Dollar crisis: LC for consumer goods shrinks 44pc

block

Staff Reporter :
The opening of letter of credit (LC) for importing consumer goods shrinks by 44 per cent year-on-year in the first five months of the current financial year of 2023-24 due to Dollar dearth.

At the same period of time (July-November), Bangladesh’s imports slumped by 14 per cent year-on -year in the first five months of the current financial year of 2023-24. Likewise, settlements of letters of credit (LCs) also declined by 27 per cent during this period.

Earlier, in FY23 Private and public entities opened LCs of $69.36 billion in 2022-23, down 26 per cent year-on-year from $94.26 billion a year ago, according to data from the Bangladesh Bank.

When asked why the opening of LCs is decreasing, bank officials said that, in the next few months, the banks will have to pay the liabilities of the LCs opened earlier. So they calculate payment maturity before opening LCs. Due to these reasons the opening of LCs has decreased slightly.

In the face of rising pressure on the country’s foreign exchange reserves and volatility in the exchange market as imports were higher than exports and remittances, the central bank started tightening measures to discourage imports.

Banks reduced the LC opening a lot, which is now around $4.5-5 billion per month. But in normal times this amount was much higher.

The LC opening was $5.39 billion in October, $5.1 billion in September, $6.34 billion in August and in $4.99 billion in July FY24.

block

It was $5.09 billion in November this year, showed the central Bank’s data.

According to the central bank’s report, LCs for consumer goods was opened at $195 million during the July-November period, which is 39 per cent less than the same period of the previous fiscal year.

In the same period, consumer goods LCS settlement fell by more than 24 per cent.

In the last five months of July-November, letters of credit (LCs) were opened for the import of capital goods worth 730 million dollars, which is about 21 per cent less than the same period of the previous year.

LCs for industrial intermediate goods amounted to $1.52 billion from July-November which was dipped by 21 per cent from the same period last year. At the same time, LCs settlement of intermediate goods also fell by nearly 12 per cent.

Bangladesh provided the dollars from its foreign exchange reserves to meet the high demand for the government imports.
In the past 28 months, the central bank sold over $26 billion from its reserves.

Bangladesh’s gross foreign exchange reserve, according to International Monetary Fund guidelines, reached to $21.44 billion on December 27.

block