IMF urged to downsize forex reserves to $20b as term for next loan instalment

FE Team | Published: October 17, 2023 00:36:52

Bangladesh has now requested the International Monetary Fund (IMF) to lower the requirement of foreign exchange reserves at $20 billion as a condition of releasing the second installment of the $4.7 billion loans, an official of Bangladesh Bank confirmed this on Monday, reports UNB.
The request was made to the visiting IMF delegation that reviewed with the officials the progress in meeting its conditions.
Despite different measures taken by the including cutting unnecessary and luxury goods imports, in the last three months, gross reserves declined by $2.58 billion.
Two main sources of foreign exchange earnings -inward remittances flow saw a record decline to $1.34 billion in September and export earnings failed to achieve the target.
Considering the situation the central bank proposed to the IMF mission led by Rahul Anand to revise the reserves down to $20 billion.
Under the terms of the $4.7 billion IMF loan, the actual reserves were supposed to be maintained at $24.46 billion last June and $25.30 billion in September. At the end of December, Bangladesh must maintain at least $26.81 billion in net reserves.
The net forex reserves are now less than $18 billion, according to the calculations of Dr Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
However, the IMF also suggested that BB fix the exchange rate of US dollars on competitive market price, which is now being set by the Bangladesh Foreign Exchange Dealers' Association (BAFEDA) in the concentration of the BB.
The central bank earlier relaxed the exchange rate of the US dollar gradually and now the official exchange ratr is Tk112 per dollar.
Economist Dr Ahsan H Mansur said that Bangladesh has to maintain strict monitoring of trade-based money laundering along with cutting unnecessary imports to check the downslide.
Meanwhile bdnews24.com reports, a delegation from the International Monetary Fund (IMF) has held a meeting with senior officials of state-owned and private banks in Bangladesh to address numerous issues affecting the banking sector.
The discussions on Monday focussed on matters such as the high rate of defaulted loans, the transition to a fully market-oriented exchange rate, and the potential role of prudent interest rate policies in controlling inflation.
Members of the Association of Bankers, Bangladesh (ABB), including its Chairman Salim RF Hossain, and Syed Mahbubur Rahman, managing director of Mutual Trust Bank (MTB) attended the meeting.
During the meeting, the IMF delegates inquired about strategies for mitigating the high rate of non-performing loans and sought insight into the effectiveness of Bangladesh Bank's move toward a market-oriented exchange rate, according to Mahbubur.
Discussions also revolved around the possibility of achieving a fully market-oriented exchange rate by December, with bankers indicating that this transition may take until early next year.
Banking industry leaders emphasised the necessity of political commitment and stricter banking regulations to reduce non-performing loans. Small and medium-sized industries, which are import-dependent, have been particularly affected by the scarcity of dollars.
One of the terms of the loan agreement is for Bangladesh to increase remittances, which have been decreasing in recent months. The discussions included strategies to boost remittance inflow and address the practice of expatriates conducting transactions in the informal hundi market due to higher open market dollar rates compared to banks.
Currently, the ABB and the Bangladesh Foreign Exchange Dealers' Association (BAFEDA), play a key role in determining the exchange rate for the Bangladeshi taka against the dollar. They are in negotiations with Bangladesh Bank to determine buying and selling prices, thus eliminating multiple dollar rates.
In the banking channel, the exchange rate for purchasing dollars (covering all types of export income, service sector, and remittances from abroad) is fixed at Tk 110. On the other hand, the exchange rate for selling dollars (for imports, interbank transactions, and remittances abroad) is capped at a maximum of Tk 110. 50. This rate has been in effect since Sept 25.