LC opening slumps by 14 pc
Staff Reporter :
Bangladesh’s imports slumped by 14 percent year-on -year in the first five months of the current financial year of 2023-24.
Likewise, settlements of letters of credit (LCs) also declined by 27 percent during this period.
According to the data from Bangladesh Bank (BB), private and public entities opened LCs of more than $26 billion in first five months (July-November) of this fiscal year.
Earlier, Banks reduced LC openings by around 12 percent and settlements by 24 percent during the July-October period of the current fiscal year compared to the same period of the previous fiscal, central bank data showed.
When asked why the opening of LCs is decreasing, several bankers said that in the next few months, the banks will have to pay the liabilities of the LCs opened earlier.
So they calculate payment maturity before opening LCs. Due to these reasons, the opening of LCs has decreased slightly.
In the face of rising pressure on the country’s foreign exchange reserves and volatility in the exchange market as imports were higher than exports and remittances, the central bank started tightening measures to discourage imports.
Banks reduced the LC opening a lot, which is now around $4.5-5 billion per month. But in normal times this amount was much higher.
The LC opening was $5.39 billion in October, $5.1 billion in September, $6.34 billion in August and in $4.99 billion in July FY24.
It was $5.09 billion in November this year, according to Bangladesh Bank data.
According to the central bank’s report, LCs for consumer goods was opened at $195 million during the July-November period, which is 39 percent less than the same period of the previous fiscal year.
In the same period, consumer goods LCS settlement fell by more than 24 percent.
In the last five months of July-November, letters of credit (LCs) were opened for the import of capital goods worth 730 million dollars, which is about 21 percent less than the same period of the previous year.
LCs for industrial intermediate goods amounted to $1.52 billion from July-November which was dipped by 21 percent from the same period last year.
At the same time, LCs settlement of intermediate goods also fell by nearly 12 percent.
Bangladesh provided the dollars from its foreign exchange reserves to meet the high demand for the government imports.
In the past 28 months, the central bank sold over $26 billion from its reserves.
Elaborating on some negative impacts of the decline of LCs opening on the economy, experts said that the fall of imports has started to affect country’s investment and employment.
New job creation is being slowing down as LC openings decline.
Many factories are not able to produce according to their capacity as they cannot import enough raw materials. If this continues, at some point many companies may start laying off their workers, they added.
