Opening letters of credit (LCs) for imports fell by around $14 billion, or 23.45% year-on-year in the first eight months of the current FY23 due to the central bank’s restrictions as well as a decrease in export orders.
Bangladesh Bank data showed that LCs worth $45.52 billion were opened during the period, compared to $59.46 billion a year ago.
According to top officials at several banks and importers, the raising of LC margin to 100% — among a few other restrictions to minimize the dollar crisis — discouraged businesses from importing capital machinery and luxury goods.
The central bank also directed banks to report imports worth more than $3 million before opening LCs.
It adopted the policy of verifying reported international prices of such products before approval.
As a result, over-invoicing is also believed to have reduced somewhat, said bankers.
The Bangladesh Bank data shows that in terms of monetary value, the highest LCs were opened for industrial raw material imports.
In July-February, $15.56 billion worth of LCs were opened in this segment, which is $6.68 billion or 30.05% less than the same period of the previous fiscal year.
A major part of these materials is imported as raw material for RMG exports.
Businesses say they have reduced opening LCs for the import of these raw materials.
According to central bank data, the opening of import LCs for capital machinery fell by about 54%, in terms of volume, to $2.53 billion.
Along with the significant decrease in LC openings, LC settlements also dropped.
The central bank data showed that payments stood at $52.02 billion in the July-February period, down 1.22% from the same period a year ago.
On April 17 of last year, the cash margin for LCs was initially widened to 25%, which was expanded in phases to 100% for 27 items.
In another measure, the central bank asked to be notified in advance for LCs worth more than $3 million.
The country’s forex reserve stood at around $44 billion in April 2022.
The reserve fell to $31.24 billion on April 5 this year.
