Shawdesh Desk:

The volume of foreign currencies held by the country’s commercial banks hit a 14-month low in April due to increased demand, driven by a severe shortage of dollars.

The gross foreign currency balance with the banks dropped to $5,047 million in April from $5,439 million in March and $5,559 million in December 2023.

This marked the lowest level since January 2023 when it stood at $4,849 million.

In April 2023, the gross balance was $5,497 million, including nostro accounts and investments in offshore banking units.

The shortage of US dollars has become a significant challenge for the country, impacting both commercial banks and the central bank’s foreign currency reserves.

This scarcity is straining the country’s ability to pay for imports and causing the Bangladeshi taka to weaken against the dollar.

The crisis has deepened due to slowdowns in remittance and export earnings, along with a drop in foreign direct investment inflows.

Export earnings in July-March of the financial year 2023-24 increased marginally by 3.99 per cent to $40.87 billion compared with those of $39.30 billion in the same period of FY23.

Remittance inflow reached $19.11 billion in the July-April period of FY24, compared with that of $17.6 billion in the same period of FY23.

To curb import surges, the government and the Bangladesh Bank have implemented various measures since April 2022, including import restrictions on luxury items and non-essential products.

These actions have led to a 15.42 per cent decline in imports in July-March of FY24 compared with the same period in the previous financial year.

The Bangladesh Bank has also intensified monitoring of imports to prevent sudden outflows of foreign currencies.

Despite efforts to address the dollar shortage, the crisis persists due to a reduction in the supply of the greenback and a drain on foreign reserves.

The central bank has been selling dollars to commercial banks, totalling more than $32.8 billion over the past 34 months.

This includes $11.67 billion allocated to banks in July-April of FY24, $13.5 billion in FY23 and $7.62 billion in FY22.

However, these dollar sales had unintended consequences – reducing the foreign exchange reserves of the Bangladesh Bank and creating a liquidity crisis in the banking sector.

Many import payments have been delayed or renegotiated due to the dollar shortage, giving banks more time to acquire the necessary foreign currencies. However, the burden of the shortage is not evenly distributed among banks. Only a few banks hold a significant portion of the country’s dollar reserves, while many others are struggling to meet their customers’ demands for foreign currency.

As a result, the foreign currency reserves, according to International Monetary Fund guidelines, dropped to $18.2 billion on May 14, leading to a sharp rise in the exchange rate to Tk 117 from Tk 91 against the US dollar within a year.