Good news about forex reserve

FE Team | Published: September 19, 2024 20:00:31

It is a great relief that the country's foreign exchange (forex) reserve has taken an uptick, driven by a rebound in foreign remittances. The central bank governor has assured the foreign corresponding banks that the current surge in reserves --- poised to be reinforced by aid and credit commitments from development partners -- would make things easier for payment of letter of credit (LC) liabilities soon. The governor made the remarks at a virtual meeting with members of the Association of Bankers Bangladesh (ABB) and representatives from more than 120 corresponding banks across the globe.
The online meeting took place at a time when many corresponding banks had either halted credit support or reduced credit limits for Bangladeshi commercial banks, believed to be due to a lack of trust in view of the depleting forex reserves. He explained that government liabilities had accumulated on account of letters of credit (LCs) for importing essential commodities like fertilisers, power, and petroleum products against prolonged foreign exchange crunch. He informed the corresponding banks that the government's total LC-related liability stood at $2.0 billion, of which $800 million had already been cleared, and the remaining amount would be settled within the next 5-6 months. Assuring the corresponding banks was of paramount importance as these foreign financial entities assist the local commercial banks in LC confirmation, offshore banking unit (OBU) loans and usance payable at sight (UPAS) LC financing.
The country's foreign-exchange reserves had been declining rapidly since the beginning of 2022 as the fallout of international crises, including the war in Ukraine. High import costs, driven by increased commodity prices on the international market, also contributed to this decline. Against this backdrop, the key challenge for the interim govern has been to ensure a stable forex reserve as well as adopt prudent policies for meeting expenditures in foreign currency. What transpires from the remarks of the central bank governor is a clear shift from the stagnating state of the reserves in the recent months. There had been a surge in remittance inflows in August compared to July this year, to $2.215 billion. In the first 14 days of this September, remittance inflows amounted to $1.167 billion. Central bank data show that the reserves increased by more than 15 per cent in the fiscal year 2023-24 on a year-on-year basis. Currently, the reserve stands at $24.30 billion, which in IMF calculation (called BPM-6), is approximately $20 billion --- a considerable improvement from less than $14 billion two months ago.
Presentation of the actual health of forex reserves and the future course of action for paying dues to the overseas corresponding banks is expected to remove the trust deficit in conducting foreign trade. Over and above, this is sure to bolster confidence of the local bankers as well as the common citizens. In this context, let it be underscored that effective steps are required to stop money laundering for strengthening the forex regime. The interim government since assuming office has time and again made its intention clear to do so. Import austerity in case of non-essential and luxury products can also help sensible spending of hard-earned foreign exchange.