Bangladesh Government has adopted strategy of securing a total of $1.73 billion to fortify reserves ahead of the January 7. This tight monetary policy has escalated the gross reserve of 24.66 billion dollars.
Central Bank declares of stable reserve in anticipation of hitting 24.3 billion this fiscal year after IMF’s approval 68.98 million dollars as the second installment of the total 4.7 billion dollars loan promised for Bangladesh! After approval on $400 million policy-based loan from The Asian Development Bank (ADB), International Monetary Fund (IMF) has approved 68.98 million dollars as the second installment of the total 4.7 billion dollars loan promised for Bangladesh. This amount will be added this month. Besides IMF and ADB, $90 million from a South Korean fund, and another $62 million will come from various donor agencies. In total, 131 million dollars (1.31 billion) will be added to the reserves this month. With the second tranche of the IMF loan, Bangladesh will receive a total of $108 million in December alone by making the current reserve estimating about 24.66 billion.
Strategic Initiatives to Stabilize Reserves
The second tranche of USD 4.7 billion loan for Bangladesh was approved at the meeting of the Executive Board of the organization held at the head office of the IMF in Washington on 12th December2023. According to the new guideline of the International Monetary Fund (IMF), the gross reserves came down to nearly $21.5 billion on September 2023 and on this 6th December, the reserve came down $19.1 billion. To tackle this declining situation for best interest of the country, Bangladesh is actively pursuing financial support from international institutions with a tight minatory strategy. With efforts, the influx of remittances totaling $3.9 billion in the past two months has provided a positive indicator, there is a concerted effort to redirect attention to Resident Foreign Currency Deposit (RFCD). The focus is on channeling dollars currently outside the formal banking system back into the sector. Bangladesh Government has adopted strategy of securing a total of $1.73 billion to fortify reserves ahead of the January 7 elections.
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Regarding the disbursement of the loans, Syed Ashrafuzzaman from the Economic Relations Division (ERD) FCBA-1 branch stated that they are anticipating numerous loans in December but the specific timelines of disbursement will be provided by relevant department staff in time. In addition to it, Central bank’s Managing Director and Spokesperson Mejbaul Haque said that, “More than a billion dollars in foreign loans and budget support will be made available in December this year. Therefore, Bangladesh Bank hopes that the reserves will not fall this month (December,2023).”
Diverse Funding Sources and Policy-Based Loans
Considering the declining reserve. Bangladesh is pushing its forces higher for stabilizing country’s reserves back to stream. On last September, 2023 the country’s reserve fell to $21.5 billion after clearing the import bills of $1.3 billion with the Asian Clearing Union (ACU). Asian Clearing Union (ACU) is a payment arrangement whereby the participants settle payments for intra-regional transactions among the participating central banks on a net multilateral basis. Hence, Bangladesh Government has taken strategic initiatives to stabilize country’s reserve in the mean time. Along with the $400 from Asian Development Bank (ADB), $681 million from International Monetary Fund (IMF), potential $250 million loan from the World Bank and another $400 million from the Asian Infrastructure Investment Bank (AIIB) will be approved in December for assisting Bangladesh.
Policy Based Loans
- Asian Development Bank – $400 million
- International Monetary Fund (IMF)- $681 million
- South Korea- $90 million
- World Bank- $250 million
- Asian Infrastructure Investment Bank (AIIB)- $400 million
- Various Donor Agencies- $1.73 billion
- Budgetary Assistance- $1.7 billion
Remittances and Exchange Rate Dynamics
On the 6th December of 2023, according to the central bank, country’s gross foreign reserves stood at $19.1 billion which is even lower than September but Bangladesh Government’s calibrated monetary policy has supported in rebuilding the buffer, also greater exchange rate flexibility has alleviated foreign exchange pressures has calmed down into a neutral fiscal stance. Former Chief Economist of World Bank’s Bangladesh Residential Mission, Zahid Hossain said that the IMF evaluates each installment before releasing it. In the second tranche, the IMF gave Bangladesh concessions on reserve and revenue targets. But during the third instalment, those terms will come up again in succession. He believes that export income and remittance flow should be increased to prevent the decline of reserves.
Moreover, the inflow of remittance to Bangladesh increased 21 percent year-on-year to as most banks are offering higher rates for the US dollar to boost foreign currency collection. Banks and the government are both paying a 2.5 percent incentive from their own funds for transferring remittances through official channels. As such, the beneficiaries are officially entitled to Tk 114.75 per USD. Besides, the BAFEDA and the ABB recently cut the USD rate in a bid to push expatriates into sending home money they previously held on to in hopes of a further rise in value. Emranul Huq, the managing director and CEO of Dhaka Bank stated that, banks have upped their efforts to collect remittances amid the ongoing forex crisis.
IMF’s Cautionary Approach
And after the 2nd installment’s approval from IMF, Mejbaul Haque the spokesperson of the central bank said, “Now there is a gross reserve of 24.66 billion dollars. According to BPM-6 of IMF, the gross reserves are 19.13 billion and the inflow of dollars including remittances is positive this month. With this the debt of the donor organization is added. There will be some expenses, but the expenses will be less than the income. So, the reserve will decrease relatively less. But in January, Aku’s payment is about one billion. All in all, reserves will be good.”
According to the IMF, Bangladesh’s gross foreign reserves can top up to $24.3 billion by the end of the fiscal year if greater exchange rate flexibility is allowed and a tighter monetary policy is pursued. Also, the International Monetary Fund (IMF) has suggested cautious monetary policy to restore the macroeconomic stability of Bangladesh in the short term. Along with this, the company has said to be more flexible in terms of neutral fiscal policy and currency exchange rate as supporting policies. The IMF suggested taking these measures along with increasing resilience to external shocks.
Salim Raihan, the executive director of South Asian Network on Economic Modeling (SANEM) stated that the amount of this loan is not that much compared to the need. Still this loan installment will improve the reserves to some extent. However, getting the second installment loan from the IMF will act as a positive for Bangladesh. Because it will help restore confidence in the economy as a whole, including domestic and foreign investors.
