The central bank has continued to inject large amounts of US dollars into the market to assist banks in clearing import bills, eroding Bangladesh’s foreign exchange reserves. 

According to Bangladesh Bank data, the central bank granted a record $11.79 billion to banks between July 1 and April 27 of the current fiscal year, compared to $7.62 billion provided in the full fiscal year of 2021-22.

For nearly a year, rising imports, driven by a jump in global commodity prices amid the Russia-Ukraine war and the dragging effects of the coronavirus pandemic, have contributed to the drop in reserves.

Although import bills fell 10.27% to $48.79 billion in the first eight months of FY 23, it was insufficient to prevent the depletion of international currency reserves because earnings from exports and remittances, Bangladesh’s two main sources of US dollars, were insufficient to bring stability to the foreign exchange reserve.

Export receipts were $34.97 billion in July-February, up 9.45% year on year, according to BB, while money moved by migrant workers increased 4.27% to $14.01 billion.

The rapid worsening of the financial account of the balance of payments demonstrated foreign investors’ reluctance to invest in Bangladesh.

A financial account protects non-resident claims or liabilities relating to financial assets. Among its components are foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investment, and reserve assets.

As per BB, the financial account had a deficit of $1.53 billion between July and February, compared to a surplus of $11.9 billion the previous year.

Bangladesh’s financial account has historically been in excess practically every year.

The net reserves are currently less than $22 billion if the IMF’s figure is used. 

When calculating the reserves level, the IMF ignores the central bank’s US dollar investments through the Export Development Fund (EDF) and other channels. For instance, the central bank has provided more than $5 billion in loans to exporters through EDF banks.