Can forex reserve be used for dev projects? PM asks officials to find out

Prime Minister Sheikh Hasina has asked officials to explore opportunities to use the foreign currency reserve of the country to finance development projects.

The country currently has foreign exchange reserves worth above $36 billion, she mentioned, adding, "We may use the forex reserves instead of foreign loans."

The prime minister was presiding over a virtual meeting of the Executive Committee of the National Economic Council (Ecnec) on Monday.

Planning Minister MA Mannan disclosed the matter through an online press briefing after the Ecnec meeting.

The meeting approved nine projects involving a total cost of Tk2,744.44 crore. The government will provide Tk1,153.70 crore to these projects from its own fund, while Tk949.96 crore would be collected from foreign sources as project assistance. The implementing agencies will spend the remaining Tk440.79 crore from their own funds.

The planning minister said the prime minister has expressed her satisfaction over the highest ever reserves of foreign currency in the history of the country.

Quoting the prime minister, he said, "Reserve equivalent to the value of import payment for three months is the risk threshold for a country but we have sufficient amount to pay import costs for the next one year. Therefore, we have to explore ways to use funds from the reserves."

He also noted that a huge amount of money is required to fight Covid-19 and to recover the economy from the pandemic shocks, which is why the government wants to use the reserves.

The government may borrow money from the forex reserves through foreign currency and repay the amount, including interests comparable to the international market, the planning minister added.

Responding to a question, Mannan said although foreign loans have lower rates of interest, it requires to complete a long process to get those loans, which delays the progress of development projects.

He also noted that the prime minster just shared her thoughts and made a proposal. "It is not her order," he added.

Nonetheless, many economists cast doubt on the implementation of such an initiative. Some of them think even if such an initiative is implemented, it will be risky.

Dr Ahsan H Mansur, executive director of the Policy Research Institute, said the central bank repays all debts taken out from foreign sources through foreign currency, while the government takes out loans from the central bank through local currency.

Against this backdrop, there is nothing to giving loans to the government from the forex reserves, he added.

However, he thinks that it is possible to create an infrastructure development fund based on partnership using reserves from the Bangladesh Bank to provide loans for the development of infrastructures in the public as well as private sectors.

Dr Zahid Hussain, former lead economist of the Dhaka Office of the World Bank, said although the scale of a country's foreign exchange reserve should meet three months of its import payments in normal times, the International Monetary Fund has raised the threshold to five months during the current coronavirus situation.

Besides, the probability of future crisis of some sort or other cannot also be ruled out, he said. In this situation, he suggested keeping forex reserves worth making import payments of six months in normal situation.

Mentioning that the export market is going through a slowdown, the noted economist also said, "Forex reserves have witnessed a rise in recent time riding on additional inflow of remittance. However, a significant portion of this remittance constitutes the savings of migrant workers who have become jobless amid the pandemic. The remittance will fall once the expatriate workers come back home."

In this circumstance, he suggested using the forex reserves cautiously.

Dr Zaid Bakht, chairman of Agrani Bank, told The Business Standard that a significant portion of foreign reserves coming in the forms of export earnings, foreign assistance, and remittance are being used to make payments in local currency within the country.

In this situation, giving loans to the government from the reserve means lending money without keeping any deposit in hands, he argued, adding that such an initiative will lead to a rise in inflation rate.

Ecnec approves nine projects

Among the nine projects that got approval from the Ecnec on Monday, four of the projects are under LGRD and cooperative ministry, two each under the power, energy and mineral resources ministry and the water resources ministry, and one under shipping ministry.

The projects are: installation of Single Point Mooring (SPM) with double pipelines (2nd revised) project; Ghorashal Unit Third Repowering (1st revised) Project; construction of 1490-metre Long PC Girder Bridge on Panchpir Bazar-Chilmari Upazila Head Quarter Road over the Teesta River in Sundarganj Upazila under Gaibandha district (2nd revised) Project; Rupganj Jalshiri Abashon Connecting Road Development (1st revised) Project; development of Rural Infrastructures in Jamalpur and Sherpur Project; bridge construction over the Dakatia River at Faridganj, Chandpur; rehabilitation of three projects in Dhamurhat, Patnitola and Mohadebpur upazila under Noagaon district and Atrai River Bank Protection including dredging works project; rehabilitation of Dinajpur town projection project and system dredging or digging of Depa and Goveshwari rivers adjacent to Dinajpur town project; establishment of global marine distress and safety and integrated marine navigation system (EGIMNS) Project.