Gross forex reserve to fall below $22b after ACU payment

A file photo shows a man counting US dollar notes in the capital Dhaka. The gross foreign exchange reserve in Bangladesh, according to the guideline of the International Monetary Fund, has dropped to $23.06 billion and it would fall further once the payment of import bills worth $1.2 billion is made to the Asian Clearing Union for July and August in the next week. — New Age photo

The gross foreign exchange reserve in Bangladesh, according to the guideline of the International Monetary Fund, has dropped to $23.06 billion and it would fall further once the payment of import bills worth $1.2 billion is made to the Asian Clearing Union for July and August in the next week.

According to Bangladesh Bank officials, the payment is made at a two-month interval and expected to make the payment for the past two months in the coming week.

In July, the central bank cleared net import bills amounting to $1.1 billion with the Asian Clearing Union.

However, according to conventional valuation by the Bangladesh Bank, the foreign exchange reserve was at $29.20 billion on Wednesday.

The Asian Clearing Union is a payment settlement forum whereby the participants settle payments for intra-regional transactions through the participating central banks on a net multilateral basis.

Payment obligations of transactions among Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are settled through the ACU payment system.

Apart from the payment obligations to ACU, the ongoing sales of foreign currency have contributed to the reduction of the country’s foreign reserve.

The decline in reserves can be attributed to a significant dollar shortage on the market, which has compelled the central bank to conduct dollar sales to banks from its reserve, BB officials said.

The gradual depletion of the foreign exchange reserve has raised considerable concerns for both the government and the central bank, given the potential domino effect on the economy.

The Bangladesh Bank adheres to the IMF’s Balance of Payments and International Investment Position Manual, 6th edition (BPM6), for calculating both the gross international reserve (GIR) and the net international reserve (NIR).

The Bangladeshi taka continues to weaken against the US dollar, reaching Tk 109.5 for a dollar on Thursday, driven by a dollar shortage and a pressure on banks to settle import payments.

The Bangladesh Bank has been selling dollars in recent months from its foreign reserve to stabilise the foreign exchange market, but the rate has remained volatile.

The central bank sold about $13.56 billion in the financial year 2022-23 and $7.62 billion in FY 2021-22 to banks.

The ongoing dollar crisis has substantially affected banks’ capacity to settle import payments and open letters of credit, posing challenges for businesses.

To address the dollar shortage, the government and the Bangladesh Bank have jointly introduced measures to curtail imports.

These initiatives involve restrictions on luxury and non-essential imports.

In FY23, the country’s import payments fell by 15.76 per cent to $69.49 billion, down from $75.4 billion in the corresponding period of the previous year, Bangladesh Bank data showed.

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