The Bangladesh Bank has reduced the volume of the Export Development Fund (EDF) from $7 billion to $4.77 billion.
The move came to comply with the IMF's requirement that states the calculation of foreign exchange reserves needs to be changed in accordance with international standards.
According to central bank officials, the amount of EDF loans will be further decreased to $2 billion by September.
Recently, the IMF suggested that the Bangladesh Bank exclude EDF loans from total reserve calculations, which put pressure on the central bank because doing so would further reduce the amount of foreign reserves.
The country's foreign exchange reserve, which included EDF loans, fell from $46 billion in December 2021 to $29.8 billion on May 8.
In January 2023, the government established a new fund with Tk10,000 crore to address this issue.
This fund will offer low-interest loans to exporters for the import and procurement of raw materials necessary for production in export-oriented industries.
To make it easier for manufacturer-exporters to access financing in foreign currencies for the purchase of components, the Export Development Fund was established in Bangladesh in 1989.
The most recent circular stated that authorized dealers of banks may borrow US dollar funds from the EDF against their foreign currency loans to manufacturer-exporters for input purchases.
The EDF has been instrumental in supplying the country's export-oriented industries with much-needed financing over the years, particularly in industries like textiles, leather and pharmaceuticals.
In an effort to relieve pressure on reserves, the central bank reduced the ceiling on US dollar loans from its EDF to manufacturers and exporters by $5 million on April 9.
The circular states that the ceiling for input purchases made under back-to-back letters of credit (BBLCs) in relation to applicable export orders has been reduced from $15 million to $10 million.
To ensure that the overdue amount would be quickly realized, the central bank imposed a penalty interest rate of 4% on March 19 for late payments of loans received from the EDF.
Bangladesh Bank made the decision after noticing that EDF loans were not being realized in accordance with the guidelines stated in a circular issued on December 31, 2017.
