The Bangladesh Bank has reduced the outlay of the Export Development Fund (EDF) by $400 million to meet International Monetary Fund (IMF) conditions and increase net foreign exchange reserves.
The IMF, which granted Bangladesh $4.7 billion in loans in January, advised the country to raise its net reserves to over $24 billion by June, a target slightly lower than the current amount held, according to officials.
The central bank, however, did not disclose data on net reserves and instead calculated gross foreign exchange reserves, which stood at $29.87 billion as of 2nd June.
The EDF, included in the gross reserves, was unaffected by the recent cut, with a size of $4.6 billion compared to $7 billion before the reduction in December. Over the span of six months, the fund has been reduced by $2.4 billion.
An unnamed senior Bangladesh Bank official explained that the adjustment was necessary to comply with the IMF conditions, and further adjustments are likely in the future. Despite the reduction, the official hinted that the country’s net reserves may still fall below the $24 billion mark by the end of June.
Amid the ongoing dollar crisis, the Bangladesh Bank sold $12.73 billion from its reserves in the current fiscal year to cover government imports.
However, the initial IMF support of $400 million halted the reserve decline. The central bank’s stricter measures to collect export proceeds have also contributed to the decline in demand for EDF loans.
The EDF loans are designed to support exporters in importing raw materials, with repayment occurring when export proceeds are received.
However, the demand for these loans has decreased along with reduced imports and the introduction of the Export Finance Participation Fund (EFPF), where exporters can obtain loans at a 4% interest rate.