In the new era of Bangladesh's economy, remittance receipts, export earnings and foreign fund flows were the key drivers in the current FY25.
Although remittances and exports slowed down somewhat during the political upheaval at the beginning of the fiscal year in July and August, they are not only recovering, but are setting a record before the new calendar year begins.
On the other hand, foreign loan disbursement and commitments also declined significantly. As a result, the dollar market became volatile again in December.
While there is hope in the new year, considering the flow of dollars into the country from three main sources between July and December, economists advise on preparations being in place to face challenges, especially in determining the market rate of the dollar and Taka’s depreciation.
Despite all challenges, Bangladesh's foreign currency reserves have crossed the $21 billion mark, reaching their highest level since June 30, after a slight increase.
On December 29, the reserves stood at $21.33 billion, according to the BPM6 (Balance of Payments and International Investment Position) method recognized by the International Monetary Fund (IMF.)
Gross reserves stood at $26.099 billion.
Earlier, reserves had $21.78 billion on June 30 this year.
The increase of more than $1 billion over the past week is attributed to sustained remittance inflows and the release of loan funds, insiders said.
Record remittance
“In the first 28 days of December, remittance inflows reached $2.42 billion, compared to $1.99 billion during the same period last year,” Husne Ara Shikha, spokesperson and executive director of Bangladesh Bank, told journalists.
Data analysis revealed that from July 2024 to 28 December, expatriates sent $13.558 billion in remittances through banking channels.
Remittance inflows have shown fluctuations during the July revolution period.
Bangladesh received $1.91 billion in July, $2.22 billion in August, $2.40 billion in September, $2.39 billion in October, and $2.19 billion in November.
Rise in export earnings
According to the Export Promotion Bureau (EPB), Bangladeshi exporters shipped goods worth $19.9 billion in the July-November period of FY25, which was $17.81 billion in the first five months of FY24. This was a year-on-year (YoY) growth of 11.76% in July-November of FY25. In that period, export earnings from almost all major sectors witnessed positive growth.
In the first five months of FY25, Bangladesh bagged $3.82 billion in July, $4.03 billion in August, $3.52 billion in September, $4.13 billion in October, and $4.11 billion in November, said the EPB data.
Foreign aid drops
According to the Economic Relations Division (ERD)’s latest data published on December 29, in the first five months of FY25, the country received $1.54 billion in foreign loans, down from $2.11 billion during the same period last year.
In the same period, loan commitments fell from $5.57 billion to $248.88 million while grant commitments remained close.
However, during the July-November period of FY25, the country returned $1.71 billion in principal and interest payments on foreign loans, up from $1.33 billion during the same period of FY24, according to finance ministry data.
Ashikur Rahman, principal economist at the Policy Research Institute (PRI), does not believe the debt servicing would pose any risk for the country.
“Despite the rise in debt servicing, it does not pose any major risk even in the absence of new loan commitments, as exports and remittances offer a reasonable cushion to help the treasury meet its immediate international debt obligations.”
But he thinks there is a chance of Taka depreciation.
“Nonetheless, given the Taka is likely to further weaken against the dollar, the domestic fiscal burden of additional international debt servicing will intensify.”
Volatile dollar market
Earlier in December, the greenback sold in some banks for as high as Tk129-Tk130.
However, at that time the central bank still used the official rate of Tk120 on its website, even though the average market rate was between Tk125 and Tk126.
Regarding that sudden spike Zahid Hussain, former lead economist, at the World Bank Dhaka office, told Dhaka Tribune: “The banks were instructed to pay off their previous dues. That means there has been a demand spike for dollars in the market. And another is when the IMF came for discussions in early December, they said that they were unhappy with the current fixed crawling peg exchange rate. After that, it was announced that Bangladesh Bank would go to the new crawling peg system. As a result, speculation was rife in the foreign exchange market.”
“Due to their (BB) indecisiveness, a kind of speculation has been created in the market. In the money market, you have to be quick and decisive. You have to work first and then talk,” he added.
Regarding dollar market volatility, Bangladesh Bank made a statement on December 30 about its point of view and took necessary measures.
Regarding initiatives, BB said: “We have already fixed the maximum exchange rate for remittance collection at Tk123 per dollar (in case of cross currency, it will not exceed Tk123 per dollar by cross calculation), and a dashboard/data monitoring system has been taken.”
However, according to the central bank BB, the following reasons were major in this market volatility.
- December is the year-end month. Therefore, since the value date of various loan repayments falls this month (Payment Schedule), the demand for dollars in the foreign exchange market increases.
- To meet the IMF target, Bangladesh Bank recently stopped selling dollars, which has not contributed to increasing the supply of dollars in the interbank market.
- Due to the downgrade of Bangladesh's rating, the correspondent relationship of Bangladeshi banks with foreign banks has been hampered; as a result, the opening of UPAS LC has been hampered, deferring payment maturity has not been possible, and the interflow of offshore banking loans has been hampered.
- Bangladesh Bank's circular regarding foreign debt repayment by December has increased pressure on the market.
- The monopoly and middleman role of aggregators in remittance collection has destabilized the exchange rate in the market.
- Instability has also been observed in the dollar market due to the inflow-outflow mismatch of commercial banks.