Reserves to dip further as $1.6b ACU payment due today
According to central bank sources, due to the dollar crisis, the amount of imports has decreased significantly in the last two years. Besides, because the outflow of the dollars is more than the inflow, the reserves are decreasing.a
Bangladesh's foreign exchange reserves are set to decline to $18 billion today (13 May) following the settlement of import bills totaling $1.6 billion for the March-April period with the Asian Clearing Union (ACU), according to Bangladesh Bank sources.
The forex reserves stood at $19.82 billion as of 8 May. As such, the reserves after payment will be slightly more than $18.22 billion.
According to central bank sources, due to the dollar crisis, the amount of imports has decreased significantly in the last two years. Besides, because the outflow of the dollars is more than the inflow, the reserves are decreasing.a
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They said the payment for the March-April period is more than previous months because the increase of imports increased due to Ramadan and Eid.
As per central bank data, Bangladesh had to pay $1.29 billion for the January-February period as ACU bill. At that time, after paying this debt, the country's reserves decreased to $20 billion.
The ACU payment gateway covers monetary transactions by its nine member countries – Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka – for regional imports. The bills are cleared every two months.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, told The Business Standard that Bangladesh's foreign currency inflow and outflow lack balance, leading to a depletion of reserves.
Although the trade deficit has reduced somewhat due to import restrictions by the Bangladesh Bank, there are concerns about its sustainability, he added.
"Import restrictions have disrupted domestic production, consequently affecting exports negatively," he explained.
The opening of import letters of credit (LCs) in March 2023 amounted to less than $6 billion. Over the past year, there have been only three instances where import LCs exceeded $6 billion.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS that private sector credit surged in March and April in anticipation of Eid.
"The demand for specific imported products typically rises during Ramadan, leading to a slight increase in ACU payments over the past two months," said the banker.
Bangladesh's imports fell sharply in the current fiscal year as reflected by the slide in the settlement of LCs driven by a shortage of US dollars.
According to the central bank, private and public entities settled LCs of $44.31 billion in July-February FY24, down 13.93% year-on-year from $51.48 billion a year ago.
Net reserves to slide below $13 billion
According to Bangladesh Bank data, the country's BPM-6 reserves stood at $19.82 billion on 8 May. While the central bank has not disclosed the exact net reserves, its officials estimate it to be around $14 billion.
With the ACU payment of $1.6 billion today, the net reserves are projected to fall below $13 billion. This falls short of the International Monetary Fund's (IMF) requirement for a $4.7 billion loan package
The lender has set a net reserve target of $14.76 billion for June, down from $20.10 billion, for the loan.
Originally, the IMF was to release $681 million this month, but under the staff-level agreement, Bangladesh will now receive approximately $1,152 million, marking a 69.16% increase over the initial amount.
Central bank officials anticipate a rebound in reserves with the arrival of the third tranche of the IMF loan, totaling $1.15 billion, later this month or in early next month.
