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Bangladesh has assured the International Monetary Fund (IMF) of complying with latest global standards of reporting foreign-exchange reserves, officials say, as an IMF mission mentioned 'miscalculation' of the amount.
The assurance was made in a meeting with an IMF economic appraisal mission, held at the central bank headquarters in Dhaka on July 17.
High-ups of the Bangladesh Bank (BB), including deputy governors Ahmed Jamal, Kazi Sayedur Rahman and A.K.M Sajedur Rahman Khan, were present at the meeting.
The central bankers, at the meeting, informed the mission that Bangladesh would go by IMF's Balance of Payments and International Investment Position Manual Sixth Edition (BPM6) properly in reporting on the country's reserve position in the near future, they added.
Earlier, the Washington-based monetary watchdog had raised the issue through submitting Safeguards Assessment Report, January 10, 2022 to the central bank with the mention of few cases of misclassification of the currency assets, which are not high-quality claims on non-residents readily available for meeting balance-of-payments financing needs.
"We'll examine the issue further giving priority to national interest before complying with the accounting standards," a top central banker told the FE while replying to a query.
The IMF found the central bank having overstated its foreign-exchange reserves by nearly US$7.2 billion end of June 2021 through inclusion of non-reserve assets by underestimating related risks.
The figure of overstatement in the case of official forex reserves now stand at more than $8.0 billion as the central bank has increased the allocation of Export Development Fund (EDF) scheme to $7.0 billion from previous $6.0 billion.
The non-reserve assets as identified by the IMF are foreign-currency loans to local banks worth $6198 million, deposit with a state-owned commercial local bank of $651 million, deposits with the International Islamic Trade Finance Corporation (ITFC) of the Islamic Development Bank Group, worth $288 million, and fixed-income securities below investment grade $60 million.
The IMF recommends an immediate revision of the composition of the official foreign-currency reserves by removing these no-liquid, earmarked and/or not readily available items as they inflate the total amount of forex available to the central bank.
Regarding disbursement of $200 million to the central bank of Sri Lanka as foreign-currency support, the IMF in its report said the reciprocal deposits acquired by the BB under the 2021 swap arrangement with the Central Bank of Sri Lanka after end-June 2021 do not qualify as reserve assets because they are denominated in Sir Lankan rupee, which is not a convertible currency.
The IMF also raised question about BB's involvement in non-core central-banking activities through the financing of the Bangladesh Infrastructure Development Fund (BIDF), saying that such use of official foreign reserves is inconsistent with lending practices.
The BIDF was formed to make lending from the reserves to development projects. The annual investment target from the fund would be no more than $2.0 billion.
The central bank has committed to financing the BIDF using the reserves for up to $2.0 billion per annum for the next five years, on condition that the reserves cover import payments for at least six months, project earnings are in foreign currencies, and a sovereign guarantee is provided.
Bangladesh's foreign-exchange reserves now remained under pressure following higher import-payment obligations alongside lower inflow of remittances in recent months.
Meanwhile, the central bank continued providing its foreign-currency support to the scheduled banks for managing the forex-market volatility that causes recurrent depreciation of the local currency in exchange with the US dollar.
It sold $50 million more directly to two state-owned commercial banks (SoCBs) Tuesday to help them meet the growing demand for the greenback.
On Monday, the central bank sold $132 million to five commercial banks on the same ground. The BB has so far injected $990 million from the reserves directly into commercial banks as liquidity support for settling their import-payment obligations in the current fiscal year (FY), 2022-23.
In FY'22, the central bank sold $7.62 billion from the reserves to the banks for the same purposes.
Bangladesh's forex reserves came down to $39.60 billion Tuesday from $39.61 billion of the previous day - following higher sales of the greenback from the reserves to feed the market.