Business Report :
Opening of letters of credit (LCs) for imports increased in FY24 compared with that of in FY23 despite the Bangladesh Bank’s restrictive measures and a dollar crisis on the market.
According to central bank data, LC opening increased slightly to $68.69 billion in FY24 from $68.24 billion FY23.
It was $32.92 billion in July- December, 2023 against $34.78 billion in the same period in 2022.
LC opening began to rise again at the start of the current financial year, reaching $5.42 billion in October, $5.23 billion in September, $6.1 billion in August and $4.37 billion in July.
Bankers attributed this increase mainly to the government’s higher imports, including capital machinery for power sector projects.
The Bangladesh Bank provided dollars from its foreign exchange reserves to meet high demand for the government imports.
Over the past three years, the central bank sold from its reserves almost $33.91 billion, including $12.8 billion in FY24, $13.5 billion in FY23 and $7.62 billion in FY22.
Bangladesh’s gross foreign exchange reserves, according to International Monetary Fund guidelines, reached $20.48 billion on July 31 from $21.78 billion on June 30.
The net foreign exchange reserve reached $15.47 billion on July 31.
The depletion in foreign exchange reserves is raising concerns for both the government and the central bank.
One of the immediate consequences is the strain it has put on the Taka, which has experienced depreciation against the US dollar, reaching Tk118 in May, bankers said.
The exchange rate per dollar was Tk84.81 in June 2021, Tk93.45 in June 2022 and Tk106 in June 2023.
The government and the Bangladesh Bank have implemented several initiatives since April 2022 to address the rapid growth of imports and safeguard the country’s foreign exchange reserves.
Bangladesh Bank then imposed high LC margins on imports, particularly non-essential and luxury items.
The 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, bankers said.
The move has led to a reduction in the trade deficit, with the country’s import payments falling to $20 billion in FY23, down from $75.4 billion in the corresponding period of the previous year, the data showed.
