A special fund of US$2.1 billion is being established for the import of fuel materials. The Ministry of Energy is seeking an allocation of $1.6 billion from the Central Bank’s foreign exchange reserves, with the condition that this amount be segregated from the reserve. The remaining $500 million will be obtained through a loan from the Islamic Trade Finance Corporation (ITFC), a subsidiary of the Islamic Development Bank (IDB). An agreement to this effect was signed with ITFC at the Ministry of Energy on Wednesday, February 7th.
According to media sources, this initiative has been undertaken to guarantee an uninterrupted supply of fuel during the upcoming summer season. The fund will be utilized to import fuel oil and gas. Many foreign companies are reluctant to supply fuel, oil, and gas to the country due to outstanding dues for previous imports. Consequently, this initiative aims to procure fuel oil and gas directly from the spot market in cash transactions. Additionally, outstanding import dues in this sector are also being settled.
This fund totaling $2.1 billion is being established for the import of fuel oil and LNG. Of this amount, a loan of $600 million is being obtained from the Islamic Trade Finance Corporation (ITFC), a subsidiary of the Islamic Development Bank (IDB). Additionally, an interest rate of 2 percent is to be added to the Secured Overnight Financing Rate (SOFR) of the US currency market. Currently, the SOFR rate stands at 5.31 percent. With the 2 percent addition, the interest rate will be 7.31 percent. The loan is structured for a tenure of six months, with the possibility of extension beyond this period.
The remaining $1.6 billion of the fund will be sourced from the country’s foreign exchange reserves. However, this amount will not be provided all at once; instead, it will be allocated in phases. ITFC has requested that this amount be set aside from the reserves. An additional $50 million will be added to their debt.
According to the reliable sources, if $1.6 billion is allocated from the reserves for fuel imports, the net reserve will decrease. As per the conditions set by the International Monetary Fund (IMF), this amount should then be excluded from the net reserve. However, the central bank has stated that no final decision has been made regarding this matter yet.
In the first week of March, the Asian Clearing Union (ACU) will face a debt payment exceeding $100 million, resulting in a further decline in the reserve, which currently stands at $1.996 billion. Concurrently, the heightened demand for consumer goods during the fasting season is expected to drive up import costs throughout February and March, placing additional pressure on the reserves.
Bangladesh’s foreign exchange reserves dipped below $20 billion at the conclusion of January, as disclosed in the most recent report released by the central bank. According to Bangladesh Bank’s data based on the International Monetary Fund’s (IMF) accounting system, the foreign exchange reserves amounted to $1,994 million on January 31, up from $1,720 million at the end of December. However, the Central Bank of Bangladesh reported total reserves of $2,509 million for January.
Reserves are immediately usable according to the IMF’s Balance of Payments and Investment Position Manual, with gross reserves being usable subject to investment realization. Despite Bangladesh’s robust economic growth, officials at the central bank indicate that the country’s existing reserves, which could cover approximately four months’ worth of import bills, fall short of the ideal six-month benchmark deemed sufficient for a growing economy.
In a bid to bolster Bangladesh’s foreign exchange reserves, the central bank has implemented various measures in recent years, including the relaxation of rules to attract remittances from millions of expatriates living and working abroad. Despite these efforts, the country’s total foreign exchange reserves stood at $4.8 billion as of August 2021, underscoring the ongoing challenges and strategic initiatives undertaken to bolster the nation’s financial resilience.
Given the prevailing circumstances, experts have raised concerns regarding the rationality and efficacy of requesting the energy ministry to allocate $1.6 billion from the reserve. Political and economic analysts assert that the government is prioritizing measures to combat corruption, halt money laundering activities, regulate commodity prices, and crack down on illegal financial transactions. These analysts underscore the need for a cautious and strategic approach to ensure the effective management of financial resources amidst broader efforts to address economic challenges and enhance transparency in governance.
