The current reserve of foreign exchange is enough to meet import demand for more than 10 months – well above the international standard of three months
The country's foreign exchange reserves witnessed a new record crossing the $40 billion mark on Thursday, keeping the money market afloat.
High inflows of remittance despite sluggish manpower export amidst the ongoing Covid-19 pandemic and low import expenditure mainly contributed to the surge in forex reserves.
Foreign exchange reserves have been scaling new heights after crossing the $34 billion dollar mark in June, and subsequently crossing $39 billion on 20 September, according to Bangladesh Bank data.
The current reserve of foreign exchange is enough to meet import demand for more than 10 months – well above the international standard of three months.
The remittance inflow saw a healthy 46% growth in September compared to the same period last year.
Exports, another foreign currency earning source, also rebounded in September, overcoming pandemic shocks when import expenditure still remained negative.
In September, the country's export earnings saw a 3.53% year-on-year growth, while imports – as of the latest update till August – registered a negative 6.68% growth, according to the central bank data.
The rising forex reserves is a good sign for the country as it will increase the government's spending capacity, said Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD).
However, sustainability remains a question because migrant workers who mainly contribute to forex reserves are losing jobs, she said.
"Remittance inflow jumped even during the pandemic, as it is a common trend to send more money home to manage distress during a crisis," she said.
Moreover, a fall in prices of goods and fuel in the global market also saved the government's foreign currency expenditure.
Fahmida Khatun, however, said a fall in imports is not always a good sign because a drop in the import of capital machinery is an indication of lack of investment. Therefore, the import of exactly which components is declining should be looked into, she added.
The strong position of forex reserves prompted the government to think about creating a separate fund to use as a source for foreign loan payments – a new idea that the government has tasked the Bangladesh Bank to implement.
In response to the government's idea, the board of the Bangladesh Bank made a policy decision to finance primarily two sectors from forex reserves – power and port development projects.
The overflow of foreign earnings has also placed the Bangladesh Bank in a comfortable position with the country's current account balance, even in the pandemic situation.
The country's current account balance saw a surplus during the ongoing Covid-19 pandemic, reaching over $3 billion during the July-August period of the current fiscal year.
The amount was only $204 million during the same period of the last fiscal year.
According to the latest data of the central bank, during July and August of FY2020-21, the country's trade deficit narrowed by 66% to $698 million, with a significant decrease in import payments.
The money market has also been enjoying the advantage of the high inflow of foreign currency as the Bangladesh Bank is pushing more money into the market by purchasing foreign currency from banks.
Between 1 July and 4 October this year, the Bangladesh Bank bought $2.62 billion dollars, up by 200% compared to the same period of the last fiscal year.
The purchasing of dollars by the central bank has kept the dollar price stable at Tk84. 90 to Tk84.80 for the last several months, according to central bank data.
The central bank's intervention in the forex market contributed to keeping the money market in good financial health, raising the excess liquidity above Tk1.40 trillion as of June.