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Forex reserves under pressure

Food, fuel costs fire up import payments

Siddique Islam | January 06, 2018 00:00:00

Bangladesh's foreign-exchange reserves (forex) came under pressure following higher external payments, particularly as food and fuel costs fired up the bills.

Sources said import payments swelled as consumer items, including food-grains and fuel oils, cost higher.

The reserves fell below US$32 billion Thursday following a routine payment to the Asian Clearing Union (ACU) against imports during the November-December period of the last calendar year, according to officials.

After the payment, the country's forex reserves came down to $32 billion on Wednesday from $33.11 billion of the previous working day, according to the central bank's latest statistics. It was $31.999 billion on Thursday.

The officials of the central banker, however, expect that the pressure on reserves may ease gradually in the coming months following a steady growth in export earnings alongside an uptrend in inward remittances.

"We hoped that the existing trend in both export earnings and the flow of inward remittances may continue in the coming months," a senior official of the Bangladesh Bank (BB) told the FE on Friday over phone.

The banker also hinted that the import pressure may fall slightly next month as most of the deferred-payment LCs (letter of credit) are set to be settled by the end of this month.

But the import-settlement pressure may rise after a couple of months for settling import-payment obligations particularly for capital machinery, he explained.

The actual import in terms of settlement of LCs grew by 8.25 per cent or $1.57 billion to $20.59 billion in the five months of the ongoing fiscal year (FY) from $19.02 billion in the same period of the previous fiscal.

On the other hand, the opening of LCs, generally known as import orders, rose by 91.25 per cent or US$17.06 billion to $35.75 billion during the July-November period of the FY 2017-18 from $18.69 billion in the same period of the FY 17.

Actually, the country's overall import orders almost doubled in the first five months of the FY 18 as the opening of LC worth a large amount for setting up Rooppur Nuclear Power Plant (NPP) swelled the bill.

Bangladesh Atomic Energy Commission (BAEC) opened the LC worth $ 11.38 billion through the state-owned Sonali Bank Limited to import different items, including capital machinery, to build the plant.

The LC will be settled under buyer's credit. So it will not put any extra pressure on the local market as well as on the country's foreign- exchange reserves immediately, according to another BB official.

"Actually, the overall import orders increased despite deducting the figure of Rooppur NPP LC mainly due to higher import orders for capital machinery particularly for setting up new power plants," the BB official noted.

However, the import orders accounted for $ 24.37 billion in the five months of the FY 18 after deduction of the figure of Rooppur NPP LC.

He also said the actual imports increased during the period under review due to higher import of consumer goods including food-grains and petroleum products.

The import of consumer goods rose by 64.21 per cent to $3.23 billion in the five months from $1.96 billion in the same period of the previous fiscal year.

On the other hand, food-grain imports, particularly of rice and wheat, increased sharply by 158.55 per cent to $1.23 billion during the period under review, amid local market overheating, from $477.74 million in the same period of the FY 17.

The import of petroleum products rose by 10.50 per cent to $1.12 billion during the period under review from $1.01 billion in the same period of the previous fiscal.

On the other hand, the country's overall export earnings grew by 7.15 per cent to $ 17.92 billion in the first half (H1) of this fiscal from $16.72 billion in the same period of the FY 17.

The aggregate export receipts during this past July-December period were slightly (0.23 per cent) up from the strategic target of nearly $ 17.87 billion, according to official statistics.

The inflow of remittances, however, increased by 12.47 per cent to $6.93 billion in the H1of the FY 18 from $6.17 billion in the same period of the FY 17.

The flow of remittances increased during the period under review due to higher exchange rate of the US dollar against the Bangladesh Taka alongside the strengthening of monitoring by the BB to curb its illegal fund transfers, the official added.

The BB official also said the central bank of Bangladesh is providing foreign-currency support to the commercial banks continuously for clearing import-payment bills for the essential items, which also has been exerting pressure on the forex reserves.

As part of the move, the BB sold US$ 20 million to a commercial bank at market rate on Thursday to meet its growing demand for the greenback.

The central bank has resumed providing the foreign-exchange backup in the recent months through selling the US currency to the banks directly to keep the market stable.

A total of $1.10 billion had been sold since July 01 of the ongoing FY 18 to the commercial banks as part of its ongoing support recipe, according to BB's latest data.

"Such support may continue in line with the market requirement," the central banker hinted.

Bangladesh already made a routine payment of $1.36 billion to the ACU against imports during the November-December period of 2017.

"We've already remitted the fund to the ACU headquarters in Tehran in line with the existing provisions of the union," the BB official said.

Under the existing provisions, outstanding import bills and interests thereon are to be paid at the end of every two months among the member-countries.

The amount of such payments rose to $1.36 billion in the last installment which came down to $1.13 billion during the September-October period of the last year mainly due to higher imports from the ACU member- countries, the BB data showed.

It was $1.19 billion during the July-August period of 2017.

"We're importing different consumer items, cotton, raw materials and capital machinery from the ACU member-countries, particularly from India," the central banker explained.

ACU is an arrangement involving Bangladesh, Bhutan, India, Iran, Myanmar, Nepal, Pakistan, Sri Lanka and the Maldives, through which intraregional transactions among the participating central banks are settled on a multilateral basis.

The union started off its operation in November 1975 to boost trade among the member-countries. Bangladesh and Myanmar joined the union as the sixth and seventh members in 1976 and 1977 respectively. Bhutan joined the ACU in December 1999 and the Maldives in January 2010.

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