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Dhaka Tribune

Multiple methods to calculate forex reserves yet to bring favourable results

 

   

Update : 30 Nov 2023, 05:12 PM

The Bangladesh Bank currently uses multiple reserve calculations for the country’s forex reserves: which include gross balance, and the International Monetary Fund (IMF)-prescribed balance of payment manual 6 (BPM6.) However, reasons such as extensive money laundering, and inward remittance via hundi and other non-bank channels are not helping to raise the reserve either.

There exists a discrepancy of $3.7 billion between the IMF’s balance of payment manual (BPM6) and the country’s net or usable reserves. 

On the other hand, the central bank's net or usable reserves encompass gold and investments in foreign bonds, which require a certain amount of time to convert into dollars through the selling process.

In reference to the different reserve calculations, Zahid Hussain, lead economist consultant at the World Bank Dhaka office, informed Dhaka Tribune that the Bangladesh Bank currently publishes two types of reserve data, exhibiting different sets. 

Notably, the gross reserves encompass the Rooppur escrow account, encompassing funds for exporters and various domestic investments. These components, however, are not factored into the BPM6 calculation.

Elaborating further, Hussain stated that in the BPM6 calculation, items such as the Asian Clearing Union (ACU) bill, IMF SDR allocation, and similar commitments slated for imminent payment are included. 

However, these liabilities are deliberately excluded from the computation of usable or net reserves.

He went on to clarify the intricacies within the net and usable reserves, highlighting the presence of gold and bonds that the Bangladesh Bank has strategically invested in different countries. For instance, there exist approximately $800 million worth of investments in gold by the central bank, constituting assets that are not readily available as printed currency. Despite the necessity for some time to liquidate and convert these assets into dollars when needed, Hussain emphasized that this poses no immediate concern.

Illustrating the recent fluctuations, a Bangladesh Bank source mentioned that reserves temporarily fell below $25 billion last week but swiftly rebounded to surpass the $25 billion mark again, attributing this resurgence to the surge in global gold prices. This phenomenon is attributed to the strategic investment of reserve funds by the Bangladesh Bank in various bonds and gold overseas.

Nevertheless, regardless of the methodology employed in reserve calculations, economists opine that increasing reserves for the Bangladesh Bank remains a formidable challenge.

He said, for this reason, the decisions taken by Bangladesh Bank in recent times such as stopping monetization and increasing interest rates should be firmly continued. It is said that some more decisions will be taken after the election. 

However, there is no reason to worry about the reserve as it has enough to bear import costs for more than three months. But it also can be said that the reserve will not be very good until after the election. So it is important to decide now what will be implemented then.

Bangladesh witnessed the highest forex reserve back in August 2021, when it crossed the $48 billion mark.

Bangladesh Bank spokesperson Mezbaul Haque said in a press conference recently that last year's short-term foreign debt liability was $16 billion, now it has decreased to $6.9 billion. Besides, there is a surplus of $1 billion in the current account. Now letters of credit (LCs) are opened with immediate dollar payment. As a result, no future liability is created. In addition, the supply of dollars in banks is now greater than the demand. In future, there will be more foreign borrowing, which will increase the reserves.

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BB reserve calculation

As per the Balance of Payments and International Investment Position Manual (BPM6), the country’s foreign exchange (forex) reserves stood at $19.52 billion but on the same day (November 23), according to Bangladesh Bank’s gross reserve calculation, the total reserve was $25.16 billion.

According to the BPM6, $3.5 billion of the Export Development Fund given to exporters in foreign currency, $160 million from the Green Transformation Fund, $270 million being used for long-term financing facility (LTFF), the $860 million for the Sonali Bank financing facility, the $450 million deposit with ITFC, the $390 million in the Rooppur escrow account, all need to be deducted from Bangladesh Banks Gross Foreign Exchange Reserves calculation. 

Previously, Bangladesh Bank only published the Gross Forex reserve amount. 

In July this year, Bangladesh started calculating its foreign reserves according to a formula suggested by the International Monetary Fund – BPM6.

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