Institutional investors demand return of Tk43cr stuck in Asiatic Lab’s IPO subscription

Richard de Rosario, president of the DSE Brokers Association, told TBS, “Institutional investors have been suffering losses after their deposits got stuck in Asiatic’s account following the suspension of the company’s IPO. If the investors had that money they would invest it in the capital market, benefitting both themselves and the capital market, but now they cannot do that.”

Institutional investors who bid for Asiatic Laboratories’ initial public offering (IPO) shares through book-building method have demanded their deposits back as the subscription process has been held up by the securities regulator since January this year.

The securities regulator suspended the subscription process after receiving a complaint that the company overstated in fixed assets.

Around Tk43.18 crore of 92 institutional investors who participated in the bidding is stuck in a Dhaka Stock Exchange (DSE) account for around a year, said sources.

An institutional investor is a company or organisation that invests money on behalf of other people. They include asset management companies, brokerage houses, merchant banks, etc.

The DSE Brokers Association of Bangladesh – a platform of trading right entitlement certificate (TREC) holders of the premier bourse – sent letters in this regard to the Dhaka Stock Exchange and the Bangladesh Securities and Exchange Commission (BSEC) last month.

The auction to determine the cut-off price of Asiatic Laboratories’ shares was held in October 2022. Institutional investors deposited money to the DSE’s account to participate in the bidding process at that time. The DSE then transferred the money to Asiatic’s account. The securities regulator suspended the company’s IPO subscription process in January this year.

Richard de Rosario, president of the DSE Brokers Association, told TBS, “Institutional investors have been suffering losses after their deposits got stuck in Asiatic’s account following the suspension of the company’s IPO. If the investors had that money they would invest it in the capital market, benefitting both themselves and the capital market, but now they cannot do that.”

“The BSEC has held up the IPO subscription, but a final decision should be taken on the matter. Due to the downturn in the capital market, institutional investors are desperate to get their money back,” he added.

In the book-building method, institutional investors participate in the bidding process for IPO shares by depositing money to the DSE’s bank account.  The DSE keeps the money of the bidders who get share allotment and return the other bidders’ money.

The investors’ money then is transferred to the company’s bank account. The company can start spending it in the areas stipulated in its prospectus after its stock market listing.

Why the IPO subscription was held up

On 15 January, the BSEC held up the electronic subscription of Asiatic Laboratories’ IPO shares until further notice.

The decision was taken due to some complaints against Asiatic Laboratories, the gravest of which were regarding overstatement of the company’s fixed assets, and dispute over its ownership.

The securities regulator has formed an enquiry committee to look into the matters, but they have not made a decision regarding its IPO.

The Financial Reporting Council (FRC) has found that Asiatic Laboratories overstated the value of its properties. Market insiders said the pharmaceutical company did that in an attempt to obtain better prices for its shares.

The council submitted its findings to the commission.

In August last year, the securities regulator allowed Asiatic Laboratories – a manufacturer of pharmaceutical products – to raise Tk95 crore through IPO under the book-building method.

The company said in its IPO prospectus that it will use the fund to begin producing anti-cancer drugs.

Of the Tk95 crore, it will use Tk58.05 crore to buy and install machinery, Tk6.26 crore to build a factory, and Tk28 crore to repay bank loans.

Earlier, in a bidding through the electronic subscription system by the institutional investors, the cut-off price of the company’s shares was determined at Tk50 each.

The general investors will get the shares at Tk20 each as per the BSEC rules.

Source: The Business Standard


Bangladesh’s average import tariffs higher than in most countries

Bangladesh’s average import tariffs higher than in most countries

Bangladesh’s average nominal tariffs are higher than in low-income, middle-income and high-income countries, as well as most of its comparators, said an economist yesterday.

Such a high tariff on imported items raises relative profitability for domestic market-oriented industries compared to exports, discourages production for overseas markets, and acts as a major barrier to export diversification, said Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh (PRI).

He made the remarks while presenting a paper at a seminar on “Tariff protection and export diversification are not mutually exclusive: The Bangladesh phenomenon” organised by the Bangladesh Institute of Development Studies (BIDS) at its conference room in the capital.

The nominal tariff is 27.6 percent in Bangladesh.

It is 22.4 percent in Sri Lanka, 18.1 percent in India, 9.7 percent in Thailand, 9.6 percent in Vietnam, 5.6 percent in Malaysia, and 8 percent in Indonesia.

“Tariffs are now the principal instrument of protection, an incentive to import-substitute production,” Sattar said.

The economist described higher tariffs as a critical requirement for sustaining so-called infant industries without regard to their period of establishment or the efficiency implication of long-term protection.

Sattar said almost all consumer goods produced domestically reap the benefit of extremely high and differentiated levels of nominal and effective protection.

The effective rates of protection for most import-substitute industries could range from 100 percent to 400 percent or more, he said.

Anti-export bias is also one of the bottlenecks for export diversification, according to Sattar.

He said Bangladesh exports 1,377 non-readymade garment products. Of them, 174 products are highly competitive, 408 items are moderately competitive and 795 are marginally competitive.

The country ships 346 types of non-RMG products that earn around $1 million annually, but the segments do not get the bonded warehouse facility, which allows exporters to import raw materials duty-free.

“These products can play a significant role in accelerating export diversification if they are brought under the bonded warehouse facility,” he said, adding that products made by jute, leather goods and home textile industries are largely competitive in the world market.

“Non-RMG exporters can compete in the world market purely on the basis of labour cost advantage.”

He said the National Tariff Policy 2023 has opened the door for export diversification.

According to the PRI chief, the focus of the policy will be on import taxes such as customs duty, regulatory duty and supplementary duty, which are not “trade neutral”.

The value-added tax, the advance income tax and the advance VAT are considered trade neutral and are not under the purview of the trade policy, he said.

The economist pointed out that export diversification is not getting traction despite two decades of policy focus on “thrust sectors”, “high priority sectors”, and “special development sectors”.

Salehuddin Ahmed, a former governor of the Bangladesh Bank, stressed cash incentives and other benefits like the bonded warehouse facility to increase export diversification.

He, however, added that the National Tariff Policy alone will not be effective in giving a boost to export diversification.

Ferdaus Ara Begum, chief executive officer of the Business Initiative Leading Development, said there are a number of sectors that have the potential to contribute more to export diversification, but they don’t enjoy the bonded warehouse facility.

She called for extending the facility to them instead of giving incentives.

BIDS Director General Binayak Sen chaired the seminar.

Source: The Daily Star


VAT collection registers 17pc growth in FY’23 despite adversities

Collection of value-added tax (VAT) grew by 17 per cent last fiscal year (FY) despite multiple challenges on both external and domestic trade fronts.

Though the government adopted austerity measures amid adverse economic situations, and the revenue board missed a substantial amount of VAT against some projects, desperate drives by the VAT wing of the National Board of Revenue (NBR) facilitated the collection, according to a statement issued on Thursday.

It said the manufacturing industries too faced a blow in spite of opening letters of credit (LCs) and importing raw materials due to the increase in utility bills that hampered the natural pace of the manufacturing sector.

The VAT wing collected Tk 1.25 trillion in FY ’23 which is Tk 170.04 billion more than that of the previous year.

It has collected 92 per cent of the FY’s ambitious target of Tk 1.36 trillion which is marked as ‘outstanding’ as per Annual Performance Agreement of the Ministry of Finance.

VAT collection grew by 18 per cent alone in the month of June, 2023 alone.

In FY 2021-22, the NBR had achieved 11.19 per cent growth in VAT collection.

The NBR has collected Tk 1.25 trillion VAT in the last FY against Tk 1.08 trillion in the previous FY.

Of the amount, the VAT wing mobilised Tk 156.14 billion revenue in the month of June alone.

Dhaka South, Khulna and Chattogram achieved the highest growth among the 12 VAT zones across the country.

Chattogram VAT zone achieved 38.71 per cent growth, followed by Khulna 24.71 per cent and Dhaka South 19.89 per cent.

Large Taxpayers unit (LTU) has collected the highest VAT worth Tk 585.66 billion among the zones.

NBR officials said it’s an outstanding achievement of the VAT wing in this adverse economic situation thanks to intensified monitoring by the field offices, relentless efforts by VAT officials, updating input-output coefficient of businesses and measures to check VAT evasion.

The NBR has collected Tk 30 billion more in taxes from tobacco users while achieving 11 per cent growth in VAT collection from mobile phone users.

VAT collection from MS Rod increased by 58.46 per cent, beverages by 31.19 per cent, cement 33.72 per cent, rentals of commercial space by 20.11 per cent.

From Petrobangla and Bangladesh Petroleum Corporation (BPC), VAT collection grew by 21.68 per cent and 23.43 per cent respectively.

From the sale of sweetmeat, the NBR achieved 38 per cent growth while residential hotels 39 per cent, restaurants 16.78 per cent.

Though VAT rates for restaurants have been reduced to 5.0 per cent from 15 per cent, the NBR collected 16.78 per cent higher VAT from the businesses as the officials were active to check evasion.

Source: The Financial Express


Cenbank keeps printing money amid inflation worries

Infographic: TBS

Infographic: TBS

The central bank continues to utilise a potentially inflation-fuelling tool – lending money to the government by printing it – as Bangladesh continues to grapple with high inflationary pressure, the extent of which has been declining in many countries.

The latest data from the Bangladesh Bank reveals that in the first 18 days of July, the central bank injected Tk10,800 crore into circulation to meet the government’s expenditure needs. This surge in high-powered money comes in response to a revenue shortfall – around Tk45,000 crore – from the target and lower-than-expected foreign funds.

Significant increase in money injection

Comparing this year’s data with that of the immediate past fiscal year, it becomes evident that the amount of money injection has increased significantly. In FY23, the government borrowed Tk1,24,122 crore from the banking system, with Tk78,140 crore provided by the central bank, averaging Tk6,500 crore per month. Even in June, the last month of FY23, the central bank provided the government with Tk6,529 crore.

In contrast, during the first 18 days of the current fiscal year, the central bank has already provided Tk6,074 crore through 91-day and 364-day Treasury Bills, and an additional Tk4,715 crore through 2, 5, and 10-Year Treasury Bonds.

This process of devolving undertaken by the Bangladesh Bank involves the central bank buying treasury bills and bonds from the government instead of raising funds from commercial banks by selling treasury bills and bonds.

In FY24, the government planned to borrow Tk1,32,395 crore from the banking sector and Tk1,02,490 crore from external sources. If the government borrows from the central bank by devolvement, it means an injection of fresh money into the economy.

Crucial for cenbank to monitor financial mechanism

Economists said it is crucial for the central bank to monitor and manage these financial mechanisms carefully to mitigate the risk of exacerbating inflationary pressures in the economy.

Commenting on the central bank’s devolvement strategy, Ahsan H Mansur, the executive director of the Policy Research Institute, said it aims to keep the interest rate of treasury bills down. He also pointed out that the new landing rate formula acts as a cap, as the base rate of treasury bills is not market-based.

According to a senior official from the central bank, the Six Months Moving Average interest rate of 182-day Treasury bills (SMART) is now used as the lending rate. Also, the central bank will announce a new lending rate every month starting in July by adding a maximum of 3% with SMART.

The Bangladesh Bank aims to maintain a neutral determination process for SMART. As a result, devolvement is not being done for the 182-day Treasury Bill in July, the official said.

The official further explained that due to the immaturity of the market for the country’s bills and bonds, leaving the determination of interest rates up to the market could grant commercial banks more influence over the rates.

Another senior official of the central bank, on condition of anonymity, said, “The interest rate is being somewhat controlled through devolvement. However, as the government needs to borrow from these sources, banks are demanding higher interest rates. Therefore, the central bank is using devolvement to keep the interest rate slightly down.”

He also mentioned that the interest rate of Treasury Bills and Bonds increased slightly in July compared to June.

Borrowing from commercial banks can cause liquidity crisis

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, called money printing the opposite approach to controlling inflation.

“It is not the right time to comment on how the inflationary pressure will increase in the entire financial year due to the printing of money at the beginning of FY24. However, the government is on the same course at the beginning of the new financial year as it was in FY23. Nothing has changed here,” he said.

Borrowing money from commercial banks can lead to a liquidity crisis, Zahid said, “Borrowing from banks reduces the available money supply for lending to the private sector and this will create a crisis for businessmen. From that point of view, it is relatively easy to borrow from the central bank. Although the pressure of inflation increases on the consumers due to the borrowing.”

The huge circulation of new money caused the reserve money growth to surge to 10% this June, up from negative 0.3% in the same period last year. However, it was far lower compared to the monetary target of 14% set for the monetary policy of FY23. Though the central bank set no target for reserve money growth for the first six months of FY24, as they are trying to control the money circulation by interest rates.

The low reserve money growth is due to the central bank having withdrawn Tk1.41 lakh crore from the market by selling $13.58 billion in FY23.

According to the central bank data, net domestic asset growth was 16.17% year-on-year in May this year when net foreign asset growth was negative 15.28%.

The high growth in domestic assets is because the Bangladesh Bank is creating new money against government treasury bills and bonds, which will trigger inflation. While the negative growth of foreign assets is due to the massive dollar selling pressure which means the country is losing its capacity for foreign payment.

‘Inflationary pressure may increase’

Ahsan H Mansur of The Policy Research Institute said, “The inflationary pressure in the economy may increase due to devolvement. If Tk1 lakh crore is injected into the economy, it is transformed into Tk5 lakh crore, but it does not happen in a day. Devolvement that is being done now may take six months to 2-3 years to see its inflationary impact. That is, we will see in future the full impact of the amount of money printed in the last year to give loans to the government. People must bear the inflationary pressure due to this.”
The economist also advised the government to reduce unnecessary expenses.

‘Blame is convenient’

Sadiq Ahmed, vice chairman of the Policy Research Institute, said, “Bangladesh’s inflation continued to rise throughout FY2023 even as the global inflation rate fell sharply. Countries like the USA, Canada, EU, India, Thailand and Vietnam all experienced substantial declines in domestic inflation rates in the first half of 2023.  But it was still high at 9.74% in June in Bangladesh.”

“So, blaming the Russia-Ukraine war and global inflation for domestic inflation is politically convenient but not factually true,” Ahmed said.

He said countries that saw sharp declines in domestic inflation benefited from the reduction in global energy prices, but they also took sustained demand reduction measures through targeted increases in the domestic interest rates.

Since Bangladesh did not reduce demand and instead pushed demand growth through interest control and higher fiscal deficit, it did not experience a reduction in inflation despite the reductions in global energy prices and global inflation, Sadiq Ahmed added.


Imports of cement clinker, stones soar amidst construction boom

In contrast to a slump in imports, especially luxury goods, due to import curbs amid the prevailing dollar crisis, there has been a 5% rise in the import of cement clinker through Chattogram port during fiscal 2022-23, maintaining its position as the leading imported commodity.

Apart from cement clinker, broken or crushed stones – an essential material used in the construction sector – registered an impressive 80% increase in ports in the past fiscal year, according to Chattogram Customs House.

Industry insiders attribute this growth in imports of these items to the flourishing construction industry in the country and the government’s extensive infrastructure development projects.

Also on the list of import goods which saw an uptick in import in FY23 is high-speed diesel, which is normally used as a fuel in medium and high-speed compression ignition engines in commercial vehicles, stationary diesel engines, locomotives, pumps, etc.

Data obtained from Chattogram Customs House indicates that the import of cement clinker rose by 7.74 lakh tonnes to reach 1.77 crore tonnes in FY23, resulting in a revenue increase of Tk381 crore for the country’s premier customs station.

Broken or crushed stones and high-speed diesel imports saw an upsurge of 53.6 lakh tonnes and 11.8 lakh tonnes, respectively, in the previous year. Revenue collections from these two products also rose significantly, amounting to Tk626 crore and Tk2,949 crore, respectively.

Zahir Uddin Ahmed, vice president of the Bangladesh Cement Manufacturers Association and managing director of Confidence Cement, however, said the import of cement clinker has been less compared to the demand due to the dollar crisis. Had the situation been normal, the import of clinker would have been higher, he added.

“The infrastructure development of the country is constantly increasing. Mega development projects are being implemented. Therefore, the import of cement clinker is increasing every year.”

Demand for cement clinker increases 7%-8% annually, thanks to a burgeoning construction sector and implementation of government mega projects in the country, he added.

Customs data show that the other four products that made into the list of the five highest imported goods in terms of volume in FY23 besides cement clinker are broken or crushed stones (1.22 crore tonnes), slag sand (51.27 lakh tonnes), high-speed diesel oil (45.44 lakh tonnes), and coal (42.26 lakh tonnes).

Meanwhile, the five import goods which yielded the highest revenue in the last fiscal year are high-speed diesel oil with Tk6,762 crore, other fuel oils Tk4,184 crore, cement clinker Tk2,740 crore, broken or crushed stones Tk1,312 crore, and petroleum oil with Tk1,132 crore.

In terms of quantity, the top five products imported through Chittagong port in fiscal 2021-22 were cement clinker (1.69 crore tonnes), VAT-registered manufactured raw materials (1 crore tonnes), broken or crushed stones (69 lakh tonnes), ferrous waste and scrap (49.8 lakh tonnes), and other fuel oil furnace oil (45.6 lakh tonnes).

Regarding revenue, the top five products in FY22 were other fuel oil and furnace oil (Tk5,728 crore), high-speed diesel oil (Tk3,814 crore), cement clinker (Tk2,353 crore), hot rolled (Tk1,242 crore), and palm oil (Tk1,203 crore), according to Chattogram customs.

It is worth mentioning that cement clinker was also the most imported product in FY21, with 1.88 crore tonnes being imported through Chattogram port. This was followed by broken or crushed stones (93.72 lakh tonnes), manufactured raw materials (58 lakh tonnes), natural gas (57 lakh tonnes), and slag sand (45.5 lakh tonnes).

In FY21, the highest revenue-generating products were high-speed diesel oil (Tk3889 crore), other fuel oil furnace oil (Tk2,703 crore), natural gas (Tk2,400 crore), cement clinker (Tk2,282 crore), and palm oil (Tk1,068 crore).

Chattogram port handles approximately 92% of the country’s import and export trade. Chattogram Customs House is responsible for the customs clearance of goods arriving through Chittagong Port.

Additionally, goods are imported through various land ports, including Mongla Port, Payra Port, and Dhaka Airport. These goods are cleared through the respective customs houses or customs stations associated with each port.

According to data from the National Board of Revenue, apart from Chattogram port, cement clinker is also imported through other ports.

In the January-June period of 2023, 1,144.86 tonnes of imported cement clinker, valued at Tk7,481.4 crore, were released through Chattogram Customs House, Mongla Customs House, Dhaka Customs House, and Dhaka Bond Commissionerate.

In 2022, total 2,328.17 crore tonnes of cement clinker worth Tk13,407 crore were imported through these customs stations.


DSE mobile app users to be charged monthly from now on

Infograph: TBS

Infograph: TBS

Starting from this month, each new user of the DSE Mobile — the real-time trading app of the Dhaka Stock Exchange (DSE) — has to pay a service charge of Tk125, including VAT and tax, per month.

For the ones who are already using the app, the service charge will be applicable from 1 January 2024.

The Dhaka bourse took this decision in a board meeting and informed all Trading Right Entitlement Certificate (TREC) holder companies through a letter on 12 July.

The DSE’s Acting Managing Director M Shaifur Rahman Mazumdar told The Business Standard, from now on, investors will have to pay a monthly charge for using the DSE mobile app. Those who are currently using the app have been given time to subscribe by paying the charges.

“We have already upgraded the service of the DSE mobile app and increased the maximum capacity to three lakh users from one lakh for giving better service to the investors. We will resume the new connections from this month,” he added.

Currently, the DSE has to pay the vendor company $1 every month against each user, whereas it was charging investors nothing for the sake of promoting modern trading. On the other hand, due to a dull market, the exchange was not earning much from operations to offset its costs.

At the end of last year, 77,103 investors traded shares worth Tk30,000 crore – 12.83% of the DSE total turnover – by using the app.

For almost a year, stockbrokers have remained deprived of new connections for the app. Reason, the backwardness of the premier bourse’s IT department.

The trading app, which was launched in 2016, made stock trading from smartphones fun for tech savvy investors. The DSE, before the pandemic, had allocated almost all of its one lakh connections among brokerage houses based on their needs and usages. The brokers then allocated these connections among their clients.

After the pandemic, the new brokers, who bought brokerage licenses without a membership or shares of the premier bourse, were suffering even more as they got no connection at all to let their clients use the trading app.

Meanwhile, some of the top tier brokerage firms which built their own trading apps and system platforms, spending gigantic sums out of pocket, were in an advantageous position in client hunting as their smaller competitors were unable to make a Tk5-15 crore investment for proprietary apps.

For instance, LankaBangla Securities, City Brokerage invested a lot and their clients from any corner of the world were trading Dhaka stocks. Also, Shanta Securities, Sheltech Brokerage and a few others are testing their own apps.

In a smart move, over a dozen firms, including some largest ones like EBL Securities, have formed a consortium to build a common proprietary trading app out of shared investments.

Some brokers said the premier bourse had underestimated the demand for the trading app, and its slower pace in capacity enhancement was also because of the cost DSE incurred for every connection.

The IT department had long been a serious weakness for the DSE. In 2022, the bourse suffered several technical glitches that halted trading for hours.

The chief technology officer had been removed consequentially, while its then managing director, having an IT expertise, resigned following a tussle with his board.

Later, the oldest bourse of the country made an IT professor of the University of Dhaka its chairman with a hope for some improvement.


Pragati Life Insurance declares 12% cash dividend

AGM on 10 August, record date 20 July this year

The board of directors of Pragati Life Insurance Ltd recommended a 12% cash dividend for the year that ended on 31 December 2022.

The decision has come from the board of directors’ meeting on Monday.

In 2021, the life insurer recommended 11% cash and 6% stock dividends for the year.

The annual general meeting (AGM) for shareholders to consider dividend payment proposals along with other agenda will be held on 10 August 2023 through a digital platform.

The record date to identify eligible shareholders who can join the AGM and avail dividends will be 20 July.

Pragati Life Insurance is a third-generation life insurance company incorporated in 2000 and listed on the bourses in 2006.

The company provides life insurance, pension, and health insurance. It also offers a wide variety of insurance products that fulfill the requirements of present and prospective policyholders.

In the July to September period of 2022, its life fund stood at Tk611.77 crore.

As of 31 May 2023, the sponsors and directors jointly held 38.37% shares, institutions 34.34%, and the general public held 27.29% shares in the company.

The last trading price of each share of the life insurer was Tk132.1 on Monday at the Dhaka Stock Exchange.


Why dollar crisis persists despite declining imports. Here are answers

Infographic: TBS

Infographic: TBS

The country’s banking sector has been experiencing higher outflow than inflow in foreign currency due to repayment pressure of private sector short-term foreign loans when external borrowings of banks declined substantially after Moody’s downgraded the banking system. 

This will be a major barrier to rebuilding foreign exchange reserves.

Not only external borrowing, other major indicators of foreign currency inflow including medium-and-long-term foreign loans, net foreign direct investment, foreign aid, and portfolio investment declined significantly intensifying pressure on reserves.

According to Bangladesh Bank data, the repayment amount of the private sector’s external short-term debt stood at $11.40 billion in four months from January to April of 2023, which was nearly $3 billion higher than external borrowings of $8.5 billion.

The total private sector external debt declined by $2.5 billion to $13.87 billion in a span of four months from $16.41 billion in December last year due to higher payments than drawings, central bank data shows.

Private sector businesses and banks borrow from external sources for the highest one year is considered short-term loans. Importers borrow from foreign lenders mostly for purchasing capital machinery which is known as buyer’s credit — when banks take short-term trade loans from foreign sources to settle their external payments.

Short-term loan components include buyer’s credit, deferred payment, back-to-back foreign letters of credit (LCs) and short-term trade loans.

The higher outflow than inflow created a dollar crisis in banks, forcing them to come up with a ruse to delay foreign payments.

Deferred payment, which refers to a temporary postponement of the payment of an outstanding bill, rose to $847 million in April from $689 million at the end of 2022, according to Bangladesh Bank data.

When contacted, a senior executive who heads the foreign trade department of a private commercial bank, told The Business Standard, “Local banks borrow from foreign lenders for short term to settle their foreign payment. However, such external borrowing declined after Moody’s downgrading of the banking system. Foreign lenders are shy to provide loans now.”

On the other hand, foreign borrowing became expensive due to the rise in interest rates. Currently, the Secured Overnight Financing Rate (SOFR) is over 5% and up to 3.5% additional interest adds to this for international loans, which means that borrowers are now subject to pay the highest 8.5% interest on their short-term foreign loans, he said.

The rise in interest rates also increased repayment costs for borrowers. The dollar crisis forced some banks to defer payments which come with higher costs as lenders agree to defer on additional interest charges, he said.

Moreover, import restrictions reduced buyers’ credit which also contributed to a reduction in short-term foreign loan inflow, he said.

Buyer’s credit is a funding mechanism where the buyer of goods borrows from an overseas bank to finance the purchase due to its apparent advantages.

Central bank data shows that the buyer’s credit declined by $1.5 billion to $8 billion in April this year from $9.5 billion in December last year.

Moody’s Investors Service in March downgraded the outlook on Bangladesh’s banking system to negative from stable and in May it downgraded the country’s rating.

Explaining the impact of declining short-term foreign loans, seasoned banker Mohammed Nurul Amin, who served different private banks as managing director, said the decline in buyer’s credit reflects a slowdown in business expansion as 70-80% of imports are raw materials and capital machinery.

Though the reduction of external short-term debt will ease payment pressure in the next two or three quarters, the country’s economy will feel the impact as a fall in capital machinery imports will force many factories to shut causing a rise in unemployment, he said.

Moreover, if businesses go shut, it will hurt export and other foreign currency inflow, eventually putting pressure on reserves, Nurul Amin added.

Other major indicators of foreign currency inflow turn negative

Not only short-term loans, but the inflow of foreign currency from other sources has also been declining, causing continuous erosion in foreign exchange reserves.

For instance, the inflow of medium-and-long-term foreign loans declined by 26.34% to $5.5 billion in the July-April period of the current fiscal year from $7.5 billion in the same period of the last fiscal year, according to Bangladesh Bank data.

Though inflow declined, payment for medium-and-long-term foreign loans increased by 7.40% to $1.3 billion during the same period.

Net foreign investment declined by 12.30% to $1.49 billion in July-April of the current fiscal year from $1.6 billion in the corresponding period of the last fiscal year.

Portfolio investment remained in negative territory for the last year when net foreign aid flows declined by 33% to $4.14 billion in July-April of FY23 from $6.2 billion in the same period of FY22.

Net reserve continues to decline

The Bangladesh Bank could not rebuild its net reserve since February when the International Monetary Fund (IMF) set the condition to improve the net reserve to $24.46 billion by June as part of the condition of getting the second tranche of the $4.7 billion loan package.

The net reserve of the Bangladesh Bank came down to $19.70 billion on 7 June, which was nearly $21 billion in February.

The net reserve will have to be calculated according to the new formula prescribed by the IMF based on the Balance of Payments and International Investment Position Manual (BPM6).

This net reserve amount is readily available for intervention in the foreign exchange market.

As per the IMF formula, the Bangladesh Bank calculated net reserve for its internal consumption and the figure will be disclosed in the next monetary announcement.

At present, the gross reserve is $29.77 billion. According to the central bank’s new calculation, components that will be deducted from the gross reserve are the FC Clearing Account’s $940 million, Asian Clearing Union’s $670 million (May-June period), $2.03 billion allocation of Special Drawing Rights (SDR) at IMF and $350 million Extended Credit Facility at IMF.

Besides, Export Development Fund’s (EDF) $4.50 billion, Green Transformation Fund’s (GTF) $450 million, Long Term Financing Facility’s (LTFF) $750 million, Sonali Bank Financing Facility’s (SBFF) $750 million, Payra Bandar Facility’s $260 million, ITFC’s $230 million deposits and $200 million in advance loan assistance to Sri Lanka also have to be deducted.

A central bank official, wishing not to be named, said it will be difficult to maintain net reserves as per the IMF conditions because the banks are facing a dollar crunch, owing to decreased inflow of remittances and export earnings.

“Besides, the central bank has to sell dollars to pay all kinds of government payments, due to which the reserve is constantly depleting. Besides, there is pressure on private debt repayment which is reducing the foreign currency of the banks,” he said.

The central bank has never had to sell such a huge amount of dollars in the market as it did in the current fiscal year. From July to June of FY 23, it sold about $13 billion to banks.

To compare, it sold only $7.6 billion to the banking system in the previous fiscal year, and the year before the central bank rather bought $6.2 billion from banks.