One of the conditions set by International Monetary Fund (IMF) for its loan package for Bangladesh requires Bangladesh Bank to have a certain amount of foreign currency net reserve. Bangladesh is yet to meet that condition. And, based on the ground realities, it will be challenging for the country to achieve the target in March as set by IMF.  This time round, there may be a deficit of $3 billion, analysts predict.

On December 12, last year, IMF approved the release of $689.8 million in the second tranche. Having failed to meet the target, Bangladesh sought little concession on this condition. And, IMF rescheduled it, stipulating net reserve of $17.78 billion at the end of December, 2023, $19.27 billion at the end of March and $20.11 billion at the end of June. It was not possible to achieve the December target like in March, June and September, last year.      

According to Bangladesh Bank data, as of February 7, the country’s reserve was $19.96 billion based on BPM6 method. The net reserve was less – roughly $16 billion. In order to achieve the target in March, an amount of $3 billion will have to be added to the reserve in next 50 days. There has been no information with regard to receiving any budget assistance from the foreign partners during this period. On the contrary, Asian Clearing Union will be paid $1 billion in the beginning of March, shrinking the reserve further. So, $4 billion will be needed to meet the IMF target, which experts believe will be quite challenging.  

“If the current trend continues, it does not seem possible to achieve the target in March. It will be very challenging to close a gap of $4 billion in such a short period of time,” Dr Ahsan H Mansur, a former IMF economist and executive director of Policy Research Institute of Bangladesh, told Bonik Barta.  

According to sources at the Finance Ministry, there is no information yet on any incoming budget assistance. Budget assistance from different entities is an ongoing process. Some money may come from there. Besides, remittance flow will increase in March due to Ramadan and Eid. Some dollars will be saved due to the existing import policies. There will be an overall government effort to achieve the reserve target.

It is important to reduce the financial account deficit alongside ensuring balance of payment surplus in order to meet the target of net reserve, experts say. At the same time, Bangladesh Bank’s tendency of selling dollars needs to be restrained. There was a balance of payment deficit of $4.9 billion during July-November period of the current fiscal year while financial account deficit rose to $5.39 billion.

As per Bangladesh Bank data, Bangladesh received remittance of $12.9 billion in first seven months (July-January) of the ongoing 2023-24 fiscal year. On average, there was an inflow of $1.84 billion every month. The country received export earning worth $9.9 billion in the first quarter (July-September) of the current fiscal, a reduction of 20 percent as compared to the same period of the previous fiscal. During the same period, the country paid import cost of $15.69 billion, which is 5.7 percent more than the previous quarter (April-June).

“The reserve went up a bit after receiving the second tranche of IMF loan. But, it followed a downward trend after a little while. If we want to achieve the March target, at least $3 billion will have to be added to the reserve. This is going to be very tough indeed considering the current situation,” Dr Zahid Hussain, former lead economist at World Bank Dhaka office, told Bonik Barta.

“To enhance reserve, Bangladesh Bank will have to stop selling the $1 billion it does every month. Balance of payment surplus and reduction of financial account deficit need to be ensured. The country has not received even $15 billion worth export earning in last 15 months. It was expected that this money would come by February-March this year. But, it looks like it is not going to happen,” he said.                               

Placing emphasis on a guideline as to how the reserve target will be met, Dr Hussain said, “We cannot see that. Remittance flow will increase ahead of Ramadan and Eid, but import will also go up. We also cannot see any policy with respect to the reluctance among the remittance senders to send money through banking channels due to the fluctuating exchange rates. Nothing can be done in this regard at least within next March.”

“In December, 2023, Bangladesh Bank tried to show an increased reserve by borrowing money from other banks. The same effort may be seen in March. This will not increase our capability in real terms,” he added.

IMF will release the third installment of its loan in May after reviewing the fulfilment of the conditions, including meeting the reserve target and implementation of the reforms. IMF will send a mission to Bangladesh in May in this regard.

Spokesperson of Bangladesh Bank Mezbaul Haque, also an executive director, told Bonik Barta, “It cannot be said right now whether the net reserve target for March will be met or not. An IMF mission will come to Bangladesh at that time. Different aspects of the loan package will be discussed with them.”