Forex reserves fall to $21.154b

Bangladesh has seen its foreign-exchange reserves fall further by nearly US$300 million in a week to $21.154 billion on Wednesday as per a new method of calculating, official data showed.

The Bangladesh Bank (BB) data, released on the day, reflect the reserves accounting under the Balance of Payment Manual 6 standard (BPM6) of the International Monetary Fund (IMF).

However, the figure of the reserves calculated by previous method dropped by $281 million to 27.06 billion, according to the BB data.

The country's forex reserves have been depleting fast since the beginning of the war in Ukraine at a time when the commodity prices soared.

High commodity prices on the international market and slowdown in remittances have led to shortages of dollars on the forex market.

Fitch Ratings, one of the leading global rating agencies, in its latest report on Bangladesh said the foreign-exchange reserves would stay under pressure, driven by rising imports and foreign-currency (FX) intervention by the central bank.

"We estimate that gross reserves fell by 19 per cent in 9M23 to USD27.3 billion, or USD21.5 billion excluding the portion allocated to the Export Development Fund and Bangladesh Investment Development Fund, in line with the IMF's BPM6 standard."

Fitch also said: "We estimate end-2023 FX reserve coverage of current external payments at 3.0 months, against a 'BB' median of 4.4 months, based on the reserves reported under BPM6."

However, since July, the BB has compiled foreign-exchange reserves as per the BPM6 of the IMF which considers that gross foreign reserves include gold, cash US dollar, bonds and treasury bills, reserve position in the IMF, and special drawing rights holdings, a form of international money created by the IMF and defined as a weighted average of various convertible currencies.

The Bangladesh Bank introduced the BPM6 manual in 2012, but the central bank so far had not complied with it.

According to BPM6 calculation, the Bangladesh Bank had to exclude foreign-currency loans to local banks, known as the Export Development Fund (EDF), deposits with state-owned local banks; deposits with the IDB Group, fixed-income securities below investment grade, a loan to Sri Lanka, and other foreign-currency assets in non-convertible currencies from its previous gross reserves figure to come to the actual reserves.

Economists say that poor remittance inflow is one of the main reasons behind the fall in reserves as the central bank is still pursuing tight fists about opening LCs.

The remittance inflow during the first 22 days of this month was only US1.05 billion. The August remittance which was recorded at $1.6 billion (approximately) also was down by more than 21 per cent over its corresponding period a year earlier. They also said the deficit in the financial account of the balance of payments widened day by day, leading to a fall in the reserves. Dr Zahid Hussain, an independent economist, told the FE that the financial account which was in surplus now stands in a negative zone. "This is one reason behind the squeezes of the reserves."

He mentioned that the financial account is falling as Bangladesh is not getting short-term loans as it used to get in the past. "Actually there are some worries in the financial account: they are short-term and trade credit-related issues."

He said there are some default cases leading to discouraging overseas lenders from lending to Bangladeshi entrepreneurs.

He also mentions that the government has to repay but receives lesser in foreign funds.

jasimharoon@yahoo.com