Despite tremendous efforts, forex reserves at Bangladesh Bank has not improved to the level of IMF provided threshold at a time an IMF Mission is visiting Bangladesh this week to review situation linked to release the 3rd tranche of the 4.7 billion loan

Bangladesh Bank failed to hold enough dollars in reserves amid growing pressure to supply commercial banks to meet their external payment obligations. It sold $11.67 billion from its foreign exchange reserves to banks in less than 10 months amid a severe dollar crisis faced by the countrys commercial banks.

According to BB data, the central bank sold $6.7 billion to banks in July-December, the first six months of the fiscal 2023-24, and the sales crossed $11 billion on April 22. Bankers said BB took various steps to save foreign exchange reserves from draining, but no step was working.

This significant dollar intervention has put pressures on the countrys foreign exchange reserves, which, as per the International Monetary Fund (IMF) guidelines, dropped to $19.89 billion on April 17. It happened on the back of $41.8 billion reserves on June 2022 and $46.2 billion in September 2021.

Over the past 34 months, Bangladesh Bank has sold approximately $32.79 billion, including $13.5 billion in fiscal 2022-23 and $7.62 billion in FY22, from its foreign exchange reserves to banks.

The ongoing dollar crisis has made it challenging for banks to settle import bills and open letters of credit, posing significant challenges to businesses.

The increased dollar sales have absorbed a significant local currency from banks, worsening the liquidity condition in the banking sector.

The amount of excess liquidity in the countrys banking sector plunged to Tk 1.54 lakh crore at the end of January 2024 compared with Tk 1.6 lakh crore in December 2023 and Tk 2.03 lakh crore in June 2022.

Settling high import payments was the main reason for depletion of dollar reserve, BB officials said. The situation was further compounded by a sluggish growth in remittances and export earnings.

Since April 2022, the government and the Bangladesh Bank in particular have implemented a series of initiatives to curb a significant growth of imports.

In the first eight months of FY24, the countrys import payments declined by 15.36 percent to $40.88 billion compared with $48.3 billion in the same period in the previous year.

The current dollar shortage has already forced the government to secure $4.7 billion in IMF loans over a period of three years. The BB has adopted a market-based and unified exchange rate regime, allowing the exchange rate to be determined by market forces.

Besides, BB has also decided to compile and publish gross international reserve in line with the BPM6 (Balance of Payments and International Investment Position Manual, 6th edition). Currently, the BB is selling dollars at Tk 110 a dollar, which is also the inter-bank dollar rate.