Forex reserves below mark

Dhaka, Nov 11 — Bangladesh's foreign exchange reserves have sunk below the stipulated danger level.

On Thursday, the central bank's reserves stood at $9.64 billion, which would not be sufficient for paying off three months' imports.

According to international standards, the foreign exchange reserves at any point of time should be enough to meet the import bills for at least three months.

According to the latest figures, Bangladesh's import bill for September was $3.27 billion. Thus, considering the latest point of reference the desired level of foreign currency reserves should stand at $9.81 billion.

Central bank governor Atiur Rahman told bdnews24.com that the reserves had temporarily dipped after having paid off two months' import bills of the Asian Clearing Union. "But it will soon regain previous levels."

"The contractionary monetary policy of the central bank will certainly lower import bills. So there will be no pressure on the reserves," he said on Thursday night.

The central bank chief also deemed the current $9.6 billion reserves sufficient for the same reason, suggesting that imports would decrease from those of September.

Meanwhile, former caretaker government finance advisor A B Mirza Azizul Islam was cautious.

He told bdnews24.com that fuel constituted a large part of imports. "Although food imports are decreasing, fuel bill is rising and depleting the reserves."

"We need to subsidise fuel supply to the rental power plants, which is draining our foreign exchange," the former finance advisor said.

Analysis of the latest central bank import figures shows that opening of Letters of Credit (LCs) for import of food grains have lowered by 63 percent and LC retirement is going down by four percent in the first quarter of the current fiscal.

However, in the last fiscal year, the LCs for importing food grains rose by 87.3 percent and retirement rose by 229 percent in comparison to the preceding fiscal year.

On the other hand, the LCs for imports of fuel have risen by 107.29 percent in the first quarter of the current fiscal and LC retirement has increased by 102 percent in comparison to the previous year.

In the first quarter of the previous fiscal year, the LC opening was 2.06 percent more than that of the preceding fiscal year while LC retirement hike was 67.41 percent.

Azizul Islam pointed out that if the current trend of fuel imports remained persistent this way, the pressure on the foreign exchange would not ease.

The fiscal policy declared by the central bank in July for the first half of the current financial year has called for lowering imports of superfluous products and other steps to lower import bills.

Central bank records show that the foreign exchange reserves stood at $10.29 billion before Eid-ul-Azha vacation but it came down to $9.6 billion after clearing Asian Clearing Union's bill of $880 million on Wednesday.

On Thursday, the reserves stood at $9.64 billion.

The reserve plummeted to below the $10 billion mark near the end of September but regained from the increase of expatriates' remittance before the Eid.

Analysis of central bank's foreign currency flow shows that the foreign exchange reserves exceeded the $10 billion mark in September 2008.
The reserves stayed above the mark due to increased income in exports and remittance flow for some time. Despite abnormal hikes in import bills, the reserves exceeded the $11 billion mark four times over the last three years.

The reserves exceeded the $11 billion mark in October last year and stood at $11.17 billion on the last day of December last year.
On Feb 28 this year, the reserves stood at $11.16 billion.
Near the end of March, the reserve stood at $11.32 billion, which was a record.

The reserves stood at an average of $10.75 billion in the 2009-10 fiscal year, while the average for 2010-11 stood at $10.91 billion.

The remittance from expatriates rose by 10.54 percent in the first quarter of the current fiscal year, compared to the 0.64 rise in last fiscal year.

In October, the remittance stood at $1.04 billion, exceeding the $840 million in the preceding month.

The increase in import bills has continued in the current fiscal year in line with the preceding year.
Import costs in July and September have risen by 24.79 percent in comparison to the same time last year. In September alone the import bills rose by 34.66 percent.

On the other hand, export income had risen by 22.56 percent in July and September.

bdnews24.com