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Forex reserves cross $37b

Govt decides to use it in productive projects


Published : 28 Jul 2020 11:06 PM | Updated : 07 Sep 2020 08:27 PM

The country's foreign exchange reserves rose by $1 billion within a month to reach $37.11 billion for the first time on Tuesday despite a global economic recession amidst the coronavirus pandemic.

The government has decided to use foreign exchange reserves for rapid implementation of productive projects to accelerate development work and recover from Covid-19-induced economic losses, an official said.

Earlier, the reserves reached $36.14 billion to hit a new record on July 2 whereas in June, the forex reserves crossed $34 billion and $35 billion-mark for the first time respectively following lower import payment pressure and steady growth of remittance inflow, according to data provided by Bangladesh Bank (BB).

The previous highest reserves amounting to $33.68 billion was recorded on September 5, 2017.
Factors such as lower import payment, strong remittance inflow, foreign loan and aid have contributed to pushing up foreign currency reserves in the recent months, experts and bankers have opined.

The reserves are sufficient to cover about 7 months’ import payment, an economist said.
Adel Haque, a former BB joint director, told Bangladesh Post that if the country has strong foreign exchange reserves, it will be more capable of paying import bills, which will ultimately help raise its rating.

On the other hand, a BB senior official said higher gold prices in the global market as well as lower import bills have helped to increase the country's forex reserves recently.

He said foreign exchange market had faced a huge demand in the last several years for greenbacks because of higher payment for imported items, including capital machinery, fuel oils and food grains.

As part of its move, the central bank sold US dollars directly to the commercial banks to meet higher import payments putting foreign exchange reserves under pressure.

Otherwise, the reserves would have risen further in recent months, he added.
The forex reserves was $31.27 billion in January, $32.23 billion in February, $31.78 billion in March, $32.12 billion in April, $31.34 billion in May, $32.71 billion in June, $32.09 billion in July, $32.77 billion in August, $31.83 billion in September, $32.43 billion in October, $31.72 billion in November and $32.68 billion in December in 2019, and $32.38 in January, $32.98 billion in February, $32.55 billion in March, $33 billion in April and $34.23 billion in May, 2020 respectively.

A finance ministry official said wishing not to be named that the government wants to take forex reserves as long-term loans to reduce foreign loans.

Loans taken to implement such projects can be repaid with the revenue collected from them following the execution, he added.
If the projects cannot make profits at the expected level, the government will allocate funds in the budget to repay loans taken for that specific project, he mentioned.

The finance ministry has asked the central bank to prepare a guideline in this regard outlining the ways the government can take out loans from the forex reserves, he informed.

The official said, “An initiative has to be taken to prepare a guideline or roadmap based on detailed analysis of the viability in using a portion of the forex reserves to provide loans for profitable projects.”

Earlier, Prime Minister Sheikh Hasina had proposed taking the amounts as loan from forex reserves, and asked the Bangladesh Bank to check whether the proposal is feasible as the country's foreign exchange reserves reached a high-ever $36.14 billion this month.

Planning Minister MA Mannan said, “People’s money (forex reserves) will be spent for their welfare.”
“We have the central bank and the finance ministry to look into the rules and regulations that are to be followed in this regard”, he added.

Meanwhile, the country's foreign exchange reserves have witnessed a rapid growth to touch a life-time high crossing $36 billion this month despite a global economic recession amid the Covid-19 crisis.

The reserves are sufficient to cover about 8 months’ imports for the country of 160 million people, an economist said.
Former World Bank lead economist Dr Zahid Hussain said the foreign reserves can be used in different development projects like the Padma Bridge project.

Even if the project does not turn profitable on the basis of toll collection, this will be beneficial for the national economy, he added.

“Now the power and energy sector has been scoped to get good returns. The government still needs to provide subsidies in this sector to get return in the future,” he mentioned.

Hussain said, “We need skilled officials to operate the funds to be provided as loans to evaluate project proposals properly.”
However, foreign exchange reserves are controlled by the central bank.

When any foreign currency reaches the central bank, it is added to the reserves.
When commercial banks receive any foreign currency, they can keep it as they need it, and spend it.
There is a policy in this regard.

There is an open position limit for each bank.
Usually this rate is 8 percent to 15 percent depending on the bank.
If any bank has more foreign currency at the end of daily transactions, it has to be sold to Bangladesh Bank. This is deposited in the reserves.

Thus foreign exchange is deposited in the reserves.
Again the central bank spends from here as needed.
If there is a crisis of dollars in the market, the central bank increases the supply in the market by selling dollars from the reserves.
In dollars, the banks repay their various debts including the debts of the L/C.
The government repays the loan installments along with various foreign debts from the central bank reserves.