The opening of letters of credit (LCs) for imports fell by 28.52 per cent in the just-concluded fiscal year as the government and the Bangladesh Bank tagged several conditions on imports aiming to arrest the decline in foreign exchange reserves.
The latest data from the Bangladesh Bank showed that the amount of LCs opened stood at $ 65.92 billion in FY23, down from $ 92.23 billion in FY22.
The LC openings have fallen in the last fiscal year due to austerity measures taken by the central bank and this was a timely initiative, said Emranul Huq, Managing Director and CEO of Dhaka Bank.
In July last year, the Bangladesh Bank imposed a 100 per cent LC margin on imports of luxury and non-essential items.
In the same month, the banking regulator also asked banks to inform it 24 hours before opening of LCs amounting to $3 million or above as part of austerity measures.
Huq told the Business Post that the banking regulator restricted the imports of luxury and non- essential products amid the volatility in the forex market and it was needed.
However, he said that some banks did not finance the project's extension which will impact the country’s development.
The Dhaka Bank head further said that if the BB and the government could not take those initiatives to control imports, then the forex crisis would linger.
Now pressure on the forex market eased, he said, adding that banks are now able to settle around 80-90 per cent import payments through their USD income.
In June of FY23, the amount of LCs opened stood at $ 4.23 billion, down from $ 5.33 billion a month ago, according to the latest Bangladesh Bank (BB) data.
The amount of LCs opened was at $ 6.32 billion in July of FY23 and then it came down to $ 5.46 billion in December of the fiscal year due mainly to austerity measures of the central bank.
Despite the downward trend in opening import LCs, the central bank continues to pump USD into the market.
In the outgoing fiscal year, the BB sold around $ 14 billion to the market from its forex reserves. It sold over $ 7 billion to banks in FY22.
Now banks, especially state-run ones, are getting US dollar support from the 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 continue to fall since August 2021 because of BB’s USD selling spree.
The foreign exchange reserves stood at $ 31.16 billion on July 05 due to the continuous USD selling spree of the central bank.
Forex reserves were at $ 41.88 billion at the same time in 2022.
