Economic governance

Publish: 3:52 PM, October 24, 2018 | Update: 3:52:PM, October 24, 2018

The foreign currency reserve of a country is considered as one of few most important indicators of the strength or otherwise of its macro economy. The reserve is a guarantee for smooth conduct of its foreign trade, capacity to carry out emergency imports of essentials such as food grains and other indispensable commodities. Seeing the size of its reserve, foreign creditors are willing to consider additional or new credits for it.
The smaller the size of the reserve, the less the chances of sustaining its external trade and more its chances of going bankrupt. In case of a paltry foreign currency reserve, foreign banks may not issue letters of credit for import of goods by such a country fearing that it may not have funds ultimately to pay for these goods.
Usually, a country must have a foreign currency reserve sufficient to smoothly pay all its import bills for a period of at least three consecutive months to be judged as meeting the minimum criterion for financial solvency. The longer the period of time when its total import payments can be met by its foreign reserve, the better.
This crucial foreign currency reserve was some 5 billion US$ only in 2008 for Bangladesh when the previous BNP led elected government departed from power. But according to latest media reports , the vital foreign currency reserve is now has US$ 33 billion even after paying the three monthly regular payment to the Asian Clearing Union (ACU). This is the highest ever recorded level of the foreign currency reserve of Bangladesh in the last over forty three years after clearing the dues of the ACU and sufficient to take care of over seven months of uninterrupted import operations. The size of the reserve is also much more than the size that the predecessor government had left it in 2008.
One may say that US$ 33 billion is not a very big amount of money. But the point is, compared to the past when our reserve used to be meager and sometimes even slid below the amount required for three months of import operations, today the reserve is not only five times larger but nearly all of it is composed of the country’s own earnings from export activities and remittances from workers.
If we look at the US$ 5 billion or so reserve left by the previous elected BNP government, then even that far smaller reserve reflected foreign loans and aid which were added to it. But in contrast, the very substantially increased reserve nowadays is almost entirely the outcome of proceeds from higher and higher export earnings and workers’ remittance inflow. Foreign aids or loans are but a small part of it. Thus, the government of the day can surely take credit for building up this relatively impressive reserve with its policies and sustaining the same.
Another comparison should make clearer why Bangladesh and its government have reasons to be justifiably happy and proud with the reserve position. For example, our South Asian neighbour, Pakistan, presently has a paltry foreign currency reserve and begging for loans, grants and bailout support from the International Monetary Fund (IMF). This country is teetering on the edge of bankruptcy and could become bankrupt sooner than later without quick infusion of such foreign funds. Comparatively, Bangladesh’s much bigger foreign currency reserve has been built almost entirely by its own efforts and not relying on foreign doles. It underwrites the present economic security of the country convincingly. What is notable is this sound reserve position just did not happen automatically. It is the outcome of very able implementation of policies in different fields by the incumbenbt government and the country’s central bank, Bangladesh Bank (BB).