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LC for capital machinery down by 65%, may impact exports in the long run

BTJ Desk Report
LC for capital machinery down by 65%, may impact exports in the long run

New investment and business expansion in the country experience a sluggish pace after tightening import and global recession warnings, brought about by the Russia-Ukraine war.

It decreased the opening letter of credit (LC) for importing capital machinery by 65% in July-August of the current fiscal year 2022-23, experts said.

They also said that this has no short-term effect, but in the long run, it may affect Bangladesh’s export trading, UNB reported.

Moreover, business people said that there are no new investments during the current turbulent time, and sustaining existing businesses has also become challenging due to the gas-electricity crisis.

According to Bangladesh Bank data, from July-August, loans for importing industrial machinery stood at $400 million, compared to $1.15 billion during the same period last year, meaning loan LCs for production purposes decreased by around 65%.

However, during this period the settlement of debt securities opened earlier has increased by about 55%.

In the last fiscal year (FY 22), LC opening for importing capital machinery was $6.46 billion, up by 15% from the previous FY 21 and debt settlement was $5.26 billion, up by 40% from the previous year.

Bank officials say that now Bangladesh Bank has to be informed 24 hours before the opening of LCs for more than $3 million in case of import. In many cases, the central bank blocks the opening of large LCs.

Moreover, due to the shortage of dollars, many banks have stopped or reduced the opening of large LCs.

The impact of this regulation on opening LCs also causes decreasing capital machinery import, they pointed out.

Speaking to the media, Khandkar Golam Moazzem, Research Director of CPD, said that Bangladesh witnessed high growth in the import of capital machinery in the last one-and-a-half years.

The main reason for this is that many entrepreneurs increased their production capacity due to the increased growth in garment exports. At present, there is no high growth in exports. Because of that business expansion is decreasing, he said.

“This will not cause any problems in the near future. But worryingly, future investments are suffering,” he added.


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