Country's net reserves now below $18b, Zahid Hussain estimates

The country's net foreign exchange reserves have fallen below $18 billion, Zahid Hussain, a former lead economist at the World Bank's Dhaka office, told journalists after an event in Dhaka on Wednesday.

"If all the reserve liabilities, such as the International Monetary Fund's SDR [Special Drawing Rights] allocation, ACU [Asian Clearing Union], and Foreign Currency clearing account balances, are deducted from the gross reserves calculated as per BPM6, then net reserves are below $18 billion," he elaborated to The Business Standard.

The Balance of Payments and International Investment Position Manual (BPM6) is the IMF formula used to calculate reserves.

The Bangladesh Bank does not disclose data on the country's net foreign exchange reserves but provides them to the IMF as a condition for its $4.7 billion loan package.

According to data from the central bank, the country's gross reserves stood at $21.15 billion on Tuesday, in line with the IMF reserve calculation method.

Speaking to journalists after the annual conference of the International Business Forum of Bangladesh (IBFB) in the capital's Gulshan Club, the economist said the Bangladesh Bank's selling off over $1 billion a month will eventually cause the country to run out of reserves, leading to an alarming effect on the exchange rate. "It will go out of control," he remarked.

"The country's reserves have not yet reached an alarming state, but it is concerning," he said.

What Bangladesh followed in the last one and a half years was a very "unorthodox" response to the global shock, and this policy that we have followed has not really delivered the result that we thought."

At the programme, he said, "We have seen a $1 billion reserve loss per month for the last 24 months, a decline in remittances, which was $2 billion per month on average, to now $1.5 billion.

"When you have fixed exchange rates and your capital account is leaky, even though you have capital controls but money leaks out, the rigid exchange rate does not deliver the results that you thought."

Citing an example of weaknesses in the balance of payments account, he said, "One item on the balance of payments account is called 'errors and emissions, which is actually the difference between foreign exchange inflows and foreign exchange outflows. That is not explained by the changes in the foreign exchange reserves of the country.

"All countries have these errors and emissions. But what one typically sees is that there are sometimes positives and sometimes negatives on balance that wash out. What we are seeing in the case of Bangladesh recently, which has become one-sided, is always negative."

"So they have something; why? We don't know. There are some outflows happening that are not captured in the official accounts," he added.

He told The Business Standard, "That means we don't have a count of some money."

He attributed the volatility of the macroeconomy to global issues as well as local causes. International causes include the rise in the price of the US dollar, the rise in the price of international commodities, and the interest rate.

Another one is the price adjustment of oil and other oil-related products, like electricity. These have contributed to volatility in the economy.

To tame inflation, he suggested consistently tight monetary policy.

"You will not get lower inflation through a short-term tightening of monetary policy. You have to stay with it for a while, which can call 'tighter for longer'," he added.

In his speech, Indian High Commissioner to Bangladesh Pranay Kumar Verma underscored the need for signing the Comprehensive Economic Partnership Agreement (CEPA).

He said last year, India approved 15 lakh visas for Bangladeshi nationals.

Regarding a proposal, he said, "Our proposal is for a 765 kilovolt cross-border electricity connection between India and Bangladesh. It can be a starting point to develop a synchronous and robust grid-internal connection.

"It enables Bangladesh to get cheaper electricity options, including renewable energy, from India and other neighbouring countries."

Call to eliminate corruption in business to bring investment

IBFB President Humayun Rashid brought up the issue of corruption in business during his speech.

"Addressing corruption is essential for creating a favourable business environment that attracts both domestic and foreign investors," he said.

He also emphasised a favourable tax environment to attract foreign investors and encourage them to retain profits within the country.

"Establishing robust monitoring mechanisms to prevent corruption and ensure adherence to procurement rules and regulations"

The business leader also highlighted independent audits to assess the effectiveness of public procurement practices.

Among others, IBFB Vice President Lutfunnisa Saudia Khan and former president Mahmudul Islam Chowdhury were present at the programme.