The opening letters of credit (LCs) for imports decreased by almost $14 billion, or 23.45% year over year in the first eight months of the current FY23 (July-February) as a result of central bank limitations and a decline in export orders.
According to data from the Bangladesh Bank, $45.52 billion worth of LCs were opened during the period, down from $59.46 billion of the previous year.
The rise of the LC margin to 100%, along with a few other restrictions to lessen the currency issue, reportedly prevented companies from importing capital equipment and luxury products, according to top executives at numerous banks and importers.
Additionally, the central bank instructed banks to disclose imports exceeding $3 million prior to opening LCs.
Prior to approving such products, it began the practice of verifying quoted foreign prices.
As a result, over-invoicing is also believed to have reduced somewhat, said bankers.
The Bangladesh Bank data shows that in terms of monetary value, the highest LCs were opened for industrial raw material imports.
In July-February, $15.56 billion worth of LCs were opened in this segment, which is $6.68 billion or 30.05% less than the same period of the previous fiscal year.
A major part of these materials is imported as raw material for RMG exports.
Businesses say they have reduced opening LCs for the import of these raw materials.
According to central bank data, the opening of import LCs for capital machinery fell by about 54%, in terms of volume, to $2.53 billion.
Along with the significant decrease in LC openings, LC settlements also dropped.
The central bank data showed that payments stood at $52.02 billion in the July-February period, down 1.22% from the same period a year ago.
On April 17 of last year, the cash margin for LCs was initially widened to 25%, which was expanded in phases to 100% for 27 items.
In another measure, the central bank asked to be notified in advance for LCs worth more than $3 million.
The country’s forex reserve stood at around $44 billion in April 2022.
The reserve fell to $31.24 billion on April 5 this year.