Forex reserves hit another record at $42bn

Bangladesh's foreign exchange reserves yet again hit a new record by reaching $42 billion on Tuesday, central bank sources said.

The country's forex reserves had crossed the $40 billion mark for the first time in its history on October 8 this year. The reserves then exceeded $41 billion on 25 November, and reached $41.71 billion on 9 December.

In a statement issued by the ministry on Tuesday, Finance Minister AHM Mustafa Kamal said, "The foreign exchange reserves hitting $42.09 billion is a very good news for Bangladesh. It is a gift for the nation on the occasion of Victory Day.

"Despite the unexpected shock of the Covid-19 pandemic, the remittance warriors have sent their hard-earned money to keep the wheels of our economy turning. From 1 to 15 December this year, the remittance inflow exceeded $1 billion."

Experts believe that the forex reserves are breaking one record after another due to a decrease in import costs, slight increase in exports and high inflow of remittance.

Commenting on the matter, former lead economist of the World Bank's Dhaka office Dr Zahid Hussain said, "Among other reasons, the increase in disbursement of foreign aid due to the Covid-19 pandemic has been a contributing factor behind the surging forex reserves."

"And another big factor is the high inflow of remittance," he added.

In the first five months of the current financial year (July-November), remittances jumped by 41% compared to the same period last year, reaching $10.9 billion. Experts are considering as remarkable such inflow of remittance amid the novel coronavirus crisis.

It should be noted that Bangladesh witnessed a record high $1 billion in remittance during the first 12 days of November this year, and it was also achieved in a record amount of time.

Meanwhile, imports costs have decreased by 13% in the July-October period this fiscal year, when compared to the same period last year. As a result, the current account balance surplus is also surging.

This surplus exceeded $4 billion during the July-October period, and positively impacted the foreign currency reserves. Bangladesh can now bear the import costs with the current reserves for more than eight months.

A country must keep enough foreign exchange reserves to cover import costs for at least three months.

The strong position of foreign exchange reserves has positively impacted the exchange rates too. Taka is now at a stronger position thanks to the adequate reserve of US Dollars.

Economist Zahid Hussain said when economies recover following the Covid-19 crisis, this stable reserve of US dollars will help Bangladesh bear the high cost of any necessary imports.

He, however, added, "As the reserve is increasing due to falling imports, the phenomenon is not that good for the overall economy. Imports are falling due to a drop in domestic demand and investments. This will result in a negative situation in the long run.

"I suggest that those concerned focus on increasing the domestic demand."

In the July-October period this fiscal year, the opening of letters of credit (LCs) for importing capital machinery dropped by more than 7.5% when compared year-on-year.  Besides, more than 41% of the opened LCs were not settled.

The imports of intermediate goods and industrial material had witnessed similar phenomenon during that period.

A country's investment climate can be understood through the import volumes of capital machinery, intermediary goods and industrial material. An increase in those import volumes represents an increase in investments, and vice versa.