Attaining IMF-set forex reserves target

FE Team | Published: January 11, 2024 20:27:00

The immediate past finance minister's statement that attainment of the target of foreign exchange reserves set by the International Monetary Fund (IMF) would be impossible does give a wrong signal so far as economic and financial health of the country is concerned. Despite his candid admission of the difficulties facing the economy, especially export slump, inflation and declining overseas remittance, he sounded positive, if not complacent, while speaking about the shape of things in the current year. Clearly he betrays a broad line of incongruity while trying to extol the performance of the economy against fast-depleting foreign exchange reserves. "Net or gross - Bangladesh is now in a better position in both terms. But we could not meet the IMF targets. It can never be possible to fulfil the IMF targets," he said while speaking to the media.
Last month the gross reserves fell to $25.70 billion by official count as the central bank cleared import payments amounting to $1.27 billion through the Asian Clearing Union (ACU) mechanism. But the gross reserves calculated in line with the International Monetary Fund (IMF)'s BPM6 calculations fell far below to $20.40 billion from $21.74 billion last week. For June last year, the IMF had set the requirement for maintaining a net international reserves (NIR) position for Bangladesh at $24.46 billion but the country could maintain only $19.56 billion then. Subsequently, upon request from the government, the IMF further lowered the NIR target for December last year, which the country could not succeed to maintain. Against this backdrop, the former finance minister holds the view that inflow of remittance, a major component of forex reserves, can be doubled and when done, this can help maintain gross reserves well over $30 billion.
The IMF had approved a $4.7 billion loan for Bangladesh in January last year and fixed a minimum forex reserves of $26.81 billion by December 2023. However, it eased conditions for the loan's third tranche due to a shortfall, reducing the target to $17.78 billion. Bangladesh Bank failed to meet the net reserves target for June. The net reserves was $19.5 billion in June against the IMF-set target of $23.7 billion. In February, when the IMF approved the loan package, the Bangladesh Bank's net reserves were $3.0 billion short of the $24.46 billion target set for June. The net reserves was over $20 billion in February, but it has been falling steadily since then, reaching below $18 billion in September. The IMF approved the second instalment of the loan amounting to $689.89 million on December 12.
Coming to the immediate past finance minister's statement, one has reasons to wonder what makes him so confident about the state of the economy given the receding trend in the forex coffer. Simultaneously, it appears somewhat perplexing to hear him forecast that achieving the IMF target is impossible. If effective measures are taken to optimise overseas remittances, as he suggests, reaching the target may not be formidable at all. Additionally, exploring potential avenues, such as boosting exports, could positively impact the current situation. Clinging to fanciful optimism while losing hope sounds ambiguous. Macroeconomic clarity must be maintained at all costs.