3-year high ACU bill of $1.88b to be paid tomorrow, reserves to stay above $20b

Bangladesh is set to make a $1.88 billion payment tomorrow (6 May) to settle its Asian Clearing Union (ACU) dues for March-April imports, the highest ACU bill in nearly three years.

The last time the country made a higher ACU payment was in July 2022, amounting to $1.96 billion for May-June imports, according to central bank records.

Bangladesh Bank spokesperson Md Arif Hossain Khan confirmed the payment amount to The Business Standard yesterday, adding that it would be cleared by today.

The ACU is a Tehran-based institution for settling payments among nine countries – India, Bangladesh, Bhutan, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka. 

Bangladesh clears its ACU bills every two months. 

The previous ACU payment of $1.75 billion, made on 9 March for imports in January and February, had pushed the country's foreign exchange reserves below $20 billion under the IMF's Balance of Payments and International Investment Position Manual (BPM6) calculation. However, reserves bounced back in the following weeks.

"Even after Tuesday's payment, reserves are expected to stay above $20 billion. That's largely due to a 28% growth in remittance and over 10% growth in exports." – BB official

According to central bank data, Bangladesh's foreign exchange reserves stood at $21.97 billion on 4 May. As such, even after the $1.88 billion ACU payment, reserves are expected to remain above the $20 billion mark.

Since the payment in July 2022, payments had been on a declining trend, dropping below $1.3 billion throughout 2023. However, the payments began to rise again from the September–October period of 2024. Continuing that trend, the ACU payment for March–April this year has climbed to $1.88 billion.

Bankers view this surge in imports positively, saying that it is an indicator of a healthy foreign exchange position within the banking sector.

A senior official at the Bangladesh Bank explained that before the dollar shortage in mid-2022, ACU bills often averaged $2 billion per cycle. However, import restrictions and reduced trade with ACU countries led to lower bills during the dollar crisis. 

As reserve stability returned recently and exchange rate volatility subsided, imports gradually rose again, including from ACU countries, leading to a higher bill this cycle, he added.

Despite the recent rise in imports, the country's foreign exchange reserves have not declined, according to another official at the central bank. 

"At the end of July last year, reserves stood at $20.39 billion under the BPM6 calculation. After nearly 20 months, it crossed the $22 billion mark just a few days ago. Naturally, the upcoming ACU payment will reduce that figure slightly. But it's worth noting that since July, reserves have not fallen below the $20 billion mark," the official said. 

He attributed this stability to a nearly 28% growth in remittances and over 10% growth in exports.

According to central bank data, import letters of credit (LCs) opened between July and March of the current fiscal year rose 4.79% compared to the same period last year. 

Imports of consumer goods and industrial raw materials have gone up, while imports of capital machinery dropped by 26%. Imports of petroleum and intermediate goods also declined.

Commenting on the rise in ACU bills, Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said, "There's demand from consumers, and we need to maintain supply. A significant portion of our imports, especially essential goods and export-related raw materials, come from ACU countries. We're exploring alternative sources, but that will take time."

He also noted that the recent clearing of a backlog of overdue import payments has contributed to the spike. 

"Our export and remittance growth has enabled us to meet these obligations. We now have a clearer understanding of remittance market potential, and sustaining this flow will be critical in the days ahead," he added.