Staff Reporter :
Amid a forex crunch, the opening of letters of credit (LCs) for imports saw a marginal increase over the 11 months of the current financial year 2023-24. The total value of LC openings was $63.02 billion, compared to $62.08 billion during the same period in the previous fiscal year.
However, LC settlements for imports decreased by 12 percent, totaling $60.79 billion compared to the corresponding period last year, according to data from the Bangladesh Bank.
Experts attribute the narrow growth trend in LC openings to the ongoing foreign exchange crisis, credit tightening, fluctuating dollar exchange rates, and the depreciation of the domestic currency, the taka. Over the past one and a half years, the central bank has implemented several measures to curb imports, including maintaining import LC margins at 100 percent and
discouraging the import of luxury goods. In May, Bangladesh witnessed its highest LC openings in 23 months, amounting to $6.83 billion. This surge was influenced by a more lenient import policy on some items towards the fiscal year’s end. In comparison, LCs worth $5.68 billion were opened in April this year.
Industry insiders noted that the announcement of new taxes on capital machinery imports in FY 2024-25 contributed to the spike in LC openings last month, as capital machinery imports had been tax-free until then. Additionally, there was a favorable inflow of dollars in May.
They predict that the opening of LCs for imports will increase further in the current month.
In contrast, banks settled import LC payments totaling $5.48 billion last month, which was 5 percent lower compared to April, according to central bank data.
In the first 10 months of the current fiscal year, import LC settlements totaled $55.31 billion, down from $62.40 billion in the same period last fiscal year – an approximate 11 percent decrease in LC settlements year-on-year.
Meanwhile, Bangladesh’s imports fell sharply in FY23, as reflected by the decline in the opening of LCs. This drop was driven by a shortage of US dollars and restrictions on the purchase of non-essential items from external sources. Private and public entities opened LCs worth $69.36 billion in 2022-23, down 26 percent year-on-year from $94.26 billion the previous year.