Bangladesh's official foreign-exchange reserves have plummeted by more than 5.0 per cent to $19.6 billion in just two weeks since November 1, according to the International Monetary Fund's (IMF) formula.
The sharp decline in forex reserve comes as the country is struggling with an economic slowdown, a decline in remittances and less-than-expected export receipts.
By its own formula, the Bangladesh Bank (BB), however, calculates the forex drop by 4.0 per cent to $25.3 billion during the period.
According to the widely used IMF's Balance of Payments and Investment Position Manual (BPM-6), Bangladesh Bank's various funds, loan guarantees to state-owned Biman, loans to Payra Port Authority, deposits in the Islamic Development Bank and investment reserves in securities below certain grades are included in the reserve calculation by the central bank.
The Bangladesh Bank had previously classified these accounts as reserves. Excluding these accounts reduces the reserves by around $5.0 billion.
Many economists believe that a drop in remittances and less-than-expected export receipts, coupled with a higher domestic dollar demand, are the main reasons behind the fall.
The remittance inflow during the first four months of the fiscal year dropped by more than 4.36 per cent to $6.88 billion.
Export earnings expanded by 3.52 per cent during the first four months of the fiscal year, still lower than the 7.0 per cent growth recorded in the same period a year earlier.
Dr M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, told The Financial Express that the drop in remittances and poor growth in export receipts were the main reasons behind the fall of the foreign exchange reserve.
Dr Masrur also said that many commercial banks with adequate foreign exchanges are now selling their holdings to mitigate their cash requirements in local currency taka. He mentioned that local banks have liquidity shortages.
Dr Zahid Husain, an independent economist, told the FE that the demand for dollars is higher than the supply, leading to a fall in the reserve.
He said that import restrictions have eased to some extent, adding there are many more payment obligations. "We observe that there are many short-term debt repayments. I think this is one of the reasons behind the fall."
He added that there are speculations in the market, with many holding dollars in the hope of higher gains. As a result, the dollar continued to sell from the reserve to commercial banks, amounting to over$1.0 billion a month.
At the beginning of the fiscal year 2023-24, gross reserves were $29.73 billion, while according to BPM-6, it was $23.37 billion.
Meanwhile, the foreign exchange rate between the US dollar and the local currency taka remained stable at Tk 111 in the official interbank rate.
However, dollar prices at the "kerb" market reached a maximum of Tk 117 on Thursday, according to the Bangladesh Money Exchange Association.
Besides, a group of traders involving foreign exchange transactions operating outside banks in the Motijheel and Dilkhusha areas have also seen a drop in the dollar rate, with prices falling to Tk 123/124 on Thursday.
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