LC for capital machinery down by 65%, to have long-run effects on exports: Experts

New investment and business expansion saw a slow pace after tightening import and global recession warnings, brought about by the Russia-Ukraine war.

As a result,opening letter of credit (LC) for importing capital machinery decreased by 65 percent in July-August of the current fiscal year 2022-23. This has no short-term effect, but in the long run, it affects Bangladesh's export trading, experts have said.

Business owners are saying no one is being brave enough to make new investments during the current turbulent times. Due to the gas-electricity crisis, sustaining existing businesses has also become challenging.

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

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

In the last fiscal year (FY 22), LC opening for importing capital machinery was USD 6.46 billion, which is 15 percent higher than the previous FY 21. And debt settlement was USD 5.26 billion, which is 40 percent higher than the previous year.

Bank officials say that now Bangladesh Bank has to be informed 24 hours before the opening of LCs for more than USD 3 million in case of import.

In many cases, the central bank blocks the opening of large LCs. Again, 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.

Khandkar Golam Moazzem, Research Director of CPD, told UNB 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. If this trend continues, industrial production, export, and employment growth may stagnate in the long run," Moazzem said.

President of the Bangladesh Textile Mill Association (BTMA), an association of textiles owners, Mohammad Ali said that some of the new mills had opened capital equipment import credit before the current crisis.

Those who did not open the LCs earlier now folded their hands. Due to this, all the new factories will not be able to come into production at the scheduled time, he said.

Ali mentioned that the condition of gas supply to textile factories has become worse than before and impacted production and machine equipment import.