The misuse of reserve money by select exporters has alarmed officials at a time when the Bangladesh Bank is striving to safeguard foreign exchange reserves by limiting foreign currency expenditure amid a dollar crisis in the country.
Some exporters have been found to have misappropriated loans from the foreign exchange reserve, converting them into large forced loans after failing to pay the lenders on time. The Export Development Facility (EDF), a refinancing fund created from the foreign exchange reserve for bringing export proceeds, provides foreign currency loans at a low rate to borrowers.
According to Bangladesh Bank studies, many of these loans resulted in no export earnings since buyers failed to repay the money, resulting in a build-up of forced loans against the EDF in banks.
Borrowers will have 270 days to repay the EDF loan after receiving export revenues, according to the EDF rule. If they do not comply within this time frame, the Bangladesh Bank will deduct the foreign currency amount from the lender’s central bank account, and the lender will form a forced loan against the borrower. When a borrower defaults on a loan, it means they did not repatriate export revenues as required by the EDF loan condition.
EDF loans are available to exporters in all sectors, with a maximum loan amount of $20 million available to a single exporter subject to a single borrower exposure restriction, according to EDF policy. The foreign exchange reserves in Bangladesh declined by more than 4 per cent in May owing to rising import payments and the declining trend of remittance.
Despite the fact that Bangladesh’s foreign exchange reserves are under severe strain due to high import expenditure and low earnings, the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) recently demanded that the EDF be increased from $7.5 billion to $10 billion in order to speed up and expand their shipments.
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