The government is likely to use foreign exchange reserves for foreign payments for primarily in two sectors – power and port development projects.
Such loan is already exists in case of giving loans to national flag carrier Biman Bangladesh Airlines, a Bangladesh Bank official said preferring anonymity adding that the loan will be given from the reserve when the government makes foreign payments.
The Bangladesh Bank will follow this Biman model in case of using foreign exchange reserves for other government projects, the BB official added.
Currently, annual return from the foreign exchange reserve had come down to 1% due to a decline in interest rate worldwide. In this case, giving loans to government projects will be a better option for the central bank.
The Bangladesh Bank’s move came after Prime Minister Sheikh Hasina raised the topic of taking loans from the forex reserves at a meeting of the Executive Committee of the National Economic Council (Ecnec) on July 6 this year.
Following that meeting, the finance ministry in a letter referred to the discussion at the Ecnec meeting and urged the Bangladesh Bank governor to take necessary and effective measures in this regard.
A recent high remittance inflow and lower import expenditure, the country’s foreign exchange reserve exceeded the $38 billion mark for the first time on August 18, 2020.
The balance of payment witnessed a surplus of $3,655 million in FY20, which was the result of a decline in the current account deficit on the back of robust remittance inflows along with higher inflows of foreign direct investment (FDI) and somewhat healthy inflows of medium and long-term loans.
Experts claims forex reserves should cover three months of projected imports. “There is no scientific basis for this ratio. It is a commonly accepted threshold blessed by the International Monetary Fund. It focuses solely on the flow of goods and services.,” an expert said.