Staff Reporter :
Opening letters of credit (LCs) for imports fell by around $2 billion, or 4.23 percent year-on-year, in the first eight months of the current financial year of 2023–24 due to the central bank’s restrictions, a dollar shortage, and a decrease in export orders.
Data from the Bangladesh Bank shows that LCs worth $44.5 billion were opened during the July–February period of FY24, compared to $46.43 billion a year ago.
Likewise,in the same period of FY22, the LC opening amount was $59.46 billion, referring to the to the total LC opening amount declining continuously over the last three years as the country grapples with a severe dollar crisis and a depletion of the foreign exchange reserve.
On the other hand,LC settlements during this period of July–February in the current fiscal 2023–24 were $44.32 billion, which amounted to $51.5 billion a year ago, showing settlements also downsized by 12.38 percent, as per data from the central bank.
LC opening declined to $5.22 billion in February 2024 from $6.33 billion in January 2024 and $5.39 billion in December 2023.
Among the major items the LCs aim to import are consumer goods, capital machinery, intermediate goods, petroleum, industrial raw materials, and others.
The highest amount of LCs were opened for industrial raw materials for about $15.86 billion, the second highest was for petroleum at $6.6 billion, and the third were consumer goods for about $5.5 billion. Other goods total about $12.7 billion.
Experts said the growth in dollar holdings by banks was not significant enough to resolve the ongoing dollar crisis on the financial market.
“The commercial banks were still experiencing difficulties in settling import payment obligations due to a shortage of dollars,” they added.
As a result, overall imports saw a sharp decline due to increased oversight by the central bank, aimed at preventing misuse of the facility and curbing money laundering amid the ongoing crisis.
Earlier, on April 17, 2022, the cash margin for LCs was initially widened to 25 percent, which was expanded in phases to 100 percent for 27 items.
Besides, the central bank asked the banks to notify it in advance for LCs worth more than $3 million.
Additionally, the central bank also discouraged the import of non-essentials to decrease the greenback deficit and bring stability to the balance of payments.
Meanwhile, over the past 32 months, the central bank has sold more than $30 billion from its reserves.
A year ago, the foreign currency reserve in Bangladesh was $31.14 on March 30; however, on March 20, this year, the reserve dropped below $20 billion.
This included $9.5 billion allocated to banks in July–October of the current financial year 2023–24, $13.5 billion in FY23, and $7.62 billion in FY22.
Therefore, due to the continued depletion, the taka, which has experienced depreciation against the US dollar, reached Tk 110 while the rate was Tk 84.8 a dollar in August 2021.
