Bangladesh's foreign exchange reserve crosses $46 billion mark

Bangladesh's foreign exchange (forex) reserve crossed $46 billion-mark on Tuesday, thanks to lower import payment, higher growth of inward remittance and limited travel abroad, the central bank sources said.

Until 28 June, the reserve, one of the major macroeconomic indicators of an economy, stood at 46.08 billion dollars, setting a new record, according to the Bangladesh Bank's latest data. 

Covid-19 pandemic has led to low demand for the dollar for lower import costs than normal period, a surge in remittances and limited travel abroad, resulting in forex reserves to rise.

The reserve crossed the $45.01 billion-mark on 3 May and crossed the $44 billion mark on 24 February this year and touched the $40 billion-mark on October 28 last year.

In November last year, Finance Minister AHM Mustafa Kamal expressed hope that foreign exchange reserves would exceed $50 billion this year.

By international standards, a country has to have reserves equal to three months of import expenditure. With the amount of reserves that Bangladesh has now, it is possible to pay the import cost for more than 10 months.

The high flow of inward remittances has contributed to achieving such forex reserves. On 28 June, remittances reached $1.75 billion, up from $1.66 billion in the same period last year.

Besides, inward remittance from 1 July to 28 June of the current fiscal year was $24.59 billion, which is 36.40 percent more than the same period last year.

Center for Policy Dialogue (CPD)'s distinguished fellow Dr Mustafizur Rahman said high reserve growth can be analyzed in two ways.

He said this reserve can be handled with this reserve if the cost of imports rises, on the contrary, the high reserves indicate that Bangladesh's ability to repay foreign debt is increasing. This will make it easier to get more foreign loans. 

In other words, high reserves have a role to play in maintaining the stability of the macro-economy of Bangladesh. But the reason our reserves are rising sends a negative message to the economy.

Mustafizur Rahman said reserve is increasing mainly thanks to import decline, especially decline of capital machineries import due to the impact of the pandemic. This reserve is also saying that investment has decreased. When investment is low, employment also decreases, which curbs income of the people and increases poverty.

According to the central bank, the cost of importing capital machineries in the first 10 months of July-April of the current fiscal year fell by 7.5 % compared to the same period of the previous fiscal year.

Bangladesh's reserves are now in a stronger position than many countries in the world. More reserve is strength for the economy, but its proper management may pose a challenge in the future, Mustafizur Rahman said. 

For example, he said some issues will come to the fore due to high reserve, such as where to invest in additional reserves to get good returns, how to ensure the security of the reserves, and how to stabilize the money-dollar exchange rate.

In mid-March this year, the government set up an infrastructure development fund with $2 billion annually from the forex reserve as the volume of reserves increased. In the first phase, the Payra Port Authority has received a loan of around Tk5,500 crore from this fund.