Staff Reporter :
During a press briefing on the Regional Economic Outlook for Asia and Pacific, Huong Lan Vu, a Communication Officer for the International Monetary Fund (IMF), advocated for Bangladesh to adopt a more flexible exchange rate regime.
This recommendation comes in light of the country’s challenges in maintaining adequate foreign exchange reserves.
According to Vu, transitioning to a flexible exchange rate is crucial for Bangladesh to “build external resilience and build buffers and reserves.”
This suggestion is particularly timely as Bangladesh’s gross foreign exchange reserves fell to $19.89 billion on April 17, reflecting a concerning trend.
The country has also struggled to meet the reserve targets set under the IMF’s $4.7 billion loan agreement initiated in January of the previous year.
The adoption of a flexible exchange rate could potentially enhance Bangladesh’s economic stability by providing better mechanisms to manage currency fluctuations, thereby aiding in the accumulation of forex reserves and helping control inflation.
However, in 2022, Bangladesh turned to the global lender after its forex reserves plunged to a critically low level amid higher import bills, leading to a sharp depreciation of the taka and an unprecedented level of inflation, hurting the poor and derailing the economic growth trajectory.
Earlier, the central bank failed to keep the target on the net international reserves of $17.78 billion which was earlier revised from $26.8 billion. BB maintained forex reserves at $17.20 billion at the end of December, facing a shortfall of around $58 million.
Meanwhile, an IMF mission visits Dhaka shortly to review the progress of the programme before releasing around $681 million in the third tranche in May.
The IMF has emphasized meeting the target of the foreign exchange reserve as a condition to get the third installment of $4.7 billion in loan support for Bangladesh.
As per the conditions of the loan from the IMF, it was set as a target to hold $19.26 billion in reserves in March 2024. But actual reserves are less than $16 billion.
First tranche of the loan package was cleared on 30 January. Bangladesh received $447.8 million on 2 February. The entire amount will be released in seven installments till 2026.
The fourth installment of the loan will be available in December 2024, requiring net reserves to be raised to $20.20 billion by next June.
