Bangladesh to finalise plan to tap forex reserves before budget

The government is likely to decide on borrowing funds for different projects from foreign exchange reserves before the next national budget, says Finance Minister AHM Mustafa Kamal.

The minister revealed the planned time for finalising the decision at a virtual briefing after a meeting of the Cabinet Committee on Government Purchase on Thursday.

The government expected the reserves to cross $42 billion this month. “We were able to do that even earlier. This is an achievement for the nation,” Kamal said.

Prime Minister Sheikh Hasina had in July ordered officials to explore ways to channel funds from the reserves in the form of credit to finance the development projects.

“We always borrow funds in dollars from foreign sources. Our reserves are now $36 billion so can we not borrow from it? Bangladesh Bank reserves this money in the public interest. Therefore, we can take loans from it for our projects," Planning Minister MA Mannan had quoted her as saying at an ECNEC meeting.

Even if the government has to pay interests on the planned loans from the reserves at higher rates than foreign loans, using Bangladesh’s own money will mean that its benefits will remain in the country, according to Hasina.

“I feel that the prime minister was right,” Kamal said on Thursday. "We don’t get more than 2 percent [interest] on our investments abroad. We believe that the fund flow will be intact and our income will increase manifold if we invest in a government institution.”

“The prime minister has thought this through and studied how much funds would be required in the future, specially to clear payments of megaprojects. She will make a decision taking everything into account. She could make the decision before the budget,” he added.

“Besides these, we also need to clear the payments for the megaprojects. We have paid up about $100 million since July, which is coming from the reserves. Even after the payments, we have a net fund of $42 billion.”

The reserves crossed the $42 billion milestone on Dec 15 despite the struggle against the coronavirus pandemic situation.

The achievement was possible mainly due to the remittances sent by Bangladeshis working abroad. Growth in exports and foreign loans also contributed to the rise of the reserves.

The minister said that the government is committed to raising the foreign exchange reserves to $50 billion by 2030. “Our calculations say we are on course to the target,” he added.

Bangladesh’s reserves have surged by $11 billion in the July-November period this year, or 60 percent of the annual target in the first five months of the fiscal year, he pointed out. “The reserves will continue increasing if we can maintain the flow.”

The chief source of the reserves is remittance, and it comes through banks. When the remittances exceed a bank’s demand, it sells the foreign currencies in the market. When Bangladesh Bank purchases the foreign exchanges, the reserves increase, Kamal said.

Bangladeshi migrant workers have shattered records by sending $20.5 billion with three weeks of the year 2020 remaining. The amount is 12 percent higher than the total remittances received by the country in 2019.