Bizbd Report: March 27, 2024: The opening of letters of credit for imports declined slightly in February after a rise in January.
According to Bangladesh Bank data, LC opening declined to $5.22 billion in February 2024 from $6.33 billion in January 2024 and $5.39 billion in December 2023.
January’s LC opening was the highest after the month of September 2022 when it was $6.33 billion.
From July to February in FY 2023-24, LC opening totalled at $44.47 billion, nearly matching the $46.43 billion figure recorded in the same period in FY23.
In the previous financial year, monthly LC opening had dropped sharply from about $9 billion in the first month of FY23 to a $4 billion level by the end of FY 2022-23.
LC opening began to rise again at the very beginning of the current financial year, reaching $5.42 billion in October, $5.23 billion in September, $6.1 billion in August from $4.37 billion in July.
The continued surge in LC opening became a concern as the country is grappling with a severe dollar crisis and a depletion of foreign exchange reserve, bankers said.
Bankers said that the LC opening was rising due mainly to the government’s higher import of products, including capital machinery for power sector projects.
In addition, imports of various commodities increased due to Ramadan, fasting month of the Muslims, they said.
Over the past 32 months, the central bank sold more than $30 billion from its reserves.
This included $9.5 billion allocated to banks in July-October of the current financial year 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22.
Therefore, gross foreign exchange reserves, according to International Monetary Fund guidelines, dropped below $20 billion on March 20.
Due to the continued depletion, the taka, which has experienced depreciation against the US dollar, reached Tk 110, bankers said.
The government and the Bangladesh Bank have implemented several initiatives since April 2022 to address the rapid growth of imports and safeguard the country’s foreign exchange reserves.
The BB imposed high LC margins on imports, particularly those of non-essential and luxury items.
The overall imports saw a sharp decline due to increased oversight by the central bank, aimed at preventing misuse of the facility and curbing money laundering amid the ongoing crisis, bankers said.
The move has led to a reduction in the trade deficit, with the country’s import payments falling to $69.49 billion in FY23, down from $75.4 billion in the corresponding period of the previous year, the BB data showed.