The opening of letters of credit (LCs) for imports fell by 22.64 per cent to $4.68 billion in September of the current fiscal year compared to the same month of the previous fiscal year.
LC opening dropped significantly after the government and Bangladesh Bank (BB) have imposed several conditions on imports aiming to stop the decline in foreign exchange reserves.
According to the latest data from Bangladesh Bank, LCs worth $4.68 billion were opened in September, down from $5.59 billion in August of FY24. The data also showed that LCs involving $6.05 billion were opened In September last year.
At the same time, LC settlements drastically decreased and stood at $4.30 billion in September, which hit 35-month low.
A senior BB official seeking anonymity told The Business Post that many banks have settled deferred LCs which were opened six months ago. “The pressure on settlement of sight LCs is low.”
Citing the latest data, experts think that the government—which tightened LC opening and settlements on imports from the beginning of FY23—is trying to stabilise the US dollar market.
On the other hand, Bangladesh’s private sector credit growth has dropped to a 22-month low of 9.75 per cent in August, according to the central bank data.
The data indicates that importers opened less LCs compared to the previous time. Insiders think that private sector credit growth has continued to drop due to the global economic headwinds and the upcoming election in the country.
The central bank also asked banks to inform it 24 hours before the opening of LCs amounting to $3 million or above as part of austerity measures.
Due to the banking regulator’s various measures, the government could have stabilised LC openings at the end of the current fiscal year, they opined.
LC openings fell last year due to BB’s austerity measures and this was a timely initiative, said Ahsan H Mansur, executive director of Policy Research Institute.
He told The Business Post that the central bank restricted imports of luxury and non-essential products amid the volatility in the forex market.
The economist also said that if the central bank and the government had not taken those initiatives to control imports, then the forex crisis would have lingered.
Now the pressure on the forex market is still going on, he said.
In June of FY23, LCs worth $4.23 billion were opened. Compared to the figure, LC opening increased by 4.49 per cent in July.
Despite the downward trend in opening import LCs, the central bank is continuing to pump USD into the market.
In FY23, BB sold around $14 billion to the market from its forex reserves. In FY2021-22, it sold over $7 billion to banks.
Now banks, especially the state-run ones, are getting USD support from BB for settling import payments of Bangladesh Petroleum Corporation, Bangladesh Agricultural Development Corporation and Bangladesh Chemical Industries Corporation, among other government agencies.
The country’s forex reserves continued to fall since August 2021 because of the central bank’s USD selling spree. Foreign exchange reserves were $21.05 billion as per the IMF BPM6 method as of October 5.
