BANGLADESH

The foreign exchange reserve of Bangladesh Bank has increased on the back of falling import cost over the last three months.

The number of letter of credits (LCs) opened in January was 27 percent less than LCs opened last January, and 24 percent in December and 23 percent in November.

The foreign exchange reserve of the central bank was $9.8 billion on Tuesday, nearly $1 billion more than what it was a month ago.

BB governor Atiur Rahman expressed hope that the reserve will become satisfactory if import cost remains low.

"Banks have been directed to avoid giving loans for unnecessary and luxury products, which has impacted the entire economy positively," he told .

Zaid Bakht, researcher director at the Bangladesh Institute of Development Studies (BIDS), said there will be no problem if import of luxury and less necessary products decreases. But it will be a cause of concern, he added, if import of capital machineries and raw materials for industries also shrinks.

"Growth in the industrial sector will also drop if import of capital machineries and industrial raw material declines. In that case, the expected economic growth (GDP growth) may not be achieved," Bakht warned.

He also expressed his satisfaction over low import of food.

According to data provided by Bangladesh Bank, goods worth $17.82 billion were imported in the first half of the current 2011-2 fiscal. The amount is 16.91 percent higher than that of the previous financial year.

In July-December period of 2010-11 fiscal, import costs rose 36.59 percent over the same period of the previous year. The rise in the whole fiscal was 42 percent.

Importers opened 35 percent less LCs to import capital machineries, and 62 percent less LCs to import food (rice and wheat) in July-December period of the current fiscal, BB data says.

LCs to import industrial raw material also decreased by 9 percent, though LCs for fuel oil import increased 103 percent.

LCs to import food shot up 88 percent, capital machineries 86 percent and industrial raw materials 69 percent in the first half of 2010-11 fiscal. The amount of LCs to import fuel oil, however, decreased 3 percent.

Both Rahman and Bakht said import of fuel oil rose due to extra fuel needed for power plants.


FOREX RESERVE, VALUE OF TAKA

The BB governor Rahman said taka is getting stronger against dollar and the supply of dollar to the local market increased in recent days as flow of remittance and export earnings increased and import cost decreased.

"The pressure on foreign exchange reserve (has) dropped… Taka is strengthening against dollar. I hope the trend will continue."

He said value of taka is rising in the kerb market as well.

Expatriates remitted $ 1.22 billion in January, the highest in a month in the country's history.

The lowest inter-bank exchange rate of dollar on Thursday was Tk 83.4. On Jan 29, dollar was exchanged at a record high of Tk 84.84.

Rahman said the demand of foreign exchange was high in the last few months as expenses to buy fuel oil, machineries, fertiliser and consumer products increased. "So taka devaluated against dollar," he said.

Export earnings increased 15 percent in first seven months (July-January) of current fiscal. The flow of remittance grew 12 percent.

Foreign exchange reserves of the country have dwindled below $10 billion after maintaining the double-digit-billion mark for three years.

The reserves with the central bank stood at $9.88 billion on Thursday, implying that it will be difficult for the country to meet next three months' import costs.

Senior researcher of Bangladesh Institute of Development Studies (BIDS) Jayed Bakht has expressed concern over the fall in reserves, saying that it would put the balance of payment under pressure.

"The reserves are under pressure due to hike in import cost and decreased flow of remittance," he said.

The economist said it would be difficult for the country to pay the import costs in the next three months if the costs remain same as in the recent past.

"The reserves will face more pressure if the World Bank or International Monetary Fund does not lend money," he added.

The increasing pressure on the reserves also led US dollar to rise against taka.

In line with international standard, every country willing to import has to have foreign exchanges to pay costs of next three months' import.

Bangladesh's forex reserves crossed $10 billion in September 2008.

It crossed $11-billion mark four times in the past three years as export earnings and flow of remittance saw an increase.

It slipped below $11 billion in August when the central bank paid $838 million to the Asian Clearing Union (ACU), the intra-regional forum for settlement of monetary transactions.

In March, the reserves hit $11.32 billion, the highest in the country's history.

Average foreign currency reserves were $10.75 billion in 2009-'10 fiscal and $10.91 billion in the last fiscal.

On the other hand, the flow of remittance is also witnessing a negative trend.

After rising around 15 percent in July and August, it has been on a slope again in September.

According to Bangladesh Bank, expatriates remitted $1.03 billion in July and $1.08 billion in August. But in the first 23 days of September, they sent $0.63 billion, leading to fear that it would not cross $1-billion mark in the whole month.

Growth in remittance was 6.03 percent in the last fiscal, 13.4 percent in 2009-'10 and 22.42 percent in the 2008-'09 financial year.

The import cost in the first two months of the current fiscal year was 35.72 percent higher than that in the same period of the last fiscal.

According to Bangladesh Bank, the rate of opening L/Cs (letters of credit) for fuel oil import increased 91.8 percent in July-August period.

Amid rise in the import costs, the export earnings also increased.

In the first two months of the current fiscal, the export earnings rose 30.44 percent against a growth of 41.47 percent last year.