Delay in opening LCs due to dollar crunch posing threat to textile sector02 February 2023
THE ongoing dollar shortage in the banking sector is posing a threat to local textile millers and spinners as they are in trouble in opening letters of credit (LCs) to import raw materials and cotton to feed the country's readymade garment industry. It comes even after international retailers and brands have placed 25 per cent fewer orders for readymade garment items for the October-April season that have translated into a significant fall in orders for the primary textile sector.
Owing to the crunch of the American greenback, most of the local banks are currently taking 10 to 15 days more compared to the usual time in the case of opening the LCs. This may affect the import of raw materials such as cotton, dyes chemicals, viscose and staple fibre vital for manufacturing garment items sold in the export markets. Also, primary textile millers, which have already seen an investment of more than $20 billion to serve the growing apparel industry, aren't running at their full capacity.
Because of the US dollar shortage driven by escalated import bills against lower export and remittance receipts, the Bangladesh Bank has tightened rules to discourage the imports of non-essential and luxury items in order to save the foreign currency reserves from fast depletion. So, the opening of LCs aimed at importing textile fabrics declined by 25.63 per cent year-on-year to $4.88 billion in the July-December period of the current financial year.
The LC opening for raw cotton has dipped by 41.64 per cent to $1.02 billion. The opening of LCs to buy cotton yarn, synthetic fibre and yarn also fell sharply during the first half of the fiscal year. Foreign banks operating in Bangladesh are taking two or three days to open LCs as they have the dollar. Local banks with a strong foundation are taking five to seven days.
The multiplier effects of the delay in opening LCs on the local primary textile sector will be felt after three to four months if the situation does not improve soon. The development narrative of so-called over-pricy constructions makes a big zero and pushes the economy near to brink.