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Government to maintain a cautious policy to address the balance of payments instability

Government to maintain a cautious policy to address the balance of payments instability
by Insider Desk
June 5, 2023

The government of Bangladesh has announced its commitment to a cautious and accommodative approach in addressing the instability in the country’s balance of payments (BoP) and foreign-exchange reserves for the fiscal year 2023-24. 

Finance Minister AHM Mustafa Kamal emphasized the government’s adoption of a timely strategy, which has reduced BoP instability.

The central bank will implement procedural guidelines aligned with BASEL-III in phases as part of the government’s efforts to rectify defaulted loans and other irregularities in the financial sector. 

The objective is gradually bringing the multiple exchange rates closer together, aiming for a more market-oriented exchange rate.

To rebuild foreign-exchange reserves, ongoing initiatives include verifying the accuracy of imported item prices and ensuring compliance with procedural requirements related to the letter of credit (LC) opening, disposal, and other relevant matters. 

The government is also taking measures to encourage using formal channels for remittance, offering a 2.5% incentive and promoting remitter-friendly processes, such as mobile financial services.

Minister Kamal highlighted the positive impact of these initiatives, with increasing remittance income and a decline in import growth, returning to normal levels. 

Efforts are underway to boost export income through promotional activities, and steps are being taken to secure the disbursement of foreign loans. The minister expressed optimism that the reserve situation would improve in the near future.

However, recent statistics reveal a downward trend in remittance, with Bangladesh experiencing a 10.27% drop in receipts compared to the previous year. This further strains the country’s foreign-exchange reserves, which have now fallen below the $30 billion mark. Data from the Bangladesh Bank shows that remittance inflow in May amounted to $1.69 billion, a decrease from $1.88 billion in the same month last year.

Officials at the central bank attribute the decline in reserves to increased sales of the U.S. dollar to banks for LC-related payments amidst a shortage of forex, as well as lower earnings from remittance sources in May. 

They expected a higher volume of remittance in April during the Eid-ul-Fitr festival, but the influx fell short of expectations. The recent increase in the exchange rate for remittance is hoped to encourage higher remittance inflows in the coming days.

The revised exchange rate for remittance is now set at Tk 108.50 per dollar, following adjustments by the Bangladesh Foreign Exchange Dealers’ Association and the Association of Bankers, Bangladesh. According to Bangladesh Bank data, the foreign-exchange reserves have dipped to $29.91 billion as of May 1, 2023, compared to $30.96 billion recorded on the previous day.

Tags: FeaturedForex reservesforex reserves of BangladeshRemittance
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