Bangladesh Bank has further cut the size of the Export Development Fund (EDF) by another $200 million to $5 billion.
This is the third time the central bank has reduced this fund since December of last year. The fund decreased from $7 billion to $6 billion in December, then to $5.2 billion in February, and now to $5 billion.
However, it was understood following last Tuesday’s discussion with the IMF team that Bangladesh Bank will take some additional measures to enhance the reserve.
Following the discussion with the visiting IMF delegation on Tuesday, sources from the central bank told the media, Dhaka Tribune, that the gross reserve amount has increased to more than $31 billion, but the net volume is less than $21 billion.
As a result, IMF officials focus more on what actions the country implements to protect the reserve than the target.
According to Bangladesh Bank officials, the country’s net foreign currency reserve must stand at $24 billion by June of this year to ensure that the Bangladesh Bank has very few options. One of them is to reduce the EDF’s size.
Because import costs have already been reduced and there has been minimal growth in exports, this fund will be reduced slightly.
Not only that, but the central bank takes other actions to put pressure on the EDF fund.
Md Mezbaul Haque, the spokesperson and executive director of Bangladesh Bank said: “Bangladesh Bank has taken some steps to ease pressure on the export fund, including hiking its interest rate, reducing the single borrower limit and not allowing new loans if the export proceeds are not repatriated.”
“Besides, the loan ceiling of the EDF has been reduced to a maximum of $20 million from $25 million, and the interest rate raised to 4.5%,” he added.
It is also said that Bangladesh Bank is attempting to shorten the loan repayment period, which is typically six to nine months.
Net foreign reserves should be determined without including the portion for special funds, as suggested by the Washington-based global lender.
Furthermore, the central bank has planned to publish reserves in both gross and net form beginning in July of this year.