Reserves to hit $24.5b by June next year
Gross foreign currency reserves will bounce back to $24.5 billion by the end of the fiscal year on the back of a 5 percent export growth, 2 percent remittance growth and 7 percent import de-growth, as per the central bank's projections.
The projections, which were prepared for the International Monetary Fund and the other multilateral donors as well as the government, are dependent on letting the exchange rate float after the election, due to be held in January next year.
This would mean there would be no need to sell dollar from the reserves to support the exchange rate. In the first two months of the fiscal year, BB sold $3.2 billion to artificially prop up the exchange rate.
But thanks to the market-based exchange rate, the net dollar sales at the end of the fiscal year would be zero, shows the projections seen by The Daily Star.
BB sold $13.4 billion last fiscal year and $7.4 billion the year before.
The market-based exchange rate would mean remitters would be lured into the official channel to send money. About $22.8 billion is expected in remittance by June next year.
In the first three months of the fiscal year, remittance inflows were down 12.3 percent year-on-year at $4.9 billion.
The market-based exchange rate and the restrictions mean imports in fiscal 2023-24 will be about $64.6 billion, down 7 percent from a year earlier.
Imports dropped about 22 percent in the first two months of the fiscal year.
The slight export and remittance growth and lower imports mean the overall balance will be $0.6 billion in the deficit at the end of the fiscal year in contrast to the deficit of $8.2 billion in fiscal 2022-23.
The central bank is also expecting about $3 billion in budget support from the development partners by this year.
As a result, the deficit in the financial account will reverse to $0.2b. At the end of last fiscal year, the financial account had a deficit of $2.1 billion.
The developments mean the gross foreign reserves will hit $24.5 billion at the end of June next year, enough to comfortably meet IMF's minimum net reserve target of $19.5 billion, The Daily Star has learnt from BB officials involved with the proceedings.
At the end of last fiscal year, gross reserves were about $24.8 billion, down from $33.4 billion a year earlier.
Economists though remain sceptical that the reserves will perk up to the level projected by the central bank.
"It depends on the policy measures taken after the election," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
For the reserves to hit $24.5 billion at the end of the fiscal year, the supply of dollars will have to increase much from remittance and exports.
And that would depend on how much the exchange rate premium -- which is the difference between the exchange rates prevailing in the official and kerb markets --narrows.
"If the exchange rate is not market-based, that will not happen."
Asked if the dissipation in political uncertainty will convince exporters to bring in their export proceeds, Hussain remains doubtful.
"After elections, I think a portion of the export proceeds will come in if the exchange rate premium is reduced. If we expect that $5-6 billion will come in without any reforms, it is highly unlikely," Hussain added.
Ahsan H Mansur, executive director of Policy Research Institute, deems the central bank projections highly optimistic.
"At the time of election, reserves will come down to about $16 billion. So building up $8 billion in reserves from February will be a big challenge. You can't compress imports further. It is difficult to say where the global economy is heading, so how exports will fare is uncertain."
Other than massive policy changes after the election, extremely favourable conditions are needed for reserves to go back up to $24.5 billion at the end of this fiscal year.
"We had extremely favourable conditions only twice. One was during Atiur Rahman's time as governor in 2011-12 and another was during the pandemic," said Mansur, also a former economist of the IMF.
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