The government’s plan to use foreign exchange reserves to bankroll infrastructure projects may face difficulty as rising imports will leave little scope for making such lending. Bangladesh now has foreign exchange reserves that can cover import expenditures for roughly 6 months. The reserves, aided by robust remittance and lower imports, stood at $44.04 billion on February 28 before coming down to $42.98 billion on March 10. The government last week, for the first time, took a move to lend Tk 5,417 crore from the reserves for the dredging of a channel for Payra Port in Patuakhali. We must say that the government should be cautioned enough to further use the fund.
According to the finance ministry, two conditions have to be met before lending from the fund. The annual investment target from the fund would be no more than $2 billion, and to the lending needs to be done after keeping the reserves for at least six months of import expenses. Import expenditure may rise in the future as the economy is making a turnaround since January. According to the Bangladesh Bank, the import of consumer goods rose 12.48 per cent from July to December. The LC opening for such goods increased 4.58 per cent. The LC opening to buy raw materials from international markets was up 1.71 per cent during the six months, while LC settlement for capital machinery declined. Because of the plan of buying a massive quantity of food grains from external sources, the import would get momentum in the coming months, experts say.
The pandemic has exacerbated pre-existing import trends. However, international commodity prices have risen, and domestic demand is poised to recover with the global vaccination and growing virus fatigue. Advanced economies are projected to recover strongly in the second half of 2021 as their vaccination rates approach herd immunity. Remittance growth has slowed, and exports are struggling to return to pre-pandemic levels. However, global recovery may boost both, but there is no certainty about how much and when. Adequacy of reserves is a major confidence anchor for foreign investors and creditors.
