Home ›› 10 Apr 2023 ›› Front
The Bangladesh Bank has reduced borrowing limit from the Export Development Fund (EDF) by $5 million for the textile, apparel and leather sectors to bring a wider range of customers under the credit facilities, which came into effect immediately.
In a circular, issued on April 09, the Bangladesh Bank, has reset the ceiling for the exporters. The move came at a time when the textile and garment manufacturers urged the Bangladesh Bank to increase the EDF individual limit from $25 million to $30 million and extend its repay period from 180 days to 360 days.
The central bank also reduced the EDF individual limit by $5 million to $25 a couple of months back.
Industry insiders said that the move severely impacted the country’s export earnings while it has already been affected due to the ongoing global economic crisis. The central bank, however, said that they took the decision to ensure the facilities for all exporters.
Commenting on the issues, central bank FEPD Director Md Sarwar Hossain told The Business Post, “We took the decision to provide the funds for all exporters. We think maximum exporters will enjoy the facility.”
The central bank has been decided to reset the ceiling at $10 million from $15 million for input procurements under back-to-back LCS (BBLCs) against relevant export orders.
The limit for imports under BBLCs by individual member mill of BGMEA and BKMEA is set at $20 million and $15 million respectively, including $15 million for individual exporters of leather goods and footwear sectors.
To bring a wider range of customers for EDF loans, in addition, the maximum eligible limit for bulk imports by members of eligible associations is revised as under BTMA to $20 million and BDYEA to $10 million. Other relevant instructions on EDF shall remain unchanged, the circular mentioned.
Sparrow Group Managing Director Shovon Islam said that Bangladesh’s export sector, especially apparel and textile sectors are largely dependent on EDF because its raw materials are import based. Thanks to the EDF support, the sector will be able to retain growth even amid the economic crisis.
“Nearly 200 exporters are annually exporting clothes worth over $100 million and nearly 50 manufacturers are exporting above $200 million. While $30 million was not enough for them how will they manage with $20 million amid the high inflation?”
From last year, the government is facing a severe shortage of foreign reserves. Due to the crisis and IMF prescriptions, the government is bound to reduce EDF, and issued another facility through local currency to the exporters.
As per the initiatives, the central bank reduced the EDF size from $7 billion to $6 billion on January 23 this year, and it also increased the interest rate of such fund to 4.50 per cent from 4 per cent in February this year.
As the EDF has been reduced, they are bound to cut individual limit.
BB officials said as individual limit has been reduced, almost all exporters will be able to receive the funds. Otherwise, many small factories will be deprived of the facility.
The Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem, however, said, “Local industry should be first priority to the government than IMF. Besides, almost all factories enjoyed the facility when the loan limit was $30 million.”
“The figure is not enough to most of big exporters. If there is any issue, the government should issue another circular for them. If we fail to open back-to-back LCs, how the country will earn foreign currency and generate employment?”
Textile millers are one of the big users of EDF, and they have to use it regularly. Due to the ongoing economic crisis, buyers delayed payment and that is why many millers failed to pay back EDF loan within 180 days.
As a result, banks are forcing them who failed to repay on time, though some banks extended the tenure for another 90 days as per the Bangladesh Bank direction.
The Bangladesh Textile Mills Association (BTMA) President Mohammad Ali Khokon said that amid the situation, reduction of individual limit puts them into hot water.
“We urged the authority to increase the EDF refund period to 360 days from 180 days. But they reduced the amount on the contrary.”
“Now we are facing foreign currency crisis to pen the letters of credit (LCs). Amid the situation, $20 million limit is not enough for maximum manufacturers, and that is why they will fail to open back-to-back LCs.”
