Shawdesh Desk:

The Bangladesh Bank sold $12.8 billion from its foreign exchange reserves to banks in the just concluded financial year 2023-24 amid a severe dollar crisis in the country’s financial sector.

BB executive director Mezbaul Haque, also the spokesperson for the central bank, told New Age on Tuesday that the central bank gave the dollar support to banks in the period.

As per International Monetary Fund guidelines, the reserves dropped to $21.83 billion on June 30, 2024, a sharp decline from $41.8 billion in June 2022 and $46.2 billion in September 2021.

Over the past three years, the BB has sold from its reserves approximately $33.91 billion, including $13.5 billion in FY 2022-23 and $7.62 billion in FY 2021-22.

The persistent dollar crisis has made it increasingly difficult for banks to settle import payments and open letters of credit, posing substantial challenges for business operations, bankers said.

The extensive dollar sales have absorbed a significant amount of local currency from banks, worsening the liquidity condition in the banking sector, they said.

Faced with this situation, banks have increasingly turned to the BB for borrowing to sustain their regular operations.

On June 13, the last working day before Eid-ul-Azha, one of the biggest religious festivals of the Muslims, banks borrowed a record Tk 22,406 crore, and the borrowing trend continued post-Eid with Tk 15,051 crore on June 27 and Tk 16,484 crore on June 30.

BB officials cited high import payments as the primary cause for the reserve depletion, worsened by sluggish growth in remittances and export earnings.

Since April 2022, the government and the central bank have implemented various measures to curb imports.

In the first nine months of FY 2023-24, import payments declined by 15.42 percent to $45.62 billion compared with that of $53.9 billion in the same period of the previous year.

To mitigate the ongoing dollar shortage, the government secured $4.7 billion in loans from the International Monetary Fund over three years.

In a bid to stabilise the exchange rate, the BB adopted a market-based exchange rate regime, allowing the rate to be determined by market forces.

Consequently, the interbank dollar rate surged to Tk 118 on May 8 from Tk 110.

This sudden hike has contributed to a remittance surge in recent months, pushing total remittance collection close to $24 billion in FY 2023-24.