Bangladesh needs more flexible exchange rate regime for building reserves: IMF

Bangladesh should adopt a more flexible exchange rate regime for building up its foreign exchange reserves, the International Monetary Fund (IMF) has said.

"... I think it's important for Bangladesh to transition to a more flexible exchange rate regime. That will be important to build external resilience and build buffers and build reserves," IMF's Communication Officer Huong Lan Vu said at a press briefing on the Regional Economic Outlook for Asia and Pacific on Thursday.

"So, I think that is the area where engagement and dialogue continue in terms of allowing the exchange rate to be more flexible so that reserves can be built up, so that, in a sense, will be a key priority for the country going forward," she added.

Huong Lan Vu made the comment in response to a question from a journalist regarding the decreasing foreign exchange reserves. 

The foreign exchange reserves fell below $20 billion recently. 

At the end of Thursday, foreign exchange reserves stood at $19.89 billion, the Bangladesh Bank said in a report. Reserves at the end of last week were $20.10 billion.

The IMF has emphasised meeting the target of the foreign exchange reserve as a condition to get the third instalment of $4.7 billion in loan support for Bangladesh.

As per the conditions of the loan from the IMF, it was set as a target to hold $19.26 billion in reserves in March 2024. But actual reserves are less than $16 billion.

The first tranche of the loan package was cleared on 30 January. Bangladesh received $447.8 million on 2 February. The entire amount will be released in seven instalments till 2026.

The fourth instalment of the loan will be available in December 2024, requiring net reserves to be raised to $20.20 billion by next June.