Bangladesh Bank has started the actual calculation of the foreign exchange reserve in Bangladesh in accordance with the principles of the International Monetary Fund (IMF), which will be published on July 1.
However, on June 18, while announcing the new monetary policy, Bangladesh Bank Governor Abdur Rouf Talukder said even if the actual reserve is calculated in accordance with IMF guidelines, the calculation will not be disclosed.
The governor's announcement has once again created vagueness about Bangladesh's foreign exchange reserve.
Dr Zahid Hossain, former chief economist of the World Bank Bangladesh Office, said that the actual reserve should be calculated and published according to IMF conditions. This will increase the transparency of the reserve.
He said a part of the foreign exchange reserve will be removed from the calculation if the IMF system is followed. Bangladesh Bank has also taken a policy decision to drop that part. But if it does not disclose that information; it will lead to further confusion.
In this context, Bangladesh Bank Chief Economist Habibur Rahman said there will be no ambiguity about the reserve from July 1. It will be revealed by calculating Gross Foreign Exchange Reserve (GIR) as per IMF terms. And what will not be disclosed is the Reserve Net International Reserve (NIR).
Overview of current reserve
Bangladesh's foreign exchange reserve on Wednesday once again reached $30.01 billion, which was $29.95 billion on Tuesday. The reason behind the recent increase is that the inflow of remittances is now maintaining an upward trend ahead of Eid-ul-Azha.
As per Bangladesh Bank data, between June 1 and June 20, some $1.53 billion entered the country as remittance. In the same period last year, this figure was $1.10 billion.
On June 18, it was announced in the monetary policy of the new financial year that Bangladesh Bank will now adopt a unified and market-driven single exchange rate regime from July 1, allowing the exchange rate between Taka and US Dollar or any other foreign currency to be determined by market forces. Now banks are buying expatriate income at Tk108 .50, export income at Tk107.
And Bangladesh Bank is selling the reserve dollar at the price of Tk106.
Bangladesh Bank announced the monetary policy for the first half of the current financial year by lifting the interest rate limit on the advice of the IMF as a condition for getting loans.
On the other hand, according to the new monetary policy, Bangladesh will follow the Balance of Payment and International Investment Position (BPM-6) formula.
As a result, the country's reserve will stand below $24 billion. And if it is fully followed, the net reserve will drop to $20 billion.
Regarding the foreign exchange reserve calculation method, the governor said that Bangladesh Bank will calculate the foreign exchange reserve from now on in both methods. That is, it will be done in the same way as it was done before, and it will also be done in the BPM-6 method.
“However, even if we calculate the actual reserve data as per BPM-6 method, we will not disclose it. No country in the world publishes it. The IMF has no obligations to disclose the calculation,” he said.
Criticisms
There are various discussions and criticisms about the calculation method of the country's foreign exchange reserve. The IMF has raised questions about the calculation of total reserves that Bangladesh Bank has been publishing so far. This is because central bank accounts include investments in various sectors.
Dr Ahsan H Mansur, executive director of Policy Research Institute (PRI), a private research organization, believes that IMF's method is appropriate for reserve calculation.
He said that other countries have been calculating reserves by following this method for a long time, which is the international method.
One of the conditions of the IMF's $4.7 billion loan was the disclosure of net reserve. In this case, the BPM-6 formula should be followed. If it is fully implemented, the net reserve will fall to $20 billion because net reserves can be obtained by deducting from the declared reserve of the country the amount equal to one year's foreign debt installments apart from investment in various sectors and Export Development Fund (EDF).
Currently, there is $6 billion from the reserve for EDF and investments in various sectors.
Risk-free investments
Bangladesh Bank Governor Abdur Rouf Talukder said: “The investments we have made from the reserve are risk-free. All our loans have guarantors. All money will be returned to Bangladesh Bank. We can also recover Sri Lankan loans by adjusting them in their local currency.”
According to sources, Export Development Fund (EDF), Green Transformation Fund (GTF), and Long-Term Financing Facility (LTFF) have been formed from the reserve.
Reserve money is also kept as a deposit with the International Islamic Trade Finance Corporation (ITFC). Apart from this, Payra Port Authority and Bangladesh Biman have been financed through Sonali Bank (SBFF) from the reserve.
Besides, loans have been given to Sri Lanka under currency swap.
As of last May 11, the amount of money withdrawn from the reserve in these places was about $6.5 billion.
Among them, $4.787 billion in EDF, $176 million GTF, $273.7 million in LTFF, $247.4 million in deposits in ITFC, $775.7 million to Payra Port Authority and Bangladesh Biman through Sonali Bank, and $200 million in loans given to Sri Lanka.
According to the IMF's BPM-6 manual, these liabilities are not considered reserve money. These are non-liquid assets or investment-grade securities, as per IMF.
Therefore, the IMF suggests showing the actual reserve by excluding these funds from the reserve.
