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Bangladesh's Forex Reserves Dwindle, Economic Woes Mount

A fall in forex reserves in Bangladesh below USD 40 billion, enough to cover only about five months of imports, has forced the government to seek a USD 4.5 billion loan from the International Monetary Fund, the Daily Star newspaper said

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Sheikh Hasina

A fall in forex reserves in Bangladesh below USD 40 billion, enough to cover only about five months of imports, has forced the government to seek a USD 4.5 billion loan from the International Monetary Fund, the Daily Star newspaper said. 

Bangladesh's finance ministry and the IMF did not respond to requests for comment, but a senior finance ministry official who asked not to be named said the matter was indeed "being discussed" but declined to give details.

Without naming Bangladesh, IMF chief economist Pierre Olivier Gourinchas told reporters in Washington in a virtual conference on Tuesday that many countries had approached the bank for financial aid, and it was looking at options to provide aid to members.

Economists at the IMF and other agencies have previously said countries which fail to absorb external shocks, driven by rising global commodity imports and slowing global demand for exports, should take strong measures including curbs on capital flows.

Here are key factors that are raising concerns for Bangladesh's economy:

Forex reserves 

Bangladesh's foreign exchange reserves fell to USD 39.67 billion as of 20 July  - sufficient for 5.3 months worth of imports - from USD 45.5 billion a year earlier.

Reserves had fallen nearly 10 per cent to USD 41.82 billion at the end of June from over USD 46 billion a year earlier.

Falling currency

Bangladesh's central bank has said a decline in the inflow of remittances by Bangladeshi workers and a rise in import payments have put pressure on the foreign reserves, leading to a depreciation of the country's taka currency.

The central bank spent nearly USD 5.7 billion in 11 months through May of the 2021/22 fiscal year trying to support the taka.

Foreign direct investment flows declined 18.65 per cent to USD 888.5 million during the Jan-March period from a year earlier.

Widening trade deficit

The trade deficit widened to USD 27.2 billion in the July 2021-May 2022 period as imports surged to nearly USD 59 billion while exports rose at a slower pace to USD 31.5 billion.

Higher inflation

Retail inflation hit an eight-year high of 7.56 per cent in June, driven by rising food and energy prices following a spurt in global commodity prices after Russia's invasion of Ukraine in February.

Fall in remittances 

Remittances from overseas Bangladeshis fell five per cent in June to USD 1.84 billion, the central bank said, as many migrant workers lost their jobs because of the Covid-19 pandemic.

Curb on imports 

Prime Minister Sheikh Hasina has imposed curbs on imports of luxury goods such as sedan cars, gold jewellery and non-essential items, and on fuel imports including liquefied natural gas (LNG) despite frequent "load-shedding" to contain capital outflows.

(Reuters)


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