Import margin tightened yet again

The Bangladesh Bank has yet again tightened import margin regulations to avoid any possible financial headwinds in the country, in the face of declining forex reserves and continued devaluation of Taka against the US dollar.

In a circular issued on Tuesday, the central bank reset the letter of credit (LC) margin at 50 per cent from the existing 25 per cent for importing luxurious products to stave off further pressure on the foreign exchange reserve.

The circular increased the import margin to 70 per cent for luxury goods, including on imports of motor cars (sedans and SUVs), home appliances and electronics products.

The BB has taken the decision amid the global economic instability triggered mainly by the Russia-Ukraine war.

The latest BB directive aims to keep monetary management stable and ensure stability in the runaway importation trend in the local economy, central banker officials opined.

However, the latest LC margin of 50 per cent will not be applicable for products such as baby food, emergency food, fuel, life-saving drugs, medical equipment, capital machinery, and raw materials used for local and export-oriented industries and agriculture sector.

Products essentials for implementing public sector projects will also not face these strict regulations, the BB circular elaborated.

In a circular on April 11, the BB had directed banks to impose at least 25 per cent margin on the opening of LCs for non-essential consumer items to retain the soaring imports, as well as to keep the foreign reserve stable.

Bangladesh’s foreign exchange reserve fell to $42 billion on Tuesday, the lowest in 17 months, after making a routine payment of $2.3 billion to the Asian Clearing Union for imports during March-April this year.

A senior official of the Bangladesh Bank confirmed this to The Business Post.

The reserve amount was $41.26 billion in November 2020 and $44.08 billion on April 30 this year, according to the central bank data.

On the other hand, forex reserves reached $48 billion, an all-time high, in August last year.

As the Covid-19 pandemic is subsiding and the economy is recovering, import payments are rising, putting pressure on reserve.

That is why the reserve amount continues to decline.