BB begins forex reporting as per IMF manual

Bangladesh Bank yesterday began publishing foreign currency reserves as per the International Monetary Fund's BPM6 manual, in a move that will ensure that the country's dollar stockpile is reported accurately.

As per the balance of payments and investment position manual (BPM6), Bangladesh's gross foreign currency reserves stood at $23.65 billion.

This is enough to meet four months' import bills given the current import trend.

The move to compiling and reporting the country's gross foreign currency reserves as per the BPM6 comes as part of the conditions agreed with the IMF for the $4.7 billion loan programme.

The government committed to adopting the BPM6, which is followed faithfully by central banks around the world, by June 30.

As per BPM6, gross foreign reserves include gold, cash US dollar, bonds and treasury bills, reserve position in the IMF, special drawing rights holdings -- which is a form of international money created by the IMF and defined as a weighted average of various convertible currencies -- and so on.

The central bank's previous gross reserves computation factored in other components and subsequently, the number ends up being markedly higher.

"The fact that inflated reserves will no longer be published is a welcome move," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

Inflated reserves create a host of problems for the government, the central bank and the economy.

"At one point, Bangladesh Bank reported reserves of $48 billion, which caught the attention of a certain section of the private sector. They demanded loans from the reserves thinking the government was sitting on a mountain of dollars."

Besides, based on the inflated reserve figure, the government decided to give the loan to Sri Lanka, which compelled the Maldives to seek a similar loan.

If the actual reserves were published, the government would not have met such demands or faced such a situation, Hussain said.

Inflated reserves can also create scope for political grandstanding.

"So this IMF methodology is good for all," Hussain said.

Ahsan H Mansur, executive director of the Policy Research Institute, echoed the same.

"This is the first step in the right direction. We need to build up our reserves urgently."

As per the IMF's conditions for the loan programme, Bangladesh's net foreign currency reserves need to be $25.32 billion by September 30 and $26.81 billion by the end of the year.

For net international reserves computation, short-term foreign currency drains such as impending import bills and loan repayment are deducted from the gross reserves figure, as per BPM6. This is one of the three mandatory conditions to get the instalments released by the IMF.

Bangladesh failed to meet June's net reserves floor of $24.46 billion.

The IMF staff mission will review the progress made in the first half of the year and take a call on whether to release the second tranche of the loan in October.

"We simply have to stop the dollar sales," said Mansur, also a former economist of the IMF.