In November 2023, Letters of Credit (LCs) openings surged by 20.86% YoY, reaching $5.08 billion compared to $4.02 billion the previous year (2022). A senior central bank official cited two main factors for this increase. Firstly, LCs for government initiatives, particularly for fertilizers and fuel, rose.
The demand for fertilizers is expected to spike during the January-February 2024 Boro paddy cultivation period. Additionally, there is a notable rise in LCs for expensive capital machinery imports under the Export Credit Agency (ECA), with amounts ranging from $300 million to $400 million per LC.
Commercial banks, grappling with a USD crisis, are increasingly relying on the central bank’s support to facilitate LC openings, selling $4.53 billion to commercial banks in July-October FY24. However, challenges persist for private LCs amid the USD shortage. The Policy Research Institute of Bangladesh emphasizes the importance of USD inflow through the banking channel for economic stability.
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