Staff Reporter :
Amidst a forex crunch, the opening of Letters of Credit (LCs) for imports saw a slight uptick in the just-concluded financial year of 2023–24, totaling $68.19 billion.
This marks a 1.85 percent increase compared to $66.95 billion in FY23. However, the settlement of import LCs in FY24 amounted to $66 billion, down from $72.91 billion in FY23, reflecting a 9.47 percent decrease year-on-year, according to data from the Bangladesh Bank (BB).
Experts attribute this narrow growth trend in LC openings to persistent foreign exchange challenges, stringent credit policies, fluctuating dollar exchange rates, and the depreciation of the domestic currency, the taka.
Over the past 18 months, the central bank has implemented several measures aimed at curbing imports, including maintaining 100 percent import LC margins and discouraging luxury goods imports.
While these measures have helped stabilise the balance of payment trade and the current account, they have also exacerbated the financial account deficit due to escalating public and private debt repayments and trade credit.
Despite efforts to mitigate forex depletion, BB has continued to inject dollars into banks, depleting reserves to precarious levels.
Since August 2021, forex reserves have diminished by $24 billion. In the fiscal year 2023–24 alone, the Bangladesh Bank injected $12.79 billion into banks from its reserves to alleviate a severe US dollar crisis, which impeded import payments. In FY22, the central bank injected $7.62 billion, followed by a record $13.58 billion in FY23.
Moreover, in June 2024, state-owned and private banks in Bangladesh opened import LCs totaling $5.17 billion, down from $6.83 billion in May of the same year.
In June, banks processed import LC payments totaling $5.2 billion, a slight decrease from the previous month. Banks are currently exchanging dollars for LC settlements at rates ranging from Tk118.60 to Tk118.90. Additionally, they are acquiring remittance dollars at a maximum rate of Tk118.50.
Bangladesh’s imports witnessed a significant decline in FY23, evident from the reduced initiation of letters of credit (LCs). This decline is attributed to a scarcity of US dollars and constraints on purchasing non-essential items from foreign markets.
During the fiscal year 2022–23, both private and public entities collectively opened LCs amounting to $69.36 billion. This figure marks a 26 percent decrease compared to the $94.26 billion recorded in the previous fiscal year.