Forex reserve projected to hit $54bn in 3 fiscal years
The government projects over a 12% increase on average in the inflow of remittance
Bangladeshis working abroad are expected to send huge sums of money back home over the next three fiscal years, helping the country’s foreign currency reserve hit $53.99 billion by mid-FY24.
The government projects over a 12% increase, on average, in the inflow of remittance — the key driver of the country’s more than $409 billion economy — over the next three fiscal years, including the current one.
According to a Finance Ministry document obtained by UNB, the remittance inflow growth of 2019-20 and 2020-21 fiscal years were 11.2% and 36%, respectively.
The target for the current 2021-22 fiscal year is 15%, with a projection of 12% and 10% for 2022-23 and 2023-24 fiscal years, respectively.
Foreign exchange reserves were $36.04 billion and $44 billion in FY20 and FY21, respectively, while the target for the current FY22 is $48.37 billion, the document shows.
Projections for FY23 and FY24 are $50.74 billion and $53.99 billion, respectively.
For Bangladesh, foreign remittance is expected to help reduce the current account deficit and augment GDP growth by stimulating domestic demands, the document says.
On the other hand, it says, the micro-level context shows that remittance inflows affect the lifestyles of households and increase the savings levels, which can serve as important sources of capital.
The document mentions that the government has taken several initiatives to increase remittance inflows as well as foreign employment.
These initiatives include providing cash incentives for sending remittances through banking channels, simplification of remittance-related rules and regulations, reduction in administrative costs for sending remittances through financial institutions, and exploration of new market sources for manpower export.
The official remittance inflows began going up in the 2020-21 fiscal year despite global and domestic impacts of the Covid-19 pandemic; total inflow during the FY21 was $24.77 billion — a 36% year-on-year growth.
According to the document, the current account deficit widened in the 2019-20 fiscal year due to weak exports before moving into surplus in the 2020-21 fiscal year, supported by a surge in official remittance inflows.
The current account surplus reached $1.6 billion at the end of February 2021, which had a deficit of $2.1 billion during the same period of the previous year.
During the period, the capital and financial accounts remained positive with $0.61 billion net FDI, and hence overall balance was positive.
However, as per the document, the gross foreign exchange reserve grew to a record growth supported by a continued surge in official remittance and budget support received from various agencies.
The reserve is equivalent to meet the import bill of around 10 months. The nominal BDT-USD exchange rate remained stable in the last fiscal year.
The depreciation of the Taka against the US dollar is likely to impact both the export earnings and remittance inflows positively.
Effective demand management by the Bangladesh Bank and positive projections in the external sector will keep the exchange rate competitive on the external front, the document says.
To achieve an accelerated GDP growth, the document says, the higher level of public and private investment is essential, which eventually requires a higher amount of imports.
In the medium term, Bangladesh is implementing mega infrastructure projects to accomplish higher GDP growth which requires strong foreign reserves. As a result, the current account will certainly accrue some deficit.
However, the official document mentioned, positive capital and financial account extended ODA and FDI is expected to mitigate the adverse effects. The optimal use of project aid in the pipeline, foreign investment in economic zones and inflow of external credit in the private sector may lead to the accumulation of adequate surplus in financial and capital accounts.
The government has received budget support of around $3 billion in FY20 and FY21 from various development partners and expects to receive further $2.4 billion as budget and vaccine support.
As a result, the official document points out, the overall balance will remain favourable with the uptrend of foreign exchange reserves. Considering everything, the medium-term current account deficit is expected to remain negative.
The document also mentioned that the forex reserve is expected to stretch to $53.3 billion in the medium term.