3 reasons behind Bangladesh’s depleting forex reserves

Despite curbing imports, Bangladesh’s foreign exchange reserve fell to $36 billion – lowest in 28 months – due to 3 reasons, economists believe.

The reasons are: imbalance in export-import, high dependency on imported oil and gas, and decreasing trend in inward remittance flow.

The forex reserves stood at $35.98 billion on Wednesday, according to data from Bangladesh Bank. The country’s reserves were $46.19 billion a year ago (October 19, 2021).

Former governor of Bangladesh Bank, Dr Salehuddin Ahmed, told UNB, increasing the flow of inward remittance and curtailing import liabilities are ways to securing forex reserves, as exports are facing a slump due to the Russia-Ukraine war.

Despite increasing the cash incentives to 2.5 percent from 2 percent in the current fiscal year (2022-23), inward flow of remittance saw a fall of 25 percent in September compared to August.

Bangladesh is receiving an average of $59.22 million inward remittance per day in the current month through banking channels which was $76.66 million in July.

The fiscal year started with a growth trend of inward remittance while the country received $2.09 billion in July and $2.03 billion in August. But remittance fell to $1.54 billion in September.

Dr Abdur Razzaq, a trade expert and a former researcher of WTO, said overall exports of Bangladesh have declined by 6.25 percent in the last month, mainly due to a decline in apparel exports.

The export of readymade garments was worth $3.16 billion in the previous month, which is 7.52 percent lower than in September last year. Export of both woven and knit garments declined last month, he said.

Exporters of readymade garments have said that inflation in the USA and EU countries has become severe due to the Russia-Ukraine war. People there have cut back on purchases other than fuel and groceries.

Because the foreign buyers have reduced new purchase orders, some companies were not allowing shipment even after the products were ready, sector insiders said.

Higher dependency on importing oil and LNG gas directly and indirectly have affected the foreign exchange reserves. The foreign exchange payment liabilities have been surging due to increasing oil and gas prices in the global markets.