Export Development Fund further trimmed by $200m

The central bank has further reduced the size of the Export Development Fund (EDF), this time by $200 million from $5.2 billion, in an effort to strengthen the country's foreign reserves.

With this, the fund size has come down to $5 billion from $7 billion in a span of just five months. 

In December last year, the size of the fund was downsized from $7 billion to $6 billion. Later it was gradually reduced to $5.2 billion. 

Confirming the matter to The Business Standard several senior officials of the central bank said the country's net foreign currency reserve must stand at $24 billion by June this year to secure the second tranche of the $4.7 billion IMF loan.

The central bank has very few options other than to downsize the EDF as import costs have already been brought down and there is little growth in exports, they said. 

The fund will be brought down incrementally and adjusted with the reserves, they said. It is planned to further reduce the fund size in June.

Association of Bankers, Bangladesh (ABB) Chairman and Brac Bank MD & CEO Selim RF Hussain told TBS that this latest downsize will not impact banks' foreign currency liquidity much.

Liquidity in the banks is now better than in previous months, he said, adding that the situation will get better in July.

The Bangladesh Bank Spokesperson Md Mezbaul Haque said there is currently $3.5 billion in the Nostro accounts of commercial banks. 

The central bank has also taken other steps to ease pressure on the export fund, including hiking its interest rate, reducing the single borrower limit, and not allowing fresh loans if the export proceeds are not repatriated.

Besides, the loan ceiling of the EDF has been reduced to a maximum of $20 million from $25 million, and the interest rate raised to 4.5%.

Another senior official of the central bank told TBS that they are trying to reduce the loan repayment period, which usually is six to nine months. 

Of the repaid amount, 20% to 30% is injected into the reserves, the official said.

According to central bank policy, exporters who took loan assistance from the EDF but are yet to repatriate export proceeds are not eligible to get fresh financing from the fund.

Banks have been directed not to send loan requests to the central bank from such exporters.

As recommended by the IMF, net foreign reserves should be calculated excluding the portion for special funds. 

The central bank has decided to show the reserves in both gross and net from July.

At present the gross reserves are about $31 billion net reserve will be 20 billion dollars.

Meanwhile, the central bank opened a Tk10,000 crore pre-finance scheme in local currency for exporters last January despite the reduction in dollar disbursements from EDF. 

Exporters can take loans at 4% interest from this scheme.  

However, there is less interest to take loans from this scheme. 

Till March, only Tk2,000 crore of loans has been disbursed from the scheme.