Industrial raw materials LC settlements dropped by 31pc
Staff Reporter :
The settlement of letters of credit (LCs) of industrial raw materials exponentially dropped by 31.21 percent in the first half of the current financial year of 2023-24 due to dwindling foreign exchange reserves in the country.
In the July-December period of FY24, the settlement, generally known as actual imports, of industrial raw materials stood at $10.54 billion, which was $15.32 billion in the same period the outgoing fiscal year of FY23, as per the data from Bangladesh Bank.
Likewise, the LC settlements of capital machinery in H1FY24 was $1.43 billion which also declined by 27 percent from $1.96 billion compared to same period of FY23.
However, LC opening for capital machinery imports in the first six months of FY24 rose slightly by 1.3 percent year on year.
From July to December, LCs involving $1.34 billion were opened, up from $1.32 billion in the same period of the previous fiscal year.
Experts said the dollar crisis, credit tightening, and global economic headwinds are leading to a decrease in LC settlements at present.
Reducing imports may reduce pressure on the dollar, but it also has a downside. If imports decrease, it will also have an impact on the production of industrial factories, meaning this could also have an impact on exports, affecting new job creation as well, they added.
The overall settlement of letters of credit (LCs) in H1FY24 stood at $33.683 billion compared to $41.17 billion in the same period a year earlier.
Simultaneously, Bangladesh’s overall import orders also declined by 5.33 percent year-on-year, the central bank data showed.
Emranul Huq, Managing Director and CEO of Dhaka Bank, said that the import settlements are gradually declining due to a decline in LC settlements in the past two years. The amount of settlements is expected to decline further in the coming months.
“As nearly 60 percent of our exports have to be done through back-to-back LCs.
This could disrupt the production and exports of industrial factories,” he added after mentioning the decline in LCs and it’s a ripple effect on production and exports.
Ahsan H Mansur, the Executive Director of Policy Research Institute (PRI) said the overall economy would be affected as the imports of essential goods, such as capital machinery and industrial raw materials, had declined.
“This will considerably impact investment, leading to a decrease in industrial production. The end result is that there will be adverse effects on the economy,” he said.
Meanwhile, during the first half of FY24 overall exports registered an extremely narrow growth of 0.84 percent to $27.54 billion, very little up from $27.31 billion during the mentioned period of the last fiscal.
