A news report published on Wednesday said the International Monetary Fund (IMF) has taken exception to the calculation of Bangladesh Bank’s foreign exchange reserves saying it is overstated by at least US$ 7.2 billion. The foreign exchange reserves of $46 billion as reported at the end of June this year was overstated by 15 per cent, the IMF said, pointing out that actually the foreign exchange reserves in Bangladesh Bank would be $39 billion. Bangladesh Bank has overstated the reserves through the inclusion of non-reserve assets with reserves underestimating the related risks. The IMF has identified the misclassification in a draft report on safeguard assessment of BB’s reserves in 2021.
Actually, the overstated reserves are not in the bank’s vault, a part of it has been used to finance and keep deposits with commercial banks in non-investment grade bonds. Some funds were also lent to Sri Lanka. Yet the central bank continued to include these non-reserve assets in the bank’s performance and risk analysis for foreign reserves. It has thus misled the nation. We would say it is not wrong to lend funds from the reserves to support commercial banks in boosting their capital base or refinancing package but the truth is that once funds are sent outside the central bank’s vault, they can no longer be treated as reserves in view of various risks involved. As we know, the government has a tendency to claim ‘unprecedented’ success in economic management while the reality is quite the opposite.
The banking system is collapsing and the government is using part of the reserves to stabilise the system from falling into the brink. It shows the risk that the funds outside are facing. The IMF has rightly said the exaggeration of foreign reserves leads to a wrong judgement about the actual reserves. Since Bangladesh Bank has limited expertise and is constrained in IT capacity it is vulnerable to run proper risk analyses when default loans in the banking sector are soaring. So we agree with the IMF recommendation that Bangladesh Bank should manage foreign exchange reserves separately from non-reserve assets to avoid overstatement of forex liquidity, and deplore this lapse on the part of our central bank.
