RMG accessories makers against LC settlements in taka

Garment accessories manufacturers and exporters have opposed the Bangladesh Bank’s plan to allow back-to-back letter of credit (LC) settlements in local currency amid the ongoing dollar crunch, which has caused forex reserves to dip.

Bangladesh Garments Accessories & Packaging Manufacturers & Exporters Association (BGAPMEA) in a recent letter to the central bank governor urged him to ensure uninterrupted back-to-back LC settlements in foreign currency.

Earlier on November 6, Bangladesh Knitwear Manufacturers and Exporters Association in a letter to the Bangladesh Bank governor proposed LC openings and settlements be allowed in taka as 80 per cent of knitters source raw materials locally.

LC settlements in local currency would affect exports, especially that of the clothing sector, the BGAPMEA letter said. 

It said the plan to allow the opening of LCs in local currency contradicts the national export policy, the Import Policy Order, as well as the Value Added Tax and Supplementary Duty Act 2012.

BGAPMEA Director Al Shahriar Ahmed said such a move would affect both the accessories and the readymade garment (RMG) sectors.

He said if this comes into effect, it will increase lead time further because accessories makers help apparel exporters reduce lead time, which begins on the date of receiving an order and ends when the product is shipped to the buyer.

The BGAPMEA letter said if LC payments are settled in local currency, the prices of accessories and packaging materials will increase in the local market and RMG exporters will face difficulties in capital preservation.

It also said the RMG sector would become dependent on imports, which would put huge pressure on forex reserves. Besides, eight lakh people would become unemployed in the accessories and packaging sector while the current investment of around Tk 40,000 crore will be at risk.

The letter further said it seems some vested groups have proposed back-to-back LC settlements in taka because of the ill motive of laundering money by importing packaging and accessories goods through overinvoicing.

Besides, it said making back-to-back LC payments in foreign currency was introduced based on relevant rules and views of stakeholders while the system has been in effect for 30 years.

The indirect contribution of accessories and packaging manufacturers as well as exporters to RMG exports is 18 per cent at present, the BGAPMEA said. 

Bangladesh has taken austerity measures to curb imports amid the ongoing global headwinds and the local economic strain triggered by the coronavirus pandemic as well as the Russia-Ukraine war.

The country’s foreign exchange reserves dipped to $34.24 billion on Monday after making the latest Asian Clearing Union import payments.