TL;DR:
- Bangladesh’s foreign exchange reserves dropped to $18.19 billion after a $1.5 billion payment to the Asian Clearing Union on November 10, 2024.
- Despite recent surges in remittances and exports, large payments like the ACU dues continue to strain the reserves.
- Bangladesh Bank Governor Ahsan H. Mansoor confirmed no new money has been printed, and there is no dollar shortage in the market.
- Inflation remains high at 10.87% in October 2024, with food inflation at 12.66%, raising concerns about economic stability ahead of LDC graduation in 2026.
Bangladesh’s foreign exchange reserves have fallen below the $20 billion mark once again, following a significant payment to the Asian Clearing Union (ACU). On November 10, 2024, Bangladesh paid $1.5 billion to settle import dues for the months of September and October, reducing the reserves to $18.19 billion, according to the International Monetary Fund’s (IMF) BPM-6 methodology. This marks a notable drop just days after reserves had briefly surpassed $20 billion on November 7.
Hosne Ara Shikha, Executive Director and spokesperson for Bangladesh Bank, confirmed the updated reserve figures to local media. The bi-monthly ACU payment is a regular occurrence for Bangladesh, with a similar payment of $1.36 billion made in September to cover import bills for July and August. The ACU is a regional payment settlement system that includes countries such as India, Iran, Pakistan, and Sri Lanka.
The fluctuation in Bangladesh’s foreign exchange reserves has been a recurring issue in recent months. Despite an influx of over $6 billion in remittances and more than $10 billion in export earnings during the past three months, which temporarily eased pressure on reserves, large payments like those to the ACU continue to strain the country’s financial resources. The central bank has been managing its reserves carefully by refraining from selling dollars to stabilize the market—a policy confirmed by Bangladesh Bank Governor Ahsan H. Mansoor during his speech at the third Bangladesh Economic Conference on November 11.
Governor Mansoor emphasized that no new money had been printed over the past three months as part of efforts to manage liquidity without fueling inflation. He reassured stakeholders that there is no shortage of dollars in the market, stating “We are solving the liquidity crisis without printing money,” while also noting that banks have sufficient dollar reserves to meet demand.
Bangladesh’s foreign exchange reserves have faced significant pressure due to both global economic challenges and internal issues within the banking sector. The country’s financial institutions have struggled with fraudulent activities over the past 15 years, contributing to financial instability. Governor Mansoor reiterated his commitment to stabilizing the banking sector and preventing further closures of financial institutions.
Inflation remains a major concern in Bangladesh, with year-on-year inflation reaching 10.87% in October 2024 and food inflation hitting 12.66%, according to data from the Bangladesh Bureau of Statistics (BBS). Economists have urged Bangladesh Bank to maintain its tight monetary policy aimed at curbing inflation and stabilizing the exchange rate while addressing inefficiencies in supply chains that contribute to rising prices.
The volatility in foreign exchange reserves also raises broader concerns about Bangladesh’s economic stability as it approaches its scheduled graduation from Least Developed Country (LDC) status in 2026. This transition will result in the loss of preferential trade benefits, creating additional challenges for businesses already grappling with inflation and currency fluctuations.
Despite these challenges, there are positive signs on the horizon. Remittance inflows continue to grow as migrant workers send funds back home, providing much-needed support for foreign currency reserves. Additionally, Bangladesh Bank has taken steps to stabilize markets by purchasing foreign currencies from banks when necessary.
As Bangladesh navigates these economic headwinds, balancing reserve management with efforts to control inflation and support economic growth will be critical for ensuring long-term financial stability.
Source: The Financial Express
