Import payments surge as economy rebounds

Import payments witnessed a sharp rise in the first three months of FY2021-22 as Bangladesh’s economy continues to recover from stagnation triggered by the Covid-19 pandemic.

The settlement of letters of credit (LCs) – which shows the actual import payments – rose 47.18 per cent year-on-year to $17.04 billion between July and September, latest data from the Bangladesh Bank shows.

The country spent $11.58 billion for the same purpose during this period in the previous FY, at a time when the economy and businesses were facing various challenges brought on by the deadly virus.

Bangladesh’s rebounding economy is one of the key reasons behind the surge in import payments, experts and bankers told The Business Post, adding that the rising prices of commodities in the global market and increasing shipping costs are pushing up these payments too.

Commenting on the matter, former managing director of Trust bank Faruq Moinuddin said, “The demand for consumer products and intermediate goods has increased, which hiked the import payments.

“The volume of such payments will continue to rise if Bangladesh manages to avoid another wave of Covid-19 infections.”

According to the central bank data, payments for intermediate goods import rose 71.77 per cent to $1.51 billion, while payment for capital machinery import rose 18.81 per cent to $937.52 million between July and September.

Moinuddin said the payment for capital machinery imports did not go up more because the industrial expansion and new investments for industries are yet to pick up pace.

The payment for consumer goods import rose 37.14 per cent, payment for petroleum import rose 59.78 per cent, and payment for industrial raw materials rose 49.06 per cent during the same period, the Bangladesh Bank data shows.

Providing more details, Agrani Bank Managing Director Mohammad Shams-Ul Islam said, “The consistent increase of import payments is a sign of economic recovery. The purchase of essential needs had dropped amid the lockdown period.

“But the economy has now reopened, and it is pushing up the needs of the people.”

He continued, “The shipping costs have however increased rapidly and importers are bearing the additional costs. The importers used to pay Tk 2,000 – Tk 3,000 for a container of goods, but now they have to pay up to Tk 7,000 for the same container.”

Zahid Hussain, former lead economist of World Bank, Bangladesh, said, “Import payments grew because the spending on imports rose more than its volume. This spending has increased due to the rising commodity prices in the global market.

“The global market price hike of imported goods also affects the domestic market, and this makes it difficult to control the inflation rate.”

Forex market feels the heat

“The rising trend of import payments is creating instability in the foreign exchange market,” said Moinuddin, adding that the price of the US dollar is increasing day by day for this reason.

As of Thursday, the interbank exchange rate stood at Tk85.64 per dollar, which was at Tk84.80 on July 5 this year, central bank data says. In the last three months, the local currency devalued Tk0.85 against the greenback.

Mercantile Bank’s Additional Managing Director Matiul Hasan said the declining trend of remittance and the end of deferral support on payments for imports are a few reasons behind the volatile situation in the foreign exchange market.

The inflow of remittance dropped for the fourth consecutive month in September this year, as the illegal cross border transaction “hundi” system saw a rise following strict restrictions.

The inflow fell by 19.74 per cent year-on-year in September to $1.72 billion, latest data from the Bangladesh Bank shows. To tackle the devaluation of the local currency, the central bank began selling the US dollar to banks from August this year.

From August 1 to Oct 25, the Bangladesh Bank sold $1.69 billion to the country’s banking sector. The central bank had earlier purchased $205 million in July and $7.93 billion in the last FY from local banks.

Speaking against the central bank’s intervention in the foreign exchange market, former managing director of Trust bank Faruq Moinuddin said the market should be allowed to move at its own pace.