Although Bangladesh is still in a better position than most of the neighbouring countries regarding foreign exchange (forex) reserves, a consistent downward trend of dollars depleting from the reserves of Bangladesh Bank is causing anxiety.
In just one month, the country's forex reserves have fallen to its lowest level in 19 months.
It currently stands at $ 41.53 billion, which is the lowest since November 2020 when it was $41.26 billion.
However, according to Dhaka Tribune's analysis, the downfall was not out of the blue.
Since the past month, the reserves have been going up and down between $41 and $42 billion.
But the concern lies in the fact that while import costs are skyrocketing, the forex reserves are also going down.
Earlier, on May 7, the reserves fell below $42 billion for the first time in 18 months.
The reserves came down to $41.95 billion because of the Asian Clearing Union (ACU) import bills clearing.
On that day for March and April ACUs bills, Bangladesh Bank paid $2.24 billion.
According to central bank sources, it has been selling dollars from reserves for the last few months to keep the money market stable.
Following this, Bangladesh Bank sold $105 million from the reserve last Monday (June 13).
After the dollar kept gaining, the central bank's reserves hit a record low in 19 months.
Regarding the matter, Serajul Islam, executive director and spokesperson of Bangladesh Bank, told Dhaka Tribune: “Bangladesh bank sold $105 million on Monday (June 13) to meet market demands. As a result, the reserves have come down a bit. However, our export earnings and remittances are also in good momentum, so the reserve will rise again very soon.”
An official of the concerned department of Bangladesh Bank informed that they were now selling dollars to pay the government's import bills.
Last Monday, the central bank sold dollars at Tk92.50.
According to Bangladesh Bank data, in 11.5 months of the current FY22 (July 1, 2021 to June 15, 2022), Bangladesh Bank sold $6.8 billion from the reserves.
On the other hand, about Tk72,000 crore has been withdrawn from the market.
“The drop in remittance flow has already affected Bangladesh's macroeconomy. But it is natural that the reserves will decrease if imports increase,” Prof Mustafizur Rahman, distinguished fellow at Centre for Policy Dialogue (CPD), told Dhaka Tribune earlier.
Reserves were steadily rising for several years, breaking one record after another.
Due to a slowdown in imports and rising remittance and export earnings during the pandemic, reserves crossed the $48.04 billion mark on August 24 last year, the highest ever in Bangladesh's history.
Bangladesh has less than 5 months worth in reserves, Pakistan 2
For the last few months, the reserves have not been adequate, according to experts.
The current reserves can be used to cover less than five months of imports, as per the import cost of January ($8.33 billion) and February ($8.32 billion) earlier this year, they also said.
As per international standards, a country must have at least three months' worth of foreign exchange reserves to cover import costs.
However, it is necessary to take cautious steps in this regard now, because none of us want Bangladesh's foreign exchange reserves to be like those of Sri Lanka or Pakistan, they further commented.
Pakistanis have been asked to cut down on their tea consumption to help rein in the escalating pressure on the country's import bill and save fast-depleting foreign currency reserves.
The plea came as Pakistan's foreign currency reserves continue to fall rapidly, putting pressure on the government to cut high import costs and keep funds in the country.
Pakistan is the world's largest importer of tea, buying in more than $600 million worth last year.
The reserves dropped from around $16 billion in February to less than $10 billion in the first week of June, barely enough to cover the cost of two months of all its imports, according to the BBC.
Budget FY23 and forex reserves
There is an incentive package of 2.5% in remittance next financial year as well.
However, this time the government is more desperate to increase the reserves, so a new proposal has been added to it.
According to the upcoming fiscal’s budget proposal, the government will provide an opportunity for a legalization of money and assets laundered abroad in the past.
Once the money is legalized through proposed taxes, no authority, including the income tax authorities, will be able to question its legitimacy.
Finance Minister AHM Mustafa Kamal made this proposal in his budget speech for the fiscal year (FY) 2022-23.
Kamal proposed a 15% tax on immovable property not repatriated to Bangladesh, a 10% on movable property not repatriated to Bangladesh and 7% tax on cash and cash equivalents repatriated to the country.