Despite Bangladesh Bank's commitment in August to cease dollar sales from its reserves, the central bank has sold nearly $1 billion since the beginning of the financial year 2024-25. This ongoing practice raises significant questions about the bank's management of the dollar crisis affecting the country.
In a surprising reversal, the BB sold $170 million in August, $110 million in September, and an additional $20 million in October. This brings the total sales to approximately $980 million, directly contradicting the bank's stated policy aimed at stabilizing reserves.
On August 28, the central bank explicitly announced that it would no longer sell dollars from reserves to commercial banks, yet the actual sales data paint a different picture.
Officials assert that these dollar sales are necessary to address reserve shortfalls, citing that the reserves were slightly below the International Monetary Fund's (IMF) target. As of October 28, the total reserves of Bangladesh Bank stood at $25.36 billion. However, when calculated according to IMF guidelines (BPM-6), the usable reserves drop to around $19.85 billion.
After accounting for approximately $5.58 billion in current liabilities and dues, the net expendable reserves (NIR) stand at approximately $14.27 billion. This is a concerning reduction from the expendable reserves of $14 billion and $15 billion recorded in August and September, respectively.
Looking ahead, projections suggest that after factoring in recent import bill cuts, the expendable reserves could decrease to around $13.05 billion. This continued decline highlights the precarious situation of the country's financial health.
Furthermore, experts warn that sustaining a reserve level below the IMF's recommended threshold could trigger further economic instability, including inflation and currency depreciation.
Recent developments indicate that Bangladesh's economy is grappling with rising inflation, which hit a record high of around 9.5% in September. This inflationary pressure has been exacerbated by global economic conditions, including rising oil prices and supply chain disruptions, which have contributed to the country's import bill.
The government is also facing mounting pressure to stabilize the currency as the taka continues to depreciate against the dollar.
In a more positive light, remittances from expatriate Bangladeshis have shown resilience amid these challenges.
For the entire month of September, remittances totaled $2.40 billion, indicating a steady flow of foreign currency that could help mitigate some of the financial pressures. This influx is crucial, as remittances play a significant role in supporting the local economy and enhancing foreign exchange reserves.
While talking with the daily Observer a central bank official said, "The dollar sales we have conducted were a necessary measure to address immediate liquidity needs. Our primary goal is to stabilize the economy while ensuring that our reserve levels remain sustainable. We are committed to adhering to our policies and are actively working towards strengthening our reserves to meet the IMF's expectations."
A senior commercial banker requesting anonymity said, "The central bank's mixed signals regarding dollar sales create confusion in the market. While we understand the necessity of managing liquidity, transparency is crucial. Many of us in the banking sector are concerned that continued sales may undermine confidence in the taka, especially as we navigate rising inflation and currency depreciation. Clear communication from Bangladesh Bank is essential to maintain trust among stakeholders."
