Explainer: How Bangladesh will calculate reserves from June
The Bangladesh Bank will disclose its new reserve position per the IMF formula in June.
The IMF set the floor on net reserves at $24.46 billion for June when the lender will conduct the first review of the performance criteria of the central bank.
The net reserve will have to be calculated according to the new formula prescribed by the IMF. According to the central bank data, Bangladesh will show a $19 billion-plus net reserve if the new formula is applied.
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This net reserve amount is readily available for intervention in the foreign exchange market.
The Bangladesh Bank has a gross reserve of $31.28 billion as of 16 March. But this figure is not acceptable to the IMF as the lender says some components must be excluded from the gross reserve.
As per the IMF formula based on the Balance of Payments and International Investment Position Manual, the Bangladesh Bank will have to exclude foreign currency loans to local banks, known as the Export Development Fund (EDF), which is now $5.5 billion, deposits with state-owned local banks, deposits with the IDB Group, fixed-income securities below investment grade, a loan to Sri Lanka and other foreign currency assets in non-convertible currencies, which total $2 billion of the gross reserve.
The IMF says the central bank must also exclude the reserve-related liabilities to estimate the net reserve. Bangladesh's current reserve-related liabilities amount to $4 billion. The net reserve will be $19 billion-plus if this amount is excluded.
The IMF introduced the BPM6 manual in reporting the reserve and balance of payment in 2012 under its Safeguards Assessments agreement, which applies to all members of the Fund.
Introduced in 2000, the Safeguards Assessments are diagnostic reviews covering five key areas of control and governance within central banks, including the external audit mechanism, legal structure and autonomy, the financial reporting framework, internal audit mechanism and the internal controls system.
The IMF conducts its Safeguards Assessments mission every 12 years, as the policy's main objective is to mitigate the risks of resource misuse and data misreport.
Following the launch of BPM6 in 2012, the Bangladesh Bank adopted it for the balance of payment reporting but ignored the latest manual for reserve calculation. At that time, Atiur Rahman was the governor.
Therefore, the banking regulator continued forex reporting per the BPM5 manual, which helped the central bank management show higher forex reserves, prompting the government to use it for different infrastructural projects.
