Tuesday, 28 March, 2023

Economists for attractive rates on remittance as pressure on forex market won't ease soon

The pressure on foreign currency reserves will not subside anytime soon due to the insufficient supply of dollars to meet the growing demand for imports, economists said, adding that external factors are driving the pressure on foreign exchange reserves.

Talking to the Daily Sun, economists emphasized the importance of reducing capital outflows through trade financing to stabilize the dollar market.

Former Bangladesh Bank governor Prof Salehuddin Ahmed said the dollar market could not be neutralized by controlling import bills alone without increasing export earnings and remittance inflows.

“Remittance inflows are not up to the mark. Dollars remain out of the country due to the low formal channel rates, the spread of the bank and kerb markets should be reduced to attract remitters. Capital flight through trade finance poses risks for businessmen with actual demand,” Dr Salehuddin told the Daily Sun on Thursday.

On Monday, the central bank sold dollars worth Tk 50 million to state-owned commercial banks, reducing the foreign exchange reserve to $32.47 billion.

While unveiling the monetary policy, BB governor Abdur Rouf Talukder discussed the growing trend of capital flight through trade finance. An investigation by the central bank revealed over 200 percent overinvoicing in the opening of letters of credit.

Former chairman of the Association of Bankers Bangladesh (ABB) Syed Mahbubur Rahman hopes that the pressure on dollar markets will subside by March.

“We keep opening letters of credit for essentials. The remitters can contribute to improving foreign currency reserves by transferring money through the banking channel,” Syed Mahbubur, also managing director at Mutual Trust Bank, explained to the Daily Sun, highlighting the fact that any foreign currency loan will not immediately improve the situation. 

According to Policy Exchange Chairman Dr Masrur Reaz, the pressure on the dollar market could ease within two to three months if the IMF disburses its loans by the end of February.

As a result of continuing regulatory actions, the demand for LC has been decreasing. Now, the companies have some legacy payments following the import restrictions in the July-August period last year. Capital flight through trade financing is still ongoing, according to Dr Masrur.

Bangladesh lost $8.27 billion through capital flight in trade finance every year on average between 2009 and 2018 through mis-invoicing of goods value, according to Global Financial Integrity (GFI).

Prof Shah Mohammad Ahsan Habib of the Bangladesh Institute of Bank Management (BIBM) has stated that there is an artificial demand for dollar in the market due to a forecast of depreciation of the local currency.

A few businesses are importing commodities ahead of time, causing unnatural pressure on the market. On top of that, some people are holding dollars in cash in the hope of a price increase, he said.

BB has sold approximately $8.5 billion in dollars in the first seven months of the fiscal year, which is 7.62 percent higher than $ 7.62 billion in the full fiscal year of 2021-22.