Forex reserve sets $10b benchmark

Bangladesh Bank Governor Atiur Rahman speaks at a press briefing at the central bank headquarters in Dhaka yesterday to announce the country's foreign exchange reserve that crossed the $10 billion mark for the first time.Photo: STARStar Business Report

Bangladesh's foreign exchange reserve yesterday crossed the $10 billion mark for the first time in history, riding on buoyant remittance inflows, moderate exports and declining import payments.

The Asian Development Bank's budgetary support worth around $649 million released the same day also helped the reserve reach equivalent to five months' import bills.

Central bank Governor Atiur Rahman termed it a 'historic' and 'rare' achievement for the country, as the reserve almost doubled in two years.

“This reflects the strength of our economy,” Rahman told reporters at a briefing at the Bangladesh Bank (BB) headquarters yesterday.

The governor however denied that the ADB loan has helped push the reserve to $10 billion and said it is the remittances that played the key role.

Deputy governors Murshid Kuli Khan and Ziaul Hassan Siddiqui also spoke.

The central bank expects the reserve to help the country achieve a better sovereign rating currently being conducted by two global firms -- Moody's and Standard and Poor's.

“This reserve will also help the government bargain strongly with bilateral and multilateral development partners,” said the central bank chief.

“Foreign investors will also be encouraged,” Rahman added.

The foreign exchange reserve was $9 billion in September and $7.47 billion in June this year. But it was slightly over $5 billion in June 2007.

Bangladesh has an obligation imposed by the International Monetary Fund to maintain a reserve equivalent to three months' import bills. According to IMF compulsion, $6 billion reserve is enough.

The reserve reached $10 billion mainly due to a significant rise in inward remittances despite the global economic slowdown that dealt a blow to many countries with negative growth in their remittances.

“Remittances rose by over 22 percent. This has happened as remittances came through banks,” said the central bank governor.

Quoting a recent World Bank report, Ziaul Hassan Siddiqui said only 9 percent remittances are now channelled through hundi, an illegal way of sending money home.

Although exports plummeted by over 11 percent in the first quarter of the current fiscal year compared to the same period last year, the governor termed it a reasonable growth considering other countries' exports.

“Exports are reviving. A lot of orders are coming and we expect a substantial rise in investment demand in the current quarter,” said Rahman.

Replying to a query about the declining import of capital machinery, the governor said the country is already in excess capacity. “We don't need capital machinery now,” he said.

However Rahman said: “Import of industrial raw materials increased significantly last month, reflecting a growing activities in the manufacturing sector.”

But he admitted a significant decline in import payments, mainly with the food grain imports. He has also given credit to farmers for bumper yield.

Rahman admitted the fear of inflationary pressure due to constant rise in remittances. “It creates inflationary pressure, but we are cautious,” he said.