One of the key requirements established by the International Monetary Fund (IMF) prior to sanctioning a loan program for Bangladesh is that the net foreign exchange reserves must be USD 24.46 billion in June, reports Prothom Alo.
The gross reserve, according to Bangladesh Bank, was USD 31.20 billion in June.
The reserve was USD 24.75 billion, as calculated by the IMF’s Balance of Payments and International Investment Position (BPM6) system.
In addition to this, the Bangladesh Bank withheld another record of net reserves.
Although no one knows, Bangladesh Bank periodically updates the IMF on the net reserve in compliance with their requirements.
Recently, it was reported to the IMF that the net reserve is currently just over USD 20 billion. There are therefore three different sorts of information: the gross reserve, the reserve as defined by BPM6, and the net reserve.
With the net reserve, three months’ worth of import expenses may now be covered. In May, import expenses totaled 6.46 billion USD. As the reserve is shrinking, Bangladesh Bank has intended to limit the sale of dollars. Government imports could be hampered as a result. The electricity issue began earlier as a result of the reserves not being used to provide funds. In general, the economy feels secure if there is enough reserve to cover import expenses for three months.
Former World Bank Chief Economist Zahid Hussain noted that the IMF loan instalment may be delayed if net reserve is insufficient to meet IMF requirements.
He explained to Prothom Alo that the net reserve was insufficient in June and that the IMF normally stops disbursing loan installments when its requirements are not met. There are, however, options to obtain an exemption, which calls for a letter to the IMF outlining the successful steps taken to raise the reserve. The installment will then be released provided the financing institution concurs.
Zahid Hussain further said no effective measure was taken to increase the reserves. Bangladesh Bank halved the reserves by selling dollars daily. The government tried to solve the crisis by reducing imports, but this didn’t work. There is no alternative to increase the dollar supply, and for this, the ceiling of the dollar price must be lifted. It is not certain that such move will mitigate the crisis, but at least an attempt can be made, he added.
