December 8, 2023
DHAKA – The pressure on the foreign exchange reserves is building up as Bangladesh has unpaid liabilities of several billion dollars to foreign creditors, energy companies and international firms operating here.
And clearance of the payments is likely to put a further strain on the reserves, which has been dropping over the last two years, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
He was giving a public lecture on “Macroeconomic Challenges and Policy Options in Bangladesh” at the launch of a three-day annual Bangladesh Institute of Development Studies conference on development at Lakeshore Hotel in Dhaka yesterday.
Forex reserves had grown, supported by “higher inflows through the financial account in recent years” before beginning to decline, said Mansur.
Now the pressure has increased on balance of payments (BoP), an account listing the country’s overall transactions with the rest of the world, he said.
The difficultly over the BoP has manifested through the rapid decline of the foreign exchange reserves of Bangladesh Bank and a sharp depreciation of the taka against the US dollar and other major currencies, he said.
“What I feel (is) that the government needs to work out a plan for settling the payment liabilities. We don’t have sovereign debt default yet. We have quasi sovereign debt default,” said Mansur.
“Some of our public sector can not pay their debts. You have to kept that in mind. And we have private sector payment problems, huge. We have to sort it out,” he said.
In addition to a short-term private sector debt of $12 billion, Bangladesh has many other unpaid liabilities, which need to be quantified comprehensively, he said.
Right now, he said, there is no comprehensive, publicly available official picture.
Some of the other overdue payments include over $4 billion to energy companies and unknown but sizable amounts to international airlines and fertiliser importers, he said.
Some are for settling letters of credit (LCs) and others in the form of some profit and dividend yet to be repatriated by foreign companies, he said.
The schedule for these payments has to be restructured, added Mansur, who worked in different capacities at International Monetary Fund, including as mission chief for Saudi Arabia, Kuwait and Oman.
“There is also a huge pent-up demand for imports, which could not be met due to shortage of dollars,” said the economist.
“The economy is already paying some of the costs,” he said, adding that fees or charges for LC settlement has gone up significantly.
The rating agencies have downgraded Bangladesh and its economic and BoP outlook, he said.
Airlines have increased their airfares in and out of Bangladesh and some international airlines have reduced their flights to Bangladesh, said Mansur.
“The total amount, although unknown, may easily be close to the available reserves of Bangladesh Bank,” he said.
“Thus, paying all of these private creditors at this time is not a viable option. The authorities need to work out a comprehensive plan to mitigate this,” he added.