Bangladesh foreign exchange reserves 2023 have been declining with net reserves currently at $15.82. Bangladesh forex reserves were at $48 billion in August 2021, recording the highest foreign exchange or simply forex is the act of trading currencies.
Forex traders speculate on the price movements of a chosen currency against another to profit from the forex market. Forex reserves act as an important element in both the national and global economy, allowing currency conversions and facilitating global trends across geographical borders that include financial transactions, investments, and the exchange of goods and services.
In this article, we will discuss the current status of Bangladesh foreign exchange reserves, evaluate the reasons for its decline, and provide a future outlook of Bangladesh’s forex market.
Current Status of Bangladesh’s Forex Reserves
According to the central bank’s report, Bangladesh Foreign Reserves 2023 stood at $19.52 billion in November based on BPM6 (Balance of Payments Manual of the International Monetary Fund). However, the central bank sources confirmed that the net reserves were less than $3.7 billion compared to the actual reserves amount.
A few calculations by the central bank suggested gross reserves standing at $25.16 billion. However, according to the calculation method prescribed by the IMF, BPM6 projected a different number. Of this, $3.5 billion from the export development fund was given to Bangladesh exporters in foreign currency, $270 million was used for a long-term financing facility (LTFF), $160 million from the green transformation fund, $390 million in the Roopur escrow account, $860 million for Sonali Bank financing facility, and $450 million deposits with ITFC needed to be deducted.
With this, BPM6 gross came down to $19.53 billion. Another $2 billion needed to be deducted for a member of the IMF to remain and maintain the SDR location, $937 million for the FC Clearing account, and $50 million paid to the Asian Clearing Union for the imports made from member countries.
In addition to this, $326 million needed to be repaid to the international monetary fund within a year. After calculating the deductions, net reserves reached $15.82 million. Bangladesh started assessing its foreign reserves in July, and following a different method of calculation, the gross forex reserves of the country dropped to $23.56 billion by almost $6.45 billion.
Reasons for the Decline
According to Bangladesh’s central bank’s report, forex reserves stood at $19.52 billion on 23rd November, according to calculations based on the IMF’s BPM6 (Balance of Payment Manual 6). However, net forex reserves had fallen below $16 billion. According to Bangladesh forex news, the foreign exchange reserves in the country had been depleting fast right from the beginning of 2022 because of international turmoil. Additionally, the high import bills, due to increased commodity prices in the domestic market after the COVID-19 period, followed by the war in Ukraine, also slowed down the remittances, leading to the dearth of dollars in the country.
The Bangladesh currency, the Taka, is constantly weakening against the USD due to a dollar shortage. The central bank is releasing dollars from foreign exchange reserves to stabilize its currency against the USD and settle import bills.
Nevertheless, the rate is still highly volatile in grey markets. The ever-rising defaulted loans and declining foreign exchange reserves are concerning for Bangladesh. The government must respond fast to keep a looming crisis from hitting the economy.
Although analysts believe the economy is in better shape than Sri Lanka, considering the former’s export earning capacity and higher remittances, the government should still not think that Bangladesh is unlikely to witness a dire situation.
Considering the declining reserves, the government plans to introduce restrictions on imports of luxury goods and set priorities on goods that can be imported in this present situation. The government aims to enhance its power generation capacity, but the current distribution channel may not be strong enough due to the lack of a comprehensive plan.
Additionally, the profitability was by default built for the private industries, and the risk was carried by the government by assuring them of purchasing power in the name of paying charges for power capacity.
After experiencing economic growth for over a decade, the declining Bangladesh foreign exchange reserves have left the economy searching for channels to halt the shrinking as policies to control the country’s imports fail to bring the desired outcomes. The central bank appears to be ignoring expert opinions that aim to resolve the crisis.
The BPM6 manual was introduced by the IMF in 2012, but Bangladesh did not comply with it, which helped the foreign exchange reserves appear higher than they were, thereby promoting the economy to use the strategy for other infrastructural projects.
According to this calculation, the central bank needs to exclude foreign currency loans to national banks, also known as the export development fund or EDF, deposits with the IDB Group and state-owned banks, loans to other countries like Sri Lanka, and other currency assets in non-convertible currencies from the previous gross foreign reserves to arrive at the figures.
Bankers had claimed that the Russia-Ukraine war that began in 2022 would result in higher costs in transport, consumer goods, and energy sector. As a result, Bangladesh would experience high import costs like other countries.
According to expert opinion, Bangladesh has plunged into the crisis owing to the bank’s attempt to artificially maintain Taka’s value against the US dollar, looking at the weakening of Bangladesh’s currency and policies that could hurt the economy. Further, the government must restrict imports and stop money laundering to stabilize the reserves and promote local goods and services exports.
Foreign currency expenditure is higher than the country’s earnings through exports or remittances. Economists believe that the government accounts are projecting remittances that could offset the deficit, but they are arriving through illegal channels or Hundi. The remittances are entering the country but not replenishing Bangladesh foreign exchange reserves.