The dollar status in
foreign accounts (nostro accounts) of the Bangladeshi banks increased slightly.
However, the supply of dollars is much less than the liabilities of banks. As a
result, banks still have to approach the central bank to settle their import
letter of credit (LC) liabilities. The central bank also continued to sell
dollars from reserves. As the day goes by, the loss of reserves is also
increasing. In the first 26 days of July, the amount of reduced reserves stood
at $1.52 billion.
In line with the data of
Bangladesh Bank, on June 26 of this year, the foreign reserve dollar status of
the country's commercial banks was $5.53 billion, which is 8% percent more than in May. Although
at the end of June, the short-term foreign debt of the country's banking sector
was $13.65 billion. Of this, $970 million was deferred payment or deferred
liability. This foreign debt of about $1 billion has been created mainly due to
the failure of LC liabilities on time. The central bank believes that despite
import controls, new LCs worth $14.38 billion will be opened in the three
months from June to August this year. Out of this, the potential filing amount
of back-to-back LCs will be $2.5 billion.
Bangladesh Bank and
related sources say that the state-owned Sonali, Janata, Agrani and Rupali
banks are failing to pay their import LC liabilities every day. The overdue
deposits of these banks are now around $1 billion. Apart from government LCs,
state-owned banks are also unable to pay private-sector LC liabilities. At the
beginning of the day, the main task of the state-owned banks is to collect
dollars from the Central Bank. Every day these banks are sending proposals to
buy billions of dollars to Bangladesh Bank. But for Bangladesh Bank, the sales
amount is limited to a maximum of 100 million dollars.
Those concerned say that
the signs of stabilization of the dollar market are still not clear. Rather,
the country's banks are increasingly at odds with foreign banks due to their failure
to pay the LC liability of imports. Major foreign banks have already reduced
their credit limits to Bangladeshi banks. The situation is getting worse after
the international credit rating agency Moody's and S&P Global downgraded
Bangladesh's credit rating. The dollar market in the country may become more
unstable in the future.
Syed Mahbubur Rahman, former
Chairman of the Association of Bankers Bangladesh (ABB) said to Bonik Barta, "The
dollar market has improved slightly. But the crisis
has not subsided at all. We are still unable to open import LCs on demand. Due
to insufficient supply of dollars, interbank dollar trading is not smooth
sailing."
Currently, a top
executive of Mutual Trust Bank Mr. Rahman also said, "The governor has
said that the dollar rate will be left to the market in September. We look
forward to seeing that. Remittance flows may increase if the dollar exchange
rate is left to the market. Besides, the export earnings will also improve.
Then the dollar situation of the banks can also improve."
By reviewing the data of
Bangladesh Bank, it can be seen that in July 2021, the foreign dollar reserves
of the country's banks were $6 billion. Since then, the dollar crisis in the
country is increasing. As a result, the amount of dollars in the nostro accounts
of the banks also decreased. In October last year, the amount of reserves of
the banks fell to $4.50 billion. After that, the situation gradually improved.
On June 26 of this year, the foreign reserve status of banks stood at $5.53
billion. Compared to the 2021-22 financial year, this reserve of banks has
increased by 6.23% in the last financial year. Banks mainly store dollars in
foreign accounts or nostro accounts for payment of import LC liabilities and
foreign loans.
Due to the continued
depletion of reserves and the dollar crisis, many foreign banks are withdrawing
their short-term loans from the private sector of Bangladesh. Due to this, in
the last six months, the short-term foreign debt of the private sector has
decreased by $2.76 billion. As of December 2022, the position of such foreign
debt to the private sector was $16.42 billion. At the end of June this year,
the short-term foreign debt position fell to $13.65 billion. However, at this
time, the delayed LC liability or deferred payment of the banks increased
instead of decreasing.
According to the data of
the central bank, at the end of December last year, the status of deferred
payments in the banking sector of the country was $690 million dollars. At the
end of June this year, the delayed filing status increased to $970 million.
Among other short-term foreign loans, $7.69 billion is buyers' credit. Besides,
direct short-term foreign loans are $3.54 billion, back-to-back LCs are $840
million and other liabilities are $600 million.
Bangladesh has gone
through a topsy-turvy ride in terms of foreign trade throughout the fiscal year
2021-22. A record $89 billion in imports that year created a record trade
deficit. Along with the trade deficit of $33.24 billion, the current account
deficit of the government stands at $18.69 billion. The country's balance of
payments deficit has also reached $5.38 billion. In this situation, Bangladesh
Bank has reined in the country's import letters of credit (LC) since the
beginning of the fiscal year 2022-23. Along with the dollar crisis, the import
volume has decreased by 14.11% due to the tightening of LC opening conditions.
In the first 11 months (July-May) of the fiscal year 2022-23, the country's trade deficit stood at $17.16 billion. Within this time, $64.76 billion worth of goods were imported. And the export of goods was $47.60 billion. In the 11 months of the financial year, remittances came in at $19.41 billion. In all, a deficit of $8.80 billion has been created in the country's balance of payments or foreign transactions. Earlier in the fiscal year 2021-22, the deficit was $5.59 billion.
Banks have been forced to
sell about $13 billion from the central bank reserve in the 2022-23 financial
year alone to pay off their LC liabilities and foreign loans. Bangladesh Bank
continued to sell dollars even in July. As of July 30, the sales volume from
the reserve has crossed $1 billion. On July 19, Bangladesh Bank's gross
reserves were $29.68 billion. However, according to International Monetary Fund
(IMF) guidelines (BPM6), the reserves were $23.31 billion.
Md. Habibur Rahman, the
chief economist and executive director of Bangladesh Bank thinks, it may take
time until December for the foreign exchange market to be completely normal. He
said to Bonik Barta, "National elections will be held in December or
January. There is some apprehension and anxiety in the economy of any country
around elections. Bangladesh is no exception in this regard. However, the
country's export earnings and remittances are on a positive note. On the
contrary, the cost of imports has come down a lot. Because of this, Bangladesh
Bank does not have to sell dollars in the market like before. I think the
dollar situation will be completely stabilized after the national elections."
Bangladesh Bank has
projected how much import LC can be opened in the three months from June to
August this year. It shows that LCs worth $4.89 billion can be opened in June, $4.75
billion in July, and $4.74 billion in August. That is, in these three months, a
total of $14.38 billion dollars of LC is estimated to be opened. The central
bank says that back-to-back LCs of $2.5 billion can be opened in these three
months. However, banks have already opened more LCs than estimated in June and
July.
Some top executives of several banks told Bonik Barta, "At the moment, there is a demand to open import LCs of $8 billion per month in the country. If only $4 billion of LC is opened there, then it is a symptom that the greater economy is in crisis. Hence, imports cannot be controlled for a long time by force. In order to prevent loss of reserves, foreign investment should be increased along with remittance and export income."
Translated by
Sabidin Ibrahim
