Following the Asian Clearing Union (ACU)'s March and April payments, Bangladesh Bank's forex reserves have taken a hit, dwindling to less than $13 billion. The total forex reserves now stand at $18.32 billion, according to the BPM6 method of the International Monetary Fund (IMF), a significant drop from $23.77 billion.
Under IMF guidelines, Bangladesh's net forex reserves have fallen to $13.76 billion, with gross reserves hitting $18.26 billion, marking a 10-year low, as per Bangladesh Bank's latest data released on May 12.
Meanwhile, the deficit in the country's financial account has surged to $9.25 billion, more than three times higher than the $2.9 billion deficit recorded in the same period of FY23.
Net reserves fall
The current volume was lowest after January 2014 when it was at $18.11 billion.
Data reveals that the gross foreign exchange reserves slid to this current level from $19.97 billion on April 30 and $21.86 billion on December 28, 2023.
The reserves dropped further in May as import payments of $1.63 billion were made to the Asian Clearing Union (ACU) for March and April.
However, according to Bangladesh Bank’s conventional valuation, the foreign exchange reserves dropped to $23.71 billion on May 12 from $25.36 billion on April 30.
Previously, reserves had fallen to $19.13 billion on December 6, 2023, but recovered slightly to $21.74 billion on January 4 following loans of $689 million from the International Monetary Fund and $400 million from the Asian Development Bank. However, the decline resumed thereafter.
A severe shortage of dollars in the market has compelled the central bank to consistently sell dollars to banks from its reserves, further depleting the country's foreign exchange reserves.
Over the past 34 months, the central bank has sold more than $32 billion to commercial banks, including $11.6 billion allocated in July-April of the financial year 2023-24, $13.5 billion in FY23, and $7.62 billion in FY22.
Financial account deficit
The financial account, which consists of the secondary income of a country – foreign direct investment, short-term and long-term loans, aid, and trade credit – has remained negative for the past two years, compelling the central bank to make foreign payments directly from the reserves.
In July-March of FY24, the deficit stood at $9.25 billion, more than three times higher compared to the $2.9 billion in the same period of FY23.
However, a financial account plays a role as the secondary source from which a country can make foreign payments.
When a country's current account balance turns negative, it uses the financial account for foreign payments. If the financial account becomes negative, payments are made directly from reserves.
Bangladesh Bank data shows that trade credit, a major component of the financial account, became negative at $12.2 billion in July-March of FY24 compared to $3.9 billion in the corresponding period a year earlier.
The trade-credit figure reflects that $12.2 billion in export proceeds remained pending with buyers, indicating that exporters' repatriation is slow.
In contrast, Bangladesh Bank's balance of payment figures reveal that short-term loan inflow was negative at $1.7 billion from July to March, implying that banks paid back more than they received because private sector enterprises were unwilling to accept foreign funding in the face of import restrictions.
Although the inflow was negative, foreign loan payments increased by more than 20% during the same period, indicating that the outflow was more than the inflow, adding to the expanding deficit in the financial account.
