BM Report:

At the close of December 2023, the Bangladesh central bank’s net reserves reached approximately $17.7 billion, surpassing the International Monetary Fund’s (IMF) stipulated target of $17.48 billion under the conditions of a $4.7 billion loan. This achievement comes despite facing a reserves crisis earlier in the year.

In the first six months (July-December) of the 2023-24 fiscal year, the central bank sold $6.7 billion to banks, slightly lower than the $7.8 billion sold in the same period the previous year. This highlights the ongoing challenge of fulfilling import obligations for essential commodities like oil, gas, and fertilizers while simultaneously adhering to the IMF loan conditions requiring dollar accumulation to maintain reserves.

Interestingly, a senior Bangladesh Bank official revealed that in the first half of the current fiscal year, the central bank purchased $1.04 billion from banks, a significant increase compared to the previous financial year. This demonstrates efforts to bolster reserves despite most banks facing a dollar shortage.

It’s important to note that the central bank’s gross reserves reached $21.7 billion by December 28, based on the BPM-6 system. However, the IMF excludes liabilities with a maturity of less than one year when calculating net reserves, resulting in a difference of about $4 billion between these two figures.

Bangladesh Bank spokesperson Mejbaul Haque emphasized the crucial role of maintaining foreign currency reserves. He explained that some banks with foreign currency holdings but facing cash shortages can sell to the central bank. Additionally, the bank can use dollars to settle debts. Notably, on December 26, the central bank purchased $200 million from Islami Bank and $100 million from other scheduled banks.

Over the past three years, the central bank has consistently sold dollars from reserves to commercial banks to cover import bills, amounting to $7.62 billion in FY 2021-22 and $13.58 billion in FY 2022-23. Interestingly, a discrepancy exists in the dollar’s value within the market. While banks sell dollars to the central bank at Tk 110, they buy remittance dollars at Tk 109.50. Furthermore, reports suggest some banks collect remittances at rates as high as Tk 120-122, exceeding the Bangladesh Foreign Exchange Dealers Association (BAFEDA) instructed maximum rate of Tk 109.50.

The dollar shortage in scheduled banks is evident in their net open position (NOP) holdings of foreign exchange, with around 20 banks having NOP short positions. These figures highlight the ongoing challenges within the banking sector and continued efforts to stabilize the forex market.