Bangladesh’s foreign exchange reserves have begun to increase. The reserves, which went down to $19 billion, have now increased to $21 billion after various initiatives taken by the central bank.
According to Bangladesh Bank data, reserves rose by another $760 million this week after a $1.51 billion rise in the previous week. As a result, reserves increased by $2.27 billion in two weeks.
This has been possible due to measures such as control over imports, measures to encourage remittances through banking channels, continued growth of export earnings, and quick disbursement of loans from the International Monetary Fund (IMF).
According to the IMF, Bangladesh should have kept $17.48 billion in net reserves at the end of December.
The current gross reserves are $26.82 billion, according to a report that Bangladesh Bank released yesterday, and they are $21.44 billion according to BPM-6. The central bank terms it as its net reserves, which now stand at around $18 billion. The Bangladesh Bank only informs the IMF about its net reserves.
A week ago, on December 20, BPM-6 was $20.68 billion. In the previous week, on December 13, it was $19.16 billion. The rise in the country’s reserves is due to the addition of dollars from the IMF, the Asian Development Bank (ADB), and other sources.
On December 12, the IMF approved the second installment of a loan to Bangladesh amounting to $689.89 million. Two days later, on December 15, the dollar was added to Bangladesh Bank's account. On the same day, $400 million from the Asian Development Bank was deposited in Bangladesh Bank’s account. More dollars were added to the account from other sources as well.
Meanwhile, Bangladesh Bank is buying dollars from various commercial banks to increase reserves. On Tuesday, the central bank bought $200 million from Islami Bank Bangladesh and added it to its reserves. Apart from this, Bangladesh Bank bought more than $100 million from other banks in the last week.
Central bank spokesperson Majbaul Haque confirmed the purchase of dollars. He said the central bank has taken several initiatives to increase its reserves. Slowly, the benefits are now showing in the economy.
He mentioned that Bangladesh Bank was constantly providing dollar support to different banks from the reserves. “Some are also buying dollars from other banks. The spokesperson said that dollars were bought from some banks this week, adding that if a bank has a surplus in net open positions in foreign currency, then dollars can be sold to the central bank.”
The central bank has been selling dollars from reserves to commercial banks for the past three years. The central bank sold $7.62 billion in FY 2021-22, another $13.58 billion in FY 2022-23, and nearly $7 billion so far in the current fiscal year.
Bangladesh Bank was forced to sell these dollars to pay the import bill for 5-6 types of products, including food, fuel and fertilizer.
Currently, banks are selling dollars to the central bank at Tk110. On the other hand, banks are collecting dollars as remittances at Tk109.50. However, beyond this, banks can give a maximum incentive of 2.5% to collect remittances from their own funds.
Bankers said that the central bank had a plan to buy dollars from commercial banks at the end of December. As part of that plan, several Islamic banks have collected dollars at higher rates.
Meanwhile, to reduce the dollar crisis, an additional $250 million in budgetary assistance has been requested from the World Bank (WB). In the first week of December, the Economic Relations Department (ERD) wrote to the WB asking for a total loan of $500 million.
This loan has been sought under the “Second Recovery and Resilience Development Policy Credit” project to maintain stability and strengthen the foreign exchange status by countering the economic slowdown.
Earlier on December 12, the ADB provided $400 million to Bangladesh under the “Climate Resilient Inclusive Development Program (sub-program-1)” as part of budget support. This money has already been added to the country's foreign exchange reserves.
On December 18, South Korea entered into a $90 million cross-agreement with ERD to finance the same project. ERD officials expect it to be discounted soon and added to foreign exchange reserves.
In addition, the Asian Infrastructure Development Bank (AIIB) has pledged $400 million for a project to combat the effects of climate change in Bangladesh. A plan has been taken to take the country's foreign exchange reserves to a strong position by adding that money to the reserves.
Meanwhile, as part of the initiative to bring dollars held in people's homes to banks to boost reserves, the central bank has allowed 7.5% interest on deposits for Resident Foreign Currency Deposits (RFCDs).
Not only that, while travelling abroad, one can avail of various benefits, including sending money outside the country and issuance of multiple cards from RFCDs. Recently, Bangladesh Bank sent an instruction regarding this to the banks.
Many people are buying and holding dollars, so there is an extreme shortage of cash dollars in the market. In this situation, a new initiative has been taken to bring the dollars kept at home to the bank.
The central bank says that one can open an RFCD account and deposit up to $10,000, and no questions will be asked. He or she may have taken $500 while traveling abroad but can open an account with $10,000 when they return to the country. This initiative has been taken to get the dollars kept at home through the banking channel.
Besides, through another directive, the beneficiaries of remittances sent by expatriate Bangladeshis have been allowed to open foreign currency accounts. Accounts opened in the name of the beneficiary will earn interest rates of 7-9% for a tenure of three months to five years, which is higher than in other countries. Those other than expatriate beneficiaries—who can open foreign currency accounts—will also get interest at this rate.
In addition, the central bank has forced other banks to reduce the official dollar price. As a result, the rate of the dollar has decreased three times in less than a month. The rate was reduced by Tk1 in the meantime. This is how the value of the taka has gradually increased.
Apart from this, to increase the remittance flow, the banks are giving 2.5% cash incentives to remittance senders alongside the existing 2.5% benefit, which is given from their own funds.
In addition, the government has been honouring remittance senders with Commercially Important Person (CIP) status. The banks have taken other initiatives such as expansion and simplification of the remittance distribution process, investment and housing financing facilities for non-resident Bangladeshis, encouragement of international money transfer operators to set up drawing arrangements with Bangladesh Bank under the fintech system, and waiver of charge fees of banks or exchange houses for sending remittances. Even the condition of filling out Form-C has been relaxed.
The maximum limit for sending remittances through Mobile Financial Services (MFS) has been doubled. On December 6, Bangladesh Bank's Payment System Department (PSD) issued a circular in this regard. The MFS account will receive a separate credit for any incentives given by the banks. As a result, a maximum of Tk2.5 lakh can be sent directly to the beneficiary through MFSs. The amount was Tk1.25 lakh before this.
Through the MFS accounts, $45-50 million comes into the country every month. Besides, the 20% tax on interest on foreign loans taken by businessmen has been waived.
In this context, Ahsan H Mansoor, Executive Director of the Policy Research Institute, said: "In any case, the fall of reserves needs to be prevented. There is only one way to increase the flow of dollars. The dollar price should be left to the market, and remittance flow and export income should be increased.”
