Bangladesh's forex reserves dwindle, economic woes mount

A fall in forex reserves in Bangladesh below $40 billion, enough to cover only about five months of imports, has forced the government to seek a $4.5 billion loan from the International Monetary Fund, the Daily Star newspaper said.

Bangladesh's finance ministry and the IMF did not respond to requests for comment, but a senior finance ministry official who asked not to be named said the matter was indeed "being discussed" but declined to give details.

Without naming Bangladesh, IMF chief economist Pierre Olivier Gourinchas told reporters in Washington in a virtual conference on Tuesday that many countries had approached the bank for financial aid, and it was looking at options to provide aid to members.

Economists at the IMF and other agencies have previously said countries which fail to absorb external shocks, driven by rising global commodity imports and slowing global demand for exports, should take strong measures including curbs on capital flows.

Here are key factors that are raising concerns for Bangladesh's economy:

FOREX RESERVES

Bangladesh's foreign exchange reserves fell to $39.67 billion as of July 20 - sufficient for 5.3 months worth of imports - from $45.5 billion a year earlier.

Reserves had fallen nearly 10% to $41.82 billion at the end of June from over $46 billion a year earlier.

FALLING CURRENCY

Bangladesh's central bank has said a decline in the inflow of remittances by Bangladeshi workers and a rise in import payments have put pressure on the foreign reserves, leading to a depreciation of the country's taka currency.

The central bank spent nearly $5.7 billion in 11 months through May of the 2021/22 fiscal year trying to support the taka.

Foreign direct investment flows declined 18.65% to $888.5 million during the Jan-March period from a year earlier.

WIDENING TRADE DEFICIT

The trade deficit widened to $27.2 billion in the July 2021-May 2022 period as imports surged to nearly $59 billion while exports rose at a slower pace to $31.5 billion.

HIGHER INFLATION

Retail inflation hit an 8-year high of 7.56% in June, driven by rising food and energy prices following a spurt in global commodity prices after Russia's invasion of Ukraine in February.

FALL IN REMITTANCES

Remittances from overseas Bangladeshis fell 5% in June to $1.84 billion, the central bank said, as many migrant workers lost their jobs because of the COVID-19 pandemic.

CURB ON IMPORTS

Prime Minister Sheikh Hasina has imposed curbs on imports of luxury goods such as sedan cars, gold jewellery and non-essential items, and on fuel imports including liquefied natural gas (LNG) despite frequent "load-shedding" to contain capital outflows.