The Bangladesh Bank overestimated its foreign exchange reserves by $ 7.2 billion by including non-reserve assets underestimating the associated risks, according to the International Monetary Fund.
In a draft report on the Bangladesh Bank’s Safeguards Assessment for 2021, the IMF identified the misclassification of foreign assets leading to an inflated foreign exchange reserve held by the central bank.
The $ 46 billion foreign exchange reserve released at the end of June this year was overestimated by 15%. Originally, the foreign exchange reserve would be $ 39 billion, according to IMF calculations.
Explaining this finding, the global lender said part of the reserve was used to finance, deposit with resident banks, invest in lower grade bonds and lend in Sri Lanka following the decisions of the board of directors. central bank and its investment committee.
Yet the central bank continues to include these non-reserve assets in the performance and risk analysis of foreign exchange reserves.
“Such an exaggeration of foreign exchange reserves leads to a mistaken judgment on their redundancy,” said the IMF report, which also mentioned that the Bangladesh Bank had limited expertise and limited IT capacity.
The IMF recommended that the Bangladesh Bank manage foreign exchange reserves separately from non-reserve assets in order to avoid overestimation of foreign currency liquidity and underestimation of associated risks, and to report transparently.
When contacted about this, Kazi Sayedur Rahman, vice-governor of the Bank of Bangladesh and head of the Department of Foreign Exchange Reserves and Treasury Management, declined to explain the IMF’s assertion that foreign exchange reserves were overestimated.
Another senior Bangladesh Bank official, on condition of anonymity, told The Business Standard that the relevant department was preparing a written response for the IMF on the matter.
Referring to the $ 250 million disbursement by the Bank of Bangladesh to the central bank of Sri Lanka as foreign exchange support, the IMF report indicated that the short-term financing was secured by a deposit in Sri Lankan rupees. in an equivalent amount to the Bangladesh Bank. Foreign currency loans should ideally be guaranteed in the same currency as the loan, the report said.
The non-reserve assets identified by the IMF are: foreign currency loans to local banks – $ 6,198 million, deposits with local state-owned banks – $ 651 million, deposits with ITFC (BID Group ) – $ 288 million and fixed income securities below investment. quality – $ 60 million.
The IMF has also raised an objection to the use of $ 2 billion in foreign exchange reserves for priority government infrastructure projects, including the port of Payra.
In the report, the IMF said large infrastructure projects often suffer from significant under-management of risks, and donors usually bear the immediate losses. Therefore, there is a risk of depletion of foreign exchange reserves, as well as financial losses for the Bangladesh Bank.
The report recommended that before committing to finance infrastructure projects, the central bank diligently monitor the level of its foreign exchange reserves, given the pressures on the balance of payments as well as the volatility of remittances. and trade.
The government created the Bangladesh Infrastructure Development Fund (BIDF) where the central bank pledged to provide $ 2 billion from its foreign exchange reserve to finance port and energy infrastructure projects.
The forex market came under pressure from rising import spending and slow remittances in the ensuing period.
The current account balance turned negative by $ 1.24 billion during the July-August period of the current fiscal year, a surplus of $ 3.22 billion during the same period of the year last, according to data from the Bangladesh Bank.
The price of the dollar has remained on the rise since last month amid growing demand.
The interbank exchange rate rose to Tk85.65 per dollar in October, from Tk85.20 the month before, according to central bank data.
The dollar crisis prompted the Bangladesh Bank to reverse its dollar-buying frenzy and start selling dollars to banks in order to keep the market stable.
Bangladesh Bank purchased a record US $ 8 billion in fiscal year 2020-21 amid low imports and high inflows of remittances.
However, since August this year, the Bangladesh Bank has sold $ 305 million to banks, according to central bank data.