Import Contraction Hits Economy as LC Openings Fall by 27%

The opening of letters of credit (LC) for imports in Bangladesh has experienced a significant decline of 26.80% during the July-April period of the financial year 2022-23, according to a report by the Bangladesh Bank. The central bank's strengthened monitoring measures and increased scrutiny on LC opening have led to a drop in LCs, amounting to $20.64 billion compared to the same period in FY22.

The opening of letter of credits (LCs) has dropped by 27% during the ten months to April, due to the government's efforts to ease pressure on foreign exchange reserves. The fall in import orders is having a significant impact on local manufacturers as the supply of raw materials, capital machinery, and intermediate goods also reduced. This situation could have a domino effect on the country's economy, causing price rises, reduced consumption, and declining production. Only petroleum imports marked a rise of 2.38%, while other types of imports dropped.

The Bangladeshi government is developing a new national tariff policy with the aim of expanding the country's trade and increasing the competitive capacity of domestic industries. The policy will maintain a balance in import and export, while creating employment opportunities. Instead of value addition conditions, the draft policy includes a provision to provide bond facility up to 70% of the value of export products for importing raw materials.

The Bangladesh Sugar Refiners Association has requested the Ministry of Commerce to decide whether or not to import sugar at an increased price due to the high price of unrefined sugar in the international market. The price of raw sugar per metric ton has risen to USD 675, up from USD 520 a month ago, according to a letter signed by the Secretary General of the Association and the Senior Secretary of the Ministry of Commerce.  The members of the Association are apprehensive about opening letters of credit for importing sugar at this high price as it would raise the import price of sugar to Tk 131 per kg, including government duty, VAT, and other taxes of Tk 35 per kg.

Bangladesh's import of capital machinery has decreased due to banks being cautious in financing purchases and entrepreneurs showing reluctance to expand amid slowing domestic and export sales, along with the dollar crisis. Data from the Bangladesh Bank revealed that opening of letters of credit (LCs) to import capital machinery dropped by 56% YoY to $2.29bn in the first three quarters of the financial year 2022-23.

New import restrictions imposed by Bangladesh Bank have resulted in a sharp decline in import payments and LC (letter of credit) openings, according to officials from several banks. There has been a 39% drop in import payments and a 45% decrease in LC opening in March 2023 compared to the same period in 2022.