Capital machinery leads huge drop in LC opening

There has been a massive decline in the import of capital machinery, industrial raw materials, intermediate goods and consumer goods due to the dollar crisis in the country and instability in the global trade.

The import of capital machinery in the July-December period of the current fiscal year stood at $1.27 billion, which was 65.32% less than imports involving $3.67 billion in the same period of FY22.

Consumer goods and industrial raw materials worth $4.12 billion and $1.20 billion respectively were imported during the first half of the current fiscal year, which was $4.69 and $1.65 billion respectively in FY22.

Bankers said foreign trade is in turmoil because of the Russia-Ukraine war. Foreign buyers' demand for importing garments from Bangladesh has decreased. At the same time, due to shortage of dollars in the country's banks, traders are not able to import goods despite the demand.

In the July-December period of FY23, intermediate goods worth $2.58 billion were imported, which was 33.18% less than the imports worth $3.87 billion in the same period of the previous fiscal year.

Mesbahul Haque, the spokesperson and also an executive director of the Bangladesh Bank, told TBS, "An effort is underway to reduce unnecessary imports and allow only essential products. Due to the Ukraine-Russia war, capacity enhancement in the country's productive sectors will decrease.

"Capital machinery imports increase only when the manufacturers want to increase production. No one can tell what will happen in the coming days. As a result, the import of capital machinery and industrial raw materials has decreased."

He said, "The level of capacity enhancement we have achieved last year has posed a challenge for us to fulfil the amount of orders. The demand for capital machinery imports this year is low like it was in the last year. We have to keep pace with the world situation."

Since April last year, the regulators have reined in imports to curb inflation, stabilise the dollar market and prevent a decline in foreign exchange reserves. The central bank issued several instructions in this regard.

LC openings in July-December of 2022 declined by around $10 billion due to various conditions imposed on imports by the central bank. However, the central bank's provisional data on LC openings showed around a $12 billion drop in LC openings during the period.

LC openings during the July-December period of 2021 were $44.01 billion, while LC opening for the same period of 2022 was $34.10 billion.

Meanwhile, the Bangladesh Bank had to sell $7.6 billion to the commercial banks in FY22, which was a record at that time. However, from July to 19 January of FY23, the central bank has sold over $10 billion to the commercial banks.

The Bangladesh Bank spokesperson said, "Many LC payments were deferred in the last fiscal year, a large part of which had to be paid in the current fiscal year. We hope the amount of LC settlement will come down now. We have been observing a declining trend in this regard for the past few months."

He further said, "The amounts of our remittances and exports have been increasing. It is expected that the volume of dollar sales will decrease in the coming days."

Recently the central bank has announced the monetary policy for January-June period of 2023. It said at the end of the current fiscal year, the country's reserves will stand at $36.5 billion.

The country's dollar reserve was $32.47 billion as of 18 January, which was $48 billion in August 2021.

Treasury department officials of several banks told TBS that currently the number of LCs opened by private banks is very low, because they are focusing more on collecting dollars than opening LC.

Moreover, due to the increase in the price of goods in the international market and the increase in the price of the dollar, the cost of imports has jumped. The product which could be bought earlier for Tk100 now costs around Tk120, which has decreased the import of different types of products.

Industry insiders said over 20 banks have been suffering from a severe dollar crisis. Many traders want to open LCs for importing consumer and intermediate goods, but the banks cannot do it because they do not have dollars.

On 15 January, the Bangladesh Bank Governor Abdur Rouf Talukder said, "We have many unnecessary LCs. Besides, there has been a lot of over-invoicing and under-invoicing in imports. Now we are very careful about all imports, which has greatly reduced over- and under- invoicing."