Central bank slashes EDF loan ceiling by $5m

The Bangladesh Bank has reduced the ceiling of loans under the Export Development Fund (EDF) by $5 million to $10 million for all types of borrowers with an aim to reduce pressure on reserves.

A circular issued by the central bank on Sunday stated that the loan ceiling has been reset downward for input procurements under back-to-back LCs against relevant export orders to bring in a wider range of customers for EDF loans.

Also, the limit for imports under back-to-back LCs by individual members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and the Bangladesh Textile Mills Association (BTMA) is set at $20 million, which was $25 million in the past.

Members of the Bangladesh Dyed Yarn Exporters Association can take loans up to $10 million instead of the previous ceiling of $15 million.

Just a few days ago, the central bank reduced the EDF volume to $5.5 billion from $7 billion.

A senior official of the central bank told TBS that due to the reduction of loans by $5 million for all types of borrowers, the remaining money can now be shown in reserves.

"As a result, our net reserves can be shown higher. Besides, the flow of dollars in the market is good now. Hence, reducing the loan will not be much of a problem."

However, Shahidullah Azim, the vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), expressed concerns regarding the loan reduction.

Azim explained that they primarily rely on loans from the EDF to import raw materials and pay for them immediately. This reduces their cost of raw materials.

With the loan reduction, their expenses will increase, and their order volume is already decreasing, which could impact their export earnings, he added.

Azim further explained that the IMF has certain reserve requirements that need to be fulfilled, and in the interest of the country, they have accepted the central bank's decision.