In October 2023, Bangladesh’s opening of letters of credit (LC) for imports surged to $5.42 billion, despite the country’s ongoing banking sector dollar crisis. This marked a significant increase compared to the previous months, as monthly LC openings had dropped to around $4 billion at the end of the previous financial year but started rising again at the beginning of the current financial year. Bankers attribute this increase in LC openings to higher government imports, particularly for power sector projects.
To meet the rising demand for imports, Bangladesh has been utilizing its foreign exchange reserves, leading to concerns about potential repercussions and the depreciation of the Bangladeshi currency, the taka. The central bank has implemented measures to address the situation, including imposing high LC margins and increasing oversight to reduce misuse and money laundering in response to the crisis. Despite these efforts, banks are still facing challenges in opening LCs and settling payment obligations.
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