In new LCs for imports 7% growth Bangladesh Bank’s projection

Bangladesh Bank has been controlling imports for more than one and a half years. In the first half of the current financial year (July-December) imports have also decreased by about 20%. Earlier, it was reduced by 15.76% in the fiscal year 2022-23. However, this time, the central bank has projected an increase in imports rather than a reduction. The country’s banking sector regulatory body believes that new letters of credit (LC) for imports will increase by 7.33% in the third quarter (January-March) of the current financial year.

According to Bangladesh Bank data, import LCs worth 1,282 crore or 12.82 billion dollars were opened in the third quarter of the last financial year. LC’s opening of $13.76 billion is likely in the same quarter of the current fiscal year. If that is the case, the LC will open more than 94 million dollars in the current quarter. Through this, after a long time, the projection of growth in the opening of import LCs came from the central bank.

Those concerned say that the demand to open LC from the businessmen is getting stronger. It is also important to increase imports to sustain economic growth. The supply of import-dependent products in the market has been greatly reduced. Due to this, the prices of those products are increasing. Again, exports are suffering due to the decrease in the import of capital equipment and industrial raw materials. All in all, imports are predicted to increase in view of the demand of the economy.

Although the projection of import growth has been announced by the central bank, the foreign exchange reserves have not stabilized yet. The country’s financial account and overall balance of payments (BOP) are still quite negative. According to the latest data from Bangladesh Bank, the fiscal deficit at the end of the first half of the current financial year (December) was 5.39 billion dollars. Despite the acute dollar crisis, the fiscal surplus was $140 million during the same period last fiscal year. At the end of December, the foreign BOP deficit of the country was also 367 million dollars.

Deficiency in these important foreign trade orders continues to deplete the country’s reserves. As of August 2021, the country’s gross reserves were $48 billion. Since then, it has steadily declined. Last February 14, according to international standards (BPM6), the number of gross reserves was shown at 19.93 billion dollars. However, according to the International Monetary Fund (IMF), the net reserves on that day were around 16 billion dollars. However, there is a commitment to raise net reserves to $19.27 billion by March as a condition of receiving a $4.7 billion loan from multinationals.

Officials of the concerned department of Bangladesh Bank said that the import liabilities of January and February settled through the Asian Clearing Union (ACU) should be paid in the first week of March. In this case, more than 1.20 billion dollars can be spent. If this liability is adjusted, the gross and net reserves of the country will create a bigger loss.

Economist Dr. Ahsan H. Mansoor thinks, ‘It is not possible to reduce imports any more. It must grow to meet the needs of the economy. Import demand cannot be sustained in the long run. It does more harm than good to the economy.’

Ahsan H. Mansoor believes that reducing the financial account deficit is the biggest challenge facing the country’s economy at the moment. He said, ‘In order to bring this account back to a positive trend, initiatives to increase portfolio investment and FDI need to be strengthened. At the same time, all possible options should be explored to increase exports and remittances. The government should be strict about money laundering from the country. The country’s reserves will increase only if the financial account returns to a positive trend.’

The dollar crisis in the country became visible from the second half of the fiscal year 2021-22. After that, when the crisis became more severe, the central bank took the initiative to control imports from the beginning of the fiscal year 2022-23. LC opening conditions are tightened. In the fiscal year 2021-22, the country’s imports grew by a record 35.95% and exceeded 82.49 billion dollars. Due to the record import pressure, the country’s foreign exchange balance has caused great instability. A severe dollar crisis is created in the banks. In this context, along with raising the import LC margin to 100%, Bangladesh Bank has strengthened its supervision. In this, the imports decreased by 15.76% in the last financial year. At that time, a total of 69.49 billion dollars’ worth of goods were imported. Due to the restrictions, imports have also decreased by 19.80% in the first half of the current financial year (July-December). During this period, the imports of goods were 30.58 billion dollars.

According to the data of Bangladesh Bank, the import of almost all products in the country has decreased in the first half of the current financial year. LC’s opening of consumer goods decreased by 21.65% during this period. At the same time, the disposal of consumer goods also decreased by 22.52%. Import of intermediate goods of industry decreased by 12.78% and settlement by 10.18%. The situation of import of raw materials for the industrial sector is worse. In the first half of the current financial year, the LC opening of raw material imports decreased by 10.19%. And the LC settlement of this sector has decreased by more than 31%. In the current financial year, the LC of import of capital equipment has increased by 1.30%, but the settlement has decreased by about 27%.

The country’s trade deficit has also narrowed slightly due to the reduction in imports. In the first half of the current fiscal year, the deficit fell to $4.59 billion. The trade deficit was 12.31 billion dollars in the same period last fiscal year. Exports and remittances, the two main sources of foreign exchange earnings of the country, are stagnant. In the first half of the current financial year, the growth in exports was 64%. At the same time, the growth of remittances has been 2.91%.

When asked about this, the spokesperson of Bangladesh Bank said. Majbaul Haque said ‘Import control was necessary for the welfare of the economy. Despite reducing imports, it was not seen that no product was available in the market. The Central Bank has done what it needs to do in the interest of economic growth, job creation, expansion of industry and trade. In view of the demand of the economy, imports will be increased again if necessary.