Robust remittances and exports to ease pressure on the external sector

Migrant workers and Bangladeshis living abroad sent more than $2 billion in each of the first two months of the current fiscal year, a promising sign for the economy.

It came at a time when import payments slowed and exports maintained healthy growth, signaling that pressure on Bangladesh’s external sector may ease after two or three months.

In August, remittances stood at $2.03 billion, up 12.6% year on year, although inflows were 3% below receipts in July, Bank data shows. from Bangladesh.

Import payments, as calculated through letter of credit (LC) settlement, were $6.92 billion in August, down 9.6% from the previous month, although the amount is still 14.2% higher than the same period a year ago.

The central bank allowed companies to settle import payments after a certain period to cope with the slowdown in business due to the coronavirus pandemic.

Still, analysts read the numbers positively and say the FX market is still under pressure, but the stress will ease if the current import and remittance trend continues over the next couple of months.

“The outflow of the dollar may decline soon, which will have a positive impact on the external sector after one or two months,” said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

The demand for US dollars is still high due to a lag between outflows and inflows of greenbacks.

Banks are now buying dollars in the form of remittances from exchange houses quoting Tk 114 for each greenback, down from Tk 107-Tk 108 two weeks earlier.

Importers buy every dollar for 107 Tk-108 Tk from banks. This gave an indication of the extent of the ongoing tensions facing the foreign exchange market.

“Import payments have decreased to some extent in recent months, but companies are now paying their deferred payments for LCs that were opened earlier,” Mahbubur said.

LC’s opening edged up to $5.85 billion in August from $5.69 billion a month earlier.

Mustafizur Rahman, Distinguished Fellow at the Center for Policy Dialogue, thinks lower imports and higher remittances would reduce pressure on foreign exchange reserves.

Reserves stood at $39.05 billion on Wednesday, down from $48 billion a year ago.

“The policy actions that have been taken by the central bank should continue until volatility is brought under control,” Mustafizur said.

The economist asked the BB to take measures to ensure that banks repatriate export earnings as soon as possible. The government should also consider how to further boost export earnings.

Export earnings rose more than 38 percent year-on-year to $4.67 billion in August, data from the Export Promotion Bureau showed yesterday.

Emranul Huq, managing director of Dhaka Bank, describes lower import bills as a good sign.

This happened as the price of major commodities fell on the world market.

“The foreign exchange market is still under pressure, but it could ease in the next two months thanks to central bank measures,” Huq said.

The BB recently asked to impose a 100% margin on the opening of LCs for non-essential items, which means that importers must prepay all import payments.

“The fate of the local forex market depends on global development,” Huq said.

The foreign exchange market began to deteriorate significantly shortly after the outbreak of war between Russia and Ukraine.

AB Mirza Azizul Islam, a former financial adviser to an interim government, says there is still uncertainty in the economy.

“Reserves continue to decline due to rising imports.”

Reserves could fall further next week as the central bank prepares to settle payments for the Asian Clearing Union (ACU), an arrangement for the clearing of commercial paper between the participating central banks of Bangladesh, Bhutan, India. India, Iran, Maldives, Myanmar. , Nepal, Pakistan and Sri Lanka.

“In such a situation, the government and the central bank should make efforts to improve remittances and exports,” Islam said.

Salehuddin Ahmed, a former BB governor, blamed money laundering for the declining level of reserves.

“Strict measures must be taken to stop money laundering.”

He also criticized Bangladesh’s financial intelligence unit for failing to take adequate action against money launderers.

“The situation would not have gotten worse if the BFIU had taken action against the crooks,” he said.

Shirlene J. Manley