US$ 400 billion-plus economy received US$ 2.02 billion.

In the corresponding month of April 2022, the expatriates remitted home US$ 2.01 billion.

Another BB official said they were expecting the volume of remittance to increase in April when the Muslim-majority country celebrated Eid-ul-Fitr, the largest religious festival for Muslims across the globe.

"But we did not receive the expected level of foreign currencies from the remitters this time. We hope the latest hike in the exchange rate for remittance will encourage the remitters to send in more foreign currencies in the coming days," the official said.

The BB official also informed that the reserve would drop below US$ 30 billion soon as the BB is set to clear import payments of US$ 1.0 billion through the ACU (Asian Clearing Union) mechanism within a few days.

Contacted, Managing Director and Chief Executive Officer (CEO) of Brac Bank Limited Selim R. F. Hussain said that they have revised the exchange rate upward for exports and remittances by Tk 1.0, and it became effective from May 2, 2023.

He expressed his optimism that it will help attract remitters to send more of their hard-earned foreign currencies through the formal banking channel.

According to the latest decision of foreign-exchange dealers and banks, exporters will be able to encash their export proceeds at Tk 106 instead of the existing Tk 105, while Bangladeshi expatriates working abroad will get Tk 108 per dollar from the current rate of Tk 107.

This means the remitters will actually get Tk 110.50 per dollar with the inclusion of a 2.5 per cent incentive from the government.

Dr M. Masrur Reaz, the chairman of a local think-tank Policy Exchange of Bangladesh, said the move of devaluing the local currency taka against the US dollar through raising the exchange rate is highly expected under the current macroeconomic situation.

He said there are many exchange rates, and differences among the rates are still large, which might confuse the remitters in sending their money back home.

"This difference needs to be minimised, and policymakers should make a move to bring two rates that would be market-driven," he said.

The economist suggested intensifying measures against the illegal yet widely used unofficial money transaction channel 'hundi'.

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