Home ›› 10 Nov 2022 ›› Front
A lion’s share of apparel makers is now unable to settle yarn import bills due to myriad crippling issues, key among those are readymade garment (RMG) products worth nearly $1.5 billion being stuck in warehouses, deferred shipments, and payment delays from buyers.
This is evident by the latest central bank data, which shows that the clearance of import bills slipped by 35 per cent to $815 million in the first quarter of FY23, which was $1.25 billion in the same period last year.
Industry insiders say their liabilities are increasing day by day as they cannot settle yarn import letters of credit (LCs). This in turn is hampering their ability to open fresh LCs, while banks are issuing forced loans against the apparel makers.
The RMG industry is now in desperate need for policy support from the government, so that they are able to clear LCs with the help of the Export Development Fund (EDF).
Speaking to The Business Post, the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem said, “We are navigating through troubled waters, which is reflected by the Bangladesh Bank’s import bill payment data.
“Hundreds of apparel makers cannot pay import bills because buyers are deferring export payments by up to 180 days. Shipments are being deferred as well. A large volume of ready-to-ship clothes are stuck in warehouses, and we have no clue when those will be shipped.”
Industry leaders say they use the LC method to import raw materials, and usually clear payments through two methods – back-to-back LCs and EDF.
EDF is a type of loan created from forex reserves, and exporters can easily defer its repayments through negotiations with respective authorities. But the payment on back-to-back LCs is more sensitive because it is usually cleared only after buyers make export payments.
Russia’s invasion of Ukraine – which began this February – triggered a severe economic and supply chain crisis across the globe, and most of Bangladesh’s export destination countries are facing record high inflation.
With no respite from the economic crisis in sight, brands’ sales volume dropped and buyers began deferring shipments, delaying export payments, and reducing the number of export orders.
As a result, the country’s earnings growth from apparel exports declined by 0.74 per cent to $13.95 billion in the first four months of FY23, compared to the target. The sector also witnessed 7.52 per cent negative earnings in September year-on-year.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) sources say many buyers are asking for postponing production, relaying that they have a large volume of stock. But the apparel makers had already imported the required raw material for production.
Industry leaders say this is why they have been unable to clear import bills.
Exporters seek more EDF support
As apparel manufacturers continue to fail to clear their LCs, Bangladesh’s import liabilities increase day by day.
On October 26, the central 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.
BGMEA Director Faisal Samad said on the issue, “We have 120 days to export goods after opening back-to-back LCs. But currently the days differ by an average of 35-40 days. This is why we are failing to clear import bills.
“Banks have already started issuing forced loans under the central bank directive, and they are charging Tk 107 – Tk 108 as exchange rate for USD. But when we cash in on export bills from the same LCs, commercial banks pay us Tk 99 per USD. This issue is causing us further losses.”
It is an injustice, and the central bank should take a look into the issue. The commercial banks should practice fair business, Samad added.
BGMEA President Faruque Hassan questioned, “How will we clear the payment while buyers are deferring the shipment date?”
Amid the situation, two apex bodies of the sector – BGMEA and BKMEA – met with central bank governor Abdur Rouf Talukder on October 31, and requested policy support such as the opportunity to clear back-to-back LCs through EDF on a case-by-case basis.
Echoing the same, BGMEA’s Hatem said, “As our business goes on, the government should provide us the opportunity to clear back-to-back LCs from the EDF on a case-by-case basis considering the ongoing crisis. If the EDF crosses its limit, the government should increase it.”
