Import letters of credit (LCs) in Bangladesh have seen a significant increase in May compared to the previous month, according to data from Bangladesh Bank.
The opening of new LCs rose by approximately 25%, reaching a value of $5.33 billion, while LC settlements increased by 10% to $4.69 billion.
However, concerns have been raised about the flow of dollars in the system as demand for imports is expected to rise further in June due to the upcoming Eid-ul-Azha festival.
In April, LC opening hit a 32-month low due to restrictions imposed by the central bank and the ongoing dollar crisis. LC settlement reached a 21-month low during that period. The decline in imports was partly attributed to banks reducing LC opening following a warning from the central bank regarding the purchase of remittance dollars at high prices.
The recent import surge can be attributed to multiple factors, including the anticipation of increased demand during the Eid festival and the central bank’s easing of conditional penalties on banks that bought dollars at excessive prices.
However, importers have voiced concerns that banks are not opening LCs in line with demand, leading to production delays due to inadequate imports of raw materials.
Data from the central bank shows a decline in LC openings for various categories, including industrial machinery, industrial raw materials, intermediate goods, and consumer goods.
This decline has directly impacted the manufacturing sector, leading to repercussions in other sectors such as transportation, marketing, government revenue, and investments.
The country’s reserves currently stand at $29.91 billion, a significant decrease from the corresponding period of the previous fiscal year when it was $42.20 billion.
The situation is raising concerns among banks. Moody’s recent negative outlook on several banks, including the interviewee’s bank, is expected to increase import costs and make it challenging to pay import bills.
The interviewee suggests addressing the issue by restricting the import of luxury goods and cracking down on the illegal cross-border money-transfer system known as hundi.
