The opening of letters of credit (LCs) for imports fell by 42.98 per cent in July of FY2023-24, compared to the same month of FY2022-23, after the government and Bangladesh Bank (BB) imposed several conditions on imports aiming to stop the decline in foreign exchange reserves.
According to the latest BB data, the amount of LCs opened in July stood at $4.42 billion, down from $6.32 billion in July of FY23.
At the same time, LC settlement decreased by 25 per cent to $5.77 billion in July. In the same month of FY23, the amount was $7.70 billion.
Experts think that by showing this data, the government — which tightened LC opening and settlement on imports in the first month of FY24 — is trying to stabilise the US dollar market.
In the same month, BB 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, at the end of the fiscal year the government will likely have stabilised LC openings, they opined.
LC openings have fallen in the past year due to BB’s austerity measures and this was a timely initiative, said Ahsan H Mansur, economist and executive director of Policy Research Institute.
He told The Business Post that the central bank restricted the imports of luxury and non-essential products amid the volatility in the forex market and it was needed.
The economist said that if BB 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 has eased, he said, adding that banks are now able to settle around 80-90 per cent import payments through their USD income.
In the previous month, June of FY23, the amount of LCs opened stood at $4.23 billion. Compared to that figure, LCs opening increased by 4.49 per cent in July.
Meanwhile, 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. The foreign exchange reserves were at $23.3 billion as per the IMF BPM6 method as of July 26.
