BB eyes $2b loan, rising remittances, IMF support to cushion Iran war impact
Central bank governor says foreign exchange reserves remain strong enough to cover import expenses even if the war continues for three to four months
Bangladesh can absorb the economic shocks stemming from the ongoing Middle East war for the next few months, as it holds adequate foreign exchange reserves to meet rising import bills despite higher energy prices, central bank governor Md Mostaqur Rahman said today (29 March).
In a view-exchange meeting with senior journalists, the newly appointed governor expressed cautious confidence in the country's external position.
He, however, maintained a firm stance on monetary policy, stating that cutting interest rates would be "unwise" at this stage due to persistently high inflation, prioritising price stability over short-term growth.
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The governor also pledged to keep the financial sector free from political influence and to strengthen rural economic activities as part of broader efforts to stabilise the economy.
Deputy governors echoed similar views at the meeting. Deputy Governor Md Kabir Ahmed said Bangladesh's gross foreign exchange reserves currently stand at around $35 billion, sufficient to cover several months of import payments.
"Moreover, the Bangladesh Bank expects about $1.5 billion in loan disbursements from the International Monetary Fund by June and is working to secure another $2 billion credit line to ease pressure on the balance of payments," he said.
The governor said the government is seeking cheaper fuel through bilateral deals or direct grants from leading oil exporters. Consequently, the prime minister's foreign affairs adviser is visiting various nations to negotiate these terms.
Furthermore, the Economic Relations Division (ERD) has finalised a $1 billion budget support package from the Asian Development Bank (ADB), said the governor.
However, senior executives at the central bank fear that a prolonged war could trigger significant economic risks and inflationary pressures.
Deputy Governor Habibur Rahman noted that with crude oil prices having now nearly doubled, import costs are expected to rise proportionately.
"In this regard, if the safety of Bangladeshi vessels navigating the Strait of Hormuz can be guaranteed, it will be possible to reduce these additional costs," he said.
The governor, however, said the fuel imports Bangladesh procures under long-term G2G (government-to-government) agreements are sourced at the rates specified in those contracts. He added that the government's efforts are ongoing to ensure that these essential supplies continue uninterrupted.
Bangladesh Bank spokesperson Arief Hossain said a significant number of migrant workers in the Middle East risk losing their jobs and are returning home, raising concerns about a decline in remittances.
He also said, "If the IMF imposes conditions on the government to eliminate fuel subsidies, Bangladesh will have to comply. In such a scenario, inflation could surge significantly."
Bangladesh Bank officials noted that despite these stringent conditions, failing to secure the IMF loan would jeopardise the country's ability to obtain further credit from the World Bank and the ADB.
Deputy Governor Zakir Hossain Chowdhury said if international fuel oil prices continue to rise over a prolonged period, it will create additional subsidy pressure on the government.
Deputy Governor Kabir Ahmed said he anticipates that import demand would remain subdued this monsoon as well, which will play a vital role in maintaining the stability of both the reserves and the exchange rate.
Highlighting the priorities of the Bangladesh Bank, the governor said ensuring that the financial sector remains free from political influence is the top priority.
"The second priority is the recovery of stolen assets, for which meetings are being held every few days. Most banks have already signed non-disclosure agreements, and the remaining ones are expected to follow suit," he said.
The governor noted that unless GDP growth reaches 5% or higher, it will be difficult to attract foreign investment. To generate employment, the disbursement of loans from a Tk600 crore startup fund is set to commence this coming June, he said.
Furthermore, steps will be taken to stimulate demand in rural areas to keep the economy dynamic through increased domestic consumption, said the governor.
Lending banks have also been instructed to take the necessary measures to reopen factories that were closed either during or before the tenure of the interim government, he said.
The governor said, "We are working to decentralise Bangladesh's banking sector; specifically, banks will be instructed to increase loan disbursements towards agri-based industries and agri-technology.
"We are also considering the formation of a subsidy fund for the SME sector. Our reserves are currently in a safe zone, and we do not intend to see any significant depreciation of the exchange rate."
Stating that there is no scope to retreat from the establishment of the Sammilito Islami Bank, the governor affirmed that its operations will be expedited. "The chairman and managing director will be appointed soon, and I am adamant that this new bank remains entirely free from any political influence," he added.
Noting that the Bangladesh Bank held a meeting with the country's leading industrial conglomerates last Wednesday to understand their challenges, the governor stated that any issues pertaining to the central bank would be resolved.
The governor announced that a single, standardised QR code for all financial transactions will be established across the country by 30 June. "The use of this Bangla QR will become mandatory from 1 July."
He added, "This initiative aims to accelerate cashless transactions, which in turn will play a vital role in boosting revenue collection."
