Repayment of dues triggers forex reserve squeezed


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Repayment of dues triggers forex reserve squeezed

BM Desk

Bangladesh Bank’s foreign exchange reserves are under pressure to pay the country’s outstanding and extended foreign debt. Dollars have to be sold from central bank reserves almost every day to meet import liabilities. The country’s foreign exchange reserves are drying out at a constant pace. Which has put great pressure on the country’s reserves.

Besides, the prices of various commodities, including fuel oil, edible oil, rice, and wheat, have started increasing in the international market recently. Import costs have increased again. At the same time, the demand for dollars has also increased for foreign travel, medical treatment, and education abroad. Remittances, export earnings, foreign investment, and foreign grants are also down. Due to these reasons, the pressure on the reserves is expected to increase in the future.

From the report of the Bangladesh Bank, it can be seen that the ratio of foreign exchange reserves to loans is decreasing. This is due to an increase in debt and a decrease in reserves. It also increases the risk. However, the International Monetary Fund (IMF) considers Bangladesh’s foreign debt risk to be low. However, the decline in the pace of reserve withdrawals remains a concern.

Reserves accounted for 65.40 percent of total loans in 2017. In 2028, it will decrease to 56.10 percent. In 2019, it further decreased to 51.90 percent. In 2020, the ratio will increase to 59.20 percent. In 2021, short-term loans increased due to Corona. Then the reserve ratio decreased to 50.80 percent. In 2022, it further decreased to 35.10 percent. By last May, it had further declined to below 30 percent.

In this context, the executive director of the Policy Research Institute (PRI), Ahsan H. Mansoor, said that if foreign currency reserves decrease and foreign debt increases, the risks in economic management will increase. There will be a negative impact on the confidence of foreigners. Then investment in the country will be discouraged. There will be volatility in currency exchange rates. Currently, one of the reasons for instability in the dollar market is foreign debt. There would not have been so much pressure if foreign loans were used for productive purposes. But it was not done. Now the central bank should be stricter in its use of foreign loans.

Analyzing the data obtained from the Central Bank report, it was found that in March last year, the import expenditure would have been equal if the export income and the dollar received from the remittances were settled. In that month, export income was 4.64 billion dollars, and remittances were 1.68 billion dollars. The two sectors have earned $6.42 billion. Import expenditures in that month were 6.26 billion dollars. That is, the surplus was 16 million dollars. There was a deficit in this sector every month until last December. At present, there is a surplus of some dollars from meeting the import expenses with the dollars received from export earnings and remittances. Last July, remittances reached 197 million dollars, and export income was 459 million dollars. The total income of the two sectors is $656 million. In contrast, the import expenditure in that month was 487 million dollars. The surplus is 169 million dollars.

The surplus increased by 1.53 billion dollars in July compared to March, but the crisis is not resolved. Rather, it is becoming more pronounced. Because the pressure on foreign debt repayment is increasing. A large part of these surplus dollars is spent on foreign travel, medical care, and education. Some went to pay off the previous LC liability. At present, more than 200 million dollars of debt have to be repaid on average every month. In this regard, the banks have to provide an average of more than 1 billion dollars every month from the reserves. In the last financial year, the central bank sold 1 million 358 million dollars from its reserves. As such, it has sold an average of more than 113 million dollars per month. It has sold 1.8 billion dollars from July 1 to August 30 of the current financial year.

As such, it has sold an average of 90 million dollars per month. Because of this, dollars are coming out of the reserve. But as the foreign exchange earnings are low, the dollar addition to the reserves is less. Due to which the reserve is decreasing. In August 2021, gross reserves increased to a maximum of $4,806 million. Now it has been reduced to a 2007 million net reserve. In the last two years, the reserves have decreased by 2,499 million dollars. That is, the reserve has decreased by 52 percent. Due to global and domestic crises, the reserves have been declining for the last two years.

According to the report of the central bank, the total foreign debt of the country was 9 thousand 625 million dollars last December. Last May, it decreased to 9 thousand 471 million dollars. Debt decreased by 1.54 billion dollars during the period under discussion. The external debt position has decreased due to less borrowing and the repayment of old loans. Compared to 2021, the debt increased by 5.45 billion dollars in 2022. The growth rate is 6 percent.

Long-term loans account for $7,772 million of the current loans. Which is 80.70 percent of the total debt. Short-term debt is one thousand eighty-three million dollars. Which is 19.30 percent of the total loan. The public sector’s debt is seven thousand 194 million dollars. Which is 74.70 percent of the total debt. In the private sector, $2 billion 431 million dollars were invested. Short-term loans are more common in the private sector than in the public sector. Short-term loans in the private sector total 1,652 million dollars. Short-term borrowing has now created a major strain on reserves.

Long-term loans have a longer repayment period. Because of this, the pressure on the reserve is less in this loan. But short-term loans have to be repaid within three to six months. If you fail to repay the loan, there is an opportunity to extend the term. Then high interest and penalty interest have to be paid against it. Due to this, the cost increases. It also increases pressure on reserves.

According to the information in the Central Bank report, the long-term debt of 1.62 billion dollars has to be repaid in the current year. Of this, interest is 36 million dollars. 177 million dollars to be paid next year. Of this, interest is 32 million dollars. 108 million dollars to be paid in 2025. Of this, interest is 28 million dollars. From then on, long-term debt repayments will drop below $1 billion a year. But adding new loans will increase it.

Almost all of the short-term loans are taken against imports. Of this, 1,000 billion dollars are to be paid this year. But due to the extension of the term of the credit to be repaid, about 8 billion dollars The rest of the loan tenure has been extended. If the dollar crisis continues, the repayment period of these loans will be extended.


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