Saturday, 31 October, 2020, 10:02 AM
Home Op-Ed

Higher forex reserve is not a matter of satistaction

Published : Friday, 18 September, 2020 at 12:00 AM  Count : 158
Nazmul Karim

The growing foreign exchange reserve with Bangladesh Bank though a strength for us, in other sense it is not a matter of happiness at uncertainty of current inbound remittance and export earnings. There is also another uncertainty of dropping foreign direct investments that in first quarter in the current calendar year it fell over 13 per cent to $800 million than corresponding period of the last year.

Why the reserve is growing? Answering this question will clear the theme of this piece of writing. Firstly, import is falling down due to prolonged pandemic as demand for both raw materials and capital machinery is not rising and even the demand was decreasing during countrywide lockdown. Though the pandemic led stalemate is easing back to normalcy, the economic activities that were before spread of coronavirus are yet to get to its full momentum.

On the other hand export increased for the last few months as there are huge pending shipments against export orders made before pandemic have started now resulting an increase of foreign exchange earnings. If we analyse both import and export it will give an idea of trade balance and increase of reserve with the Bangladesh Bank.

But once export drops after the current shipments and fresh orders decrease there will be a slow growth of export and on the other hand, if domestic economy takes to its full momentum and private sector investments grow there will be a pressure on imports and more foreign exchange will be needed to pay import costs and the reserve will deplete fast.

Secondly, in last few months remittance inflow is increasing as the expatriates are remitting their money in a fear that they will lose jobs or will be less paid in the coming days due to affected economy in the middle-eastern countries. By this time a large numbers of expatriates have come back to the country, and as per different sources it is learnt that many are in queue to back to the country.

We cannot be happy with the sharp rise of remittance inflows in recent months as there is a gloomy picture behind it. In further explanation it could be said that there is apprehension of downtrend in the coming months as the workers are losing jobs, while those who are in jobs are not able to perform duties due to lockdown as well as slowdown in economic activities.

The present growth in remittance inflow would not sustain unless the economies in the hosting countries recover soon with the control of the pandemic. If such happens there will be rapid slowdown in earning remittance which will ultimately affect to the central bank reserve.

The Asian Development Bank (ADB) in a report estimated that Bangladesh remittance inflow will fall by 27.8 per cent in 2020 as job losses mounted and employers' trimmed payrolls. According to the Bangladesh Bank data, the country received $2.60 billion in remittance from expatriates in July, up by 62.74 per cent compared to $1.59 billion in the same period last year. In June this year, Bangladesh received an amount of $1.83 billion in remittance. Meanwhile, in the 2019-20 fiscal year remittance inflow hit a new record of $18.20 billion, up by 10.87per cent compared to FY2018-19.

However, at returning in mass number of the expatriates, the inbound remittance may drop significantly fearing impact on existing rising central reserve for foreign currencies.

Thirdly, due to pandemic the country has received different types of loans and grants from different multinational financial institutions which have contributed to increase in reserves.However such loans, donations or aids are not continuous facts for an economy and it may not come in the coming days as a result in central reserve more money may not be further added.

The reserve will deplete fast when import will increase, people will remit money for their children's education in abroad and opening of going outside the country for treatment, tourism and many other purposes. So it is inevitable the growing reserve will deplete fast in the scenario of low new injection caused by dropping export, remittance, falling loans, grants and at slow FDI. In the meantime at easing of the domestic economy there will import pressure and outflow of remittance in different purposes.

Because of this backdrop, it is an urgent need to look into few matters--in particular measures should be taken to make exports more competitive, arrange works for the expatriates who come back, seek new manpower market for skilled workers, discourage unnecessary imports and promote people for local tourism and develop health infrastructure that people may prefer Bangladesh for better treatments.

The other fact that the government is mulling a plan to borrow money in foreign exchange from the central bank reserve to finance few public sector mega projects and the Bangladesh Bank is already working on it to scrutinize the possibility from this US$39 billion. Though at existing reserve Bangladesh is capable to pay over nine months' import bills instead of mandatorily keeping reserves worth payments for three months' import bill, it is still so too early to take the decision of lending to the government from this central reserve account.

As in the coming days there is uncertainty in inflow of foreign currencies due to coming back of the expatriate workers, slow growth of export as well as slow inflow of foreign direct investments. More study is required to assess the possibility of borrowing from the reserve. So, as per the above discussion I think the rising reserve is not a matter of happiness.
The writer is managing director of the Bridge Chemie Limited

« PreviousNext »

Latest News
Most Read News
Editor : Iqbal Sobhan Chowdhury
Published by the Editor on behalf of the Observer Ltd. from Globe Printers, 24/A, New Eskaton Road, Ramna, Dhaka.
Editorial, News and Commercial Offices : Aziz Bhaban (2nd floor), 93, Motijheel C/A, Dhaka-1000. Phone: PABX 9586651-58; Online: 9513959; Advertisement: 9513663
E-mail: [email protected], [email protected], [email protected], [email protected],   [ABOUT US]     [CONTACT US]   [AD RATE]   Developed & Maintenance by i2soft