Bangladesh's foreign exchange reserves fell below $20 billion after clearing the import bills of $1.29 billion with the Asian Clearing Union (ACU). 

The ACU payments for January and February were cleared last week, said an official of the Bangladesh Bank.

According to the central bank, foreign exchange reserves stood at $19.99 billion on 7 March, which were $21.15 billion the previous day.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, told The Business Standard that there is a lack of equilibrium between the source of reserve funds and their expenditure, leading to difficulties in maintaining reserves. 

"While the Bangladesh Bank has managed to narrow the trade deficit by controlling imports, there are concerns about the sustainability of this approach. The control on imports has disrupted the country's production and it is negatively impacting exports as well," he said.

According to bankers, the Bangladesh Bank initiated currency swaps with commercial banks starting from 20 February, playing a supportive role in boosting reserves. Despite these efforts, the decline in reserves persists due to cost pressures. 

A senior official of the central bank said, "Over $2 billion in remittances were received in February. The ongoing currency swaps with banks have contributed to a consistent increase in gross reserves. However, there is a renewed decline in imports attributed to the pressure of import payments."

Current account surplus crosses $3b in 7 months of FY24

The country's current account surplus has crossed $3 billion in the first seven months of the current fiscal year overcoming a deficit of $4.6 billion in the same period of the last year, thanks to a steep fall in import expenditure.

The import fell by 18% year-on-year, which is $8 billion in July to January of FY24 when export grew by 2.5% during the same period, taking the current account balance to surplus.

Rising surplus in current account balance – which comprises primary and secondary income through trade, services, and remittances – helped to stop unusual fluctuation in dollar price which the country had been facing for the last two years.

The official exchange rate remained stable at Tk110 per dollar for the last five months when banks have been settling imports at above Tk120 to Tk122.  

The positive signal towards stability in dollar price encouraged expatriates to send money home through the banking channel improving monthly remittance inflow above $2 billion for the last few months, contributing to the surplus current account balance.  

The country's trade deficit narrowed down to $4.6 billion in July-January of FY24 from $13.3 billion in the same period of the last year with the help of rising surplus in current account balance.

However, the deficit in the financial account continued to widen due to negative growth in foreign direct investments and short term foreign loan inflow which are major components of that account.

The deficit in the financial account crossed $7 billion in July-January of FY24 from $800 million in the same period of the last year.

The widening financial account caused erosion in foreign exchange reserves despite the central bank's effort to rebuild it through currency swap.

The Bangladesh Bank, however, put all its effort into rebuilding its foreign exchange reserves to achieve the ceiling set by the International Monetary Fund as part of its $4.7 billion loan package.

Bangladesh Bank Governor Abdur Rouf Talukder, at a recent event, mentioned that banks in the country have more than $4 billion in holdings, and by depositing these dollars in the Bangladesh Bank, they can take liquidity assistance.

Stating that the country currently enjoys a surplus in its current account balance, the governor assured that if necessary, banks could withdraw dollars from their accounts. 

He emphasised that such a mechanism could facilitate an easier resolution of liquidity issues in the market.

He further said, "People have bought dollars and put them under the pillow. We have taken several initiatives to return these dollars to the banks.

"After returning home from travels abroad, anyone can deposit up to $10,000 in his or her resident foreign currency deposit [RFCD] account. Besides, if someone declares at the airport, Bangladesh Bank has given the opportunity to keep any amount of dollars in an account without question, he said.