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Sadatur Rahman
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Name : Md.

Saimur Rahman

ID: B190401068

Topic: Foreign and Domestic Reserves of Bangladesh

Introduction
The reserves that a country holds in foreign exchange are incredibly important for ensuring the overall
stability and health of its economy, which is something that cannot be overstated. In recent times,
Bangladesh's foreign exchange reserves have notably and remarkably increased, reflecting a positive
trend for its economic development. Also, the home reserves that feature valuable assets such as gold
and other liquid forms of wealth are key in upholding the internal financial balance and overall strength
of the nation’s economy. It is crucial to implement robust strategies for overseeing the foreign reserves
and domestic assets to maintain the economy's security and resilience.

Current Condition
As of October 2023, Bangladesh's foreign exchange reserves are reported to be approximately $21 billion
USD, which is a figure that reflects the current economic situation in the country. These reserves are
essential as they provide a financial safeguard that encompasses several months' worth of imports, thus
allowing the nation to uphold its international payment obligations without enduring pressing financial
challenges. Alternatively, the reserves maintained in the banking system are essential because they
provide adequate liquidity and support the proficient management of domestic credit, a key factor for
economic stability. However, it is important to note that the significant decline from the previous peak of
$48 billion USD in 2021 serves as a stark reminder of the economic challenges faced, including the
mounting pressures from high import bills, unpredictable remittance inflows, and various external
economic factors.

Challenges
• Exchange Rate Volatility: The frequent and unpredictable fluctuations in the exchange rate of the Taka
have a significant and direct impact on the overall levels of reserves held by the country, creating
uncertainty in financial planning.

• High Import Dependency: The rising global prices for essential commodities, especially in the sectors
of energy and food, are draining the foreign reserves at an alarming rate, which poses a risk to the
economic stability of the nation.

• Decreasing Remittances: The inconsistency and unpredictability of remittance inflows have become a
pressing issue, adding significant stress to the already strained foreign reserves of Bangladesh

• Underutilization of Reserves: The unfortunate lack of suitable and viable domestic investment
opportunities has led to a situation where a portion of the reserves remains dormant, failing to
contribute to economic growth.

• Debt Repayment: The ongoing payments that are required for servicing foreign debts further
exacerbate the situation by diminishing the overall levels of reserves, creating additional challenges for
economic stability.
Initiatives Taken by the Government
• Financial Reforms: In a bid to enhance economic stability and ensure the resilience of national
reserves, the government has implemented a series of comprehensive financial reforms that include the
introduction of more stringent import regulations aimed at controlling and stabilizing the flow of goods
into the country.

• Exchange Rate Adaptation: To skillfully confront and manage the unforeseen variations in the currency
market, the authorities have introduced a collection of measures that endorse a more adaptable
exchange rate, facilitating changes that mirror the truths of international economic circumstances and
lessen fluctuations.

• Infrastructure Investments: The government has strategically allocated domestic reserves toward
pivotal infrastructure projects that are expected to significantly stimulate economic growth by improving
connectivity, enhancing productivity, and ultimately providing a solid foundation for future development.

• Sterilization Measures: To maintain economic stability amidst excess liquidity in the financial system,
the government has employed various sterilization measures, utilizing financial instruments such as
reverse repos to absorb surplus funds and ensure that the monetary environment remains balanced and
orderly.

Promoting Export Development: To improve the economic landscape of the nation and its reputation in
the worldwide market, numerous plans have been introduced aimed at raising export levels, especially
highlighting important fields like textile manufacturing and clothing, which are critical to the country's
economic well-being.

Recommendations
• Expanding Reserve Stock: It is highly recommended that the government continues to actively expand
the reserve stock, taking into account the current vulnerabilities in the current account, thereby ensuring
a robust safety net against potential external shocks and economic uncertainties.

Enhancing Investment Range: To support resilience against market changes and achieve sustainable
advancement, it is advisable to expand both international and domestic assets by investing in promising
sectors such as renewable resources and critical infrastructure initiatives that can provide lasting
benefits.

Encouraging Remittances: To bolster economic development, the government ought to create and
enforce strategies that effectively promote the influx of remittances from Bangladeshi nationals residing
overseas, acknowledging the substantial effect these funds can exert on local economies.

• Boosting Exports: In order to ensure sustained foreign exchange earnings and reduce dependency on a
single sector, it is essential to promote and encourage export diversification initiatives that extend
beyond textiles, opening up new avenues for growth and development in various industries.

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