Reserves remain unchanged as the dollar market eases

 

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Reserves remain unchanged as the dollar market eases

• Current account deficit dropped to $660 mln at the end of March.

• Deficit was $4.39 bln in March last year.

• Forex reserve stands at $25.44 billion.

   

  
                             New Market traders are opening their businessesFile photo

   Bangladesh's dollar dilemma, which has persisted for the past three years, is now beginning to improve. From food to energy, every area of the national economy was impacted by the global market instability brought on by the conflict between Russia and Ukraine. Import prices increased as a result. In addition, the sudden currency depreciation and dollar crisis caused intolerable inflationary pressure.
  
  The dollar market's current situation is not seen by economists as completely normal. They observe that the economy as a whole, encompassing trade, investment, and commerce, is nevertheless slow.
  
  As a result, demand for imports has decreased, especially for industrial raw materials, which has relieved pressure on the dollar. Although the market has had some respite, analysts emphasize that this should not be interpreted as a return to normalcy.
  
  "The choice made about the dollar market is favorable for the country," Mustafa K. Mujeri, the former top economist at Bangladesh Bank, told Prothom Alo. However, by letting the market set the dollar price alone, we must exercise caution to prevent the exchange rate from rising too much. The economy is currently weak, with both dollar and import demand down. However, claiming that the market has stabilized is premature.

  
  He added, "We would be in a more comfortable economic situation if we can increase our foreign exchange reserves. High inflation and poor investment, however, continue to be significant problems for the economy. Employment is not increasing in the absence of investment, which may result in more difficult problems down the road. As a result, we need to step up our efforts to boost remittance income and open up new export markets.
   

  The dollar crisis: is it getting better?
  
  Measures to stop money laundering have been crucial in reducing the dollar issue since the Awami League administration fell in August of last year. The financial balance has improved as a result of increased export and remittance profits due to increased surveillance.

  Remittances increased by 28.34% and export revenue increased by 9.83% between July and April. In addition, the settlement of earlier import obligations has eased the strain on reserves.
  
  Even if the currency rate stays market-based in this situation, the bankers think it is unlikely that there will be further disruptions.
  
  Additionally, they pointed out that it is a noteworthy accomplishment to keep steady foreign exchange reserves without depending on foreign loans.
  
  For the last nine months, the dollar exchange rate has hovered around Tk 123. This month, the market-based exchange rate was introduced, but prices have stayed the same. Import obligations of USD 3 billion have already been settled with the foreign exchange reserve.
  
  In order to further strengthen its reserves, Bangladesh anticipates receiving USD 3.5 billion in foreign loans by June, including the next installment from the International Monetary Fund (IMF).

  
  To what extent has income increased?
  
  The main sources of foreign currencies are exports and remittances, which are followed by services, foreign investment, loans, and capital market movements.
  
  Between July and March of the current fiscal year 2024–25, the nation received USD 22.08 billion in remittances, up from USD 17.37 billion during the same period last year, according to Bangladesh Bank. This indicates a 27.1% rise in income, or USD 4.71 billion.
  
  In addition, export revenue for the same time period was USD 33.87 billion, a 9.5% increase over the prior year.

  Bangladesh's balance of payments is gradually improving as a result of the closing gap between dollar income and spending. The current account deficit decreased from $4.39 billion in March of last year to USD 660 million as of March.
  
  The financial account has a surplus even though the current account has a slight deficit. The financial account surplus at the end of March of current fiscal year was USD 1.31 billion, up from USD 900 million during the same time previous year.
  
  With the overall deficit falling to USD 1.07 billion from USD 4.76 billion a year ago, the balance of payments has generally improved.

  The state of the dollar and reserve
  
  Few successful actions were previously taken in spite of the dollar market's long-standing problems. The dollar could be exchanged at Tk 123 once the interim government assumed power, and other banks quickly adopted this rate.
  
  Money laundering has decreased during the change of government because of stricter regulations and heightened awareness. However, the general slowdown in the economy has also helped to lessen pressure on the dollar.
  
  In the meantime, Bangladesh Bank has been buying dollars from the market rather than selling them from reserves. The central bank has been able to meet significant import payment requirements while maintaining reserve stability thanks to this strategy.
   

  Bangladesh Bank reports that the foreign exchange reserves currently at USD 25.44 billion. However, the total is USD 20 billion, or slightly more than USD 20 billion if the IMF's BPM6 approach is applied. The reserve was USD 25.58 billion, or more than USD 20 billion under BPM6, when the Awami League was overthrown in August.
  
  As the dollar market has stabilized, import limitations have been loosened. Bank dollars are once again available to importers. While imports increased by 6.38 percent, previous year's growth between July and March was over 15 percent.
  
  Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told Prothom Alo that the dollar market in Bangladesh is now fairly solid. It was a wise move to permit market-based exchange rates, particularly in light of the decreased demand from imports.

  
  "We anticipate that the dollar market will stay steady. Although export revenue and remittances are increasing, he continued, "inflation, a lack of investment, and job creation continue to be significant economic challenges."

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