Govt lowers forex reserve projection

Dhaka,  Fri,  23 June 2017
Published : 19 May 2017, 00:35:24
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Govt lowers forex reserve projection

Slow remiittance growth leads to revision
Jasim Uddin Haroon


The foreign exchange reserve which has been expanding fast for the past few years is projected to drop sharply from its expected level, according to government estimate.

The government projection came up following a sustained slow growth in remittance inflow and export receipts.

The forex reserve may stand at US$ 33.5 billion by June 30, down by $ 1.8 billion from its earlier projection. The ministry of finance in its latest meeting with the central bank and the National Board of Revenue revised it downward.

This signifies that the government's move for investing it in newer areas should be reviewed under such a situation. This also signifies that the authorities should take steps to improve its external sector immediately.

Economists and senior people at the Finance Division told the FE that if the situation in terms of export earnings and remittance inflow does not improve, this will impact the overall balance of payment.

They said the authorities should take further steps in regard to adjustment of the exchange regime if measures taken so far do not work.

The country's merchandise exports increased to $ 22.84 billion during the July-February period of the fiscal year 2016-17 which was 3.22 per cent higher than US$ 22.12 billion during the same period of the previous fiscal, according to Export Promotion Bureau (EPB) data.

On the other hand, remittance fell by over 16 per cent to $ 10.28 billion during the same period of this fiscal year.

Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told the FE that reserve still remained in comfort zone, but some "concerns are swirling".

He said the performance of export and remittance inflow must improve to come out of this situation.

"There will be a need for a further adjustment to the exchange rate regimes if the external sector does not improve….", he told the FE.

"To my mind, this time the authorities will have to observe whether the steps taken work or not," said Dr Mansur who worked as the division chief of International Monetary Fund (IMF) in the Middle-East.

He said there is a challenge that the authorities must contain the pace of growth in imports as well.

The central bank had taken steps to support the exporters and the remitters by depreciating its currency Taka considering the global reality.

On the other hand, Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB), told the FE that the position of "too satisfaction over the reserve" seems to be no more.

He said the move for import of rice at the government level may increase pressure on the exchange reserve further.

The government is now planning to import at least 600,000 tonnes of rice to compensate production losses of Boro, the biggest crop of the country's staple, following flash floods in haor areas.

He said the authorities should depreciate the local currency against dollar to improve the situation gradually.

"To my mind, the government should handle the possible inflationary impact following adjustment to the exchange rates," he said.

There are many other instruments to handle inflation like reduction in import duties to supply it at reasonable prices at retail level.

He said the government's plan for use of reserve in different portfolios like creating sovereign wealth fund remained uncertain under such a situation in external trade.

However, reserve stood at $ 31.7 billion as of May 09 last, according to Bangladesh Bank.

    jasimharoon@yahoo.com
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