Bangladesh to clear $1.0b ACU import bills soon
With this payment to settle the import bills through the ACU mechanism, the forex reserve would go down to $30 billion. As of April 27, the country’s foreign currency reserve was over $31.06 billion, the Bangladesh Bank (BB) data showed.
The ACU is an arrangement through which the member countries settle payments for intra-regional transactions among the participating central banks on a net multilateral basis.
Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are members of the Tehran-headquartered ACU. The member countries of the union clear their payments every two months.
The significant fall in reserve, particularly the greenback, is deemed as a matter of serious concern for the economy, which is facing difficulties to meet the NIR (net international reserve) target of $24.46 billion within June, as set by the International Monetary Fund (IMF).
Seeking anonymity, a BB official said the downward trend in the foreign currency reserve continues because of low export earning. Although remittance earning is growing, it is still not at the expected level.
On the other hand, the central bank has sold $11.65 billion from the reserve from July 2022 to April 25, 2023 to the commercial banks to facilitate their LC settlement. However, the BB sold $7.62 billion to the commercial banks in the previous fiscal year (FY 22).
“This is also putting an extra pressure on the reserve. Because of it, the BB might miss the target of maintaining the net reserve of $24.46 billion by June, as set by the IMF,” the central bank official added.
Another BB official said the central bank has already reduced the greenback sale volume in recent times to protect the reserve.
“I personally think the BB needs to be more cautious in injecting the US dollar in the next couple of months.”
At the same time, the dollar exchange rate from the reserve should be revised upward and made costlier than other sources, so that the banks are not encouraged to come to the central bank for foreign currency requirement, he opined.
According to the BB, the gross volume of foreign currencies, held by the country’s commercial banks, increased further to $5.34 billion in March from $5.24 billion in February.
Talking to the FE, Chairman of Policy Exchange of Bangladesh Dr M. Masrur Reaz said the government ought to increase the supply of dollar to avert unbearable pressure on the economy in the days to come.
“Otherwise, it would trigger panic and severely disrupt business activities.”
Responding to a question, Mr. Reaz said the central bank should not consider any option that would largely squeeze the space of availing greenback for the banks to settle their import-related obligations.
“The banks are using the dollars – purchased from the reserve – for LC purposes, leading to better economic outcomes for the nation.”
The economist also said the central bank took various measures to control import of consumer goods, but it has not declined to the expected level.
The BB needs a proper and complete analysis over the reserve use to take stricter steps to stop import of non-essential and luxury goods under the current circumstances, he concluded.
According to the BB, the opening of LCs against consumer goods dropped by 15.99 per cent in the last nine months (until March 2023), whereas that of intermediate goods dropped by 30.91 per cent, capital machinery by 55.88 per cent, industrial raw materials by 31.16 per cent, and machinery for miscellaneous industries by 44.99 per cent.
Source: The Financial Express