Home ›› 01 Nov 2022 ›› Front
Apparel exporters have sought flexibility from the central bank in clearing raw material import payments, because the buyers are delaying bills, deferring shipments, and halting production of existing work orders.
A delegation of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) on Monday met with central bank Governor Abdur Rauf, and sought policy support for avoiding forced loans created through non-payment of letters of credit (LCs).
Last Wednesday, the Bangladesh Bank had warned commercial banks of revoking their authorised dealer (AD) licenses for forex trade if they fail to pay their import bills in time. The apparel makers’ inability to clear LCs within deadline is making things difficult for the AD banks.
Under the circumstances, many commercial banks are putting pressure on apparel makers so that they clear LCs as soon as possible, otherwise they will have to deal with forced loans, said industry insiders.
According to the BGMEA, the central bank decision came at a time when buyers were already deferring shipments and delaying export payments. Though such issues prevent exporters from clearing back-to-back LCs on time, they usually negotiate with their raw material suppliers.
But the recent central bank move no longer allows for such negotiations, which is creating panic among many apparel makers.
‘We are in a critical situation’
BGMEA President Faruque Hassan, who had led the delegation, said, “We are navigating through a critical situation, but the central bank has withdrawn its support. How will we clear LCs if we do not receive export payments on time?
“Our banks are already putting pressure on us to clear import bills, but where is the money? Our buyers have not paid export bills of millions of USD. Export items worth nearly $1 billion are still in our warehouses.”
He continued, “We have requested the central bank to extend export bill repatriation considering the ongoing situation of the country’s export sector. We also urged to postpone the issuance of forced loans on a case-by-case basis.
“We discussed several issues with the Bangladesh Bank governor, and everything we requested is logical. The central banks in other countries are providing good policy support to their export industries amid the ongoing economic crisis, but this is not the case for our Bangladesh Bank.”
The BGMEA president pointed out that the central bank governor has agreed to consider their recommendations.
RMG exports dip year-on-year
According to Export Promotion Bureau (EPB) data, Bangladesh posted $42.61 billion in export earnings in FY22, but the trend gradually declined as the western nations began facing record high inflation – triggered by Russia’s invasion of Ukraine in February.
Since July of this year, buyers have postponed production and deferred shipment dates even though goods were ready for exports.
The country posted a 7.25 per cent dip in export earnings in September 2022 compared year-on-year. The BGMEA president warned that the decline could cross 20 per cent this October. This downward trend is likely to continue till November 2022, or even further, Faruque said.
Commenting on the issue, Savartex Group’s Managing Director Faisal Samad said, “Around 1,000 factories are suffering from shipment deferments and rescheduling of shipping dates.
“If each factory has an average of $1.5 million worth of clothes in stock, the total would reach $1.5 billion. However, I think the actual figure is even higher than the estimate.”
Shin Shin Apparels’ Managing Director Mohammad Sohel Sadat said, “I have goods worth about $1.5 million and fabrics of $1 million stuck in warehouses. How am I going to clear the LCs?”
Nipa Group Managing Director Md Khosru Chowdhury said, “Before the circular, we negotiated with our suppliers to delay LC payments. But the circular is now standing in the way of that too.”
Industry insiders believe that the government may adopt a hardline on clearance of LC payments for luxury items, but they should exempt the export oriented industries, considering the sector’s significant contributions to the country’s economy.
In Wednesday’s circular, the central bank accused some unnamed officials of different banks for their alleged involvement in foreign currency transaction irregularities, and warned of tougher action against them.
The Bangladesh Bank also said a number of banks that are not properly complying with the obligation of timely payment of import liabilities are disrupting in foreign trade.
