LC openings and settlements decline

In the first quarter of the 2023-24 fiscal year (July-September), Bangladesh saw a reduction in Letters of Credit (LCs) for imports, with LC openings decreasing by nearly 7% and settlements falling by around 2.5% compared to the previous year, according to a Bangladesh Bank report.

Industrial sectors continued importing essential raw materials, but the decline reflects a broader slowdown in investment and economic activity.

The report says that capital machinery imports dropped significantly, by over 41%, indicating a slowdown in new industrial projects and expansion. Just $380 million in machinery was imported this quarter, compared to $650 million last year, while LC settlements for machinery fell by 25%.

On the other hand, consumer goods imports declined by 17.5%, with $1.37 billion worth of goods imported, down from $1.66 billion last year.

Intermediate goods imports also saw a decrease of 13.25%, while petroleum imports dropped by 7.25%, underscoring reduced production activity amid economic and political uncertainty.

Syed Mahbubur Rahman, the Managing Director and CEO of Mutual Trust Bank, commented on the current economic situation, saying, "Inflation has risen, and people have less money on hand. Purchasing power is declining, and the rate of extreme poverty is increasing. The demand in the domestic economy is also dropping. Naturally, producers won't maintain previous production levels under these conditions. When production decreases, imports will also decline, impacting the rate of LC openings."

"Even after the current government came into power, there was an additional outstanding amount of around $2.5 billion, which has now been settled. This has led to an increase in LC settlements," he added.

Toufique Ahmed Chowdhury, former Director General of the Bangladesh Institute of Bank Management, said, "Factories aren’t operating smoothly. Many industrial establishments have been damaged, and new factories aren’t being set up. With declining demand, why would anyone import capital machinery?"

He also emphasized the importance of political stability, stating, "Political stability is now crucial. If it’s ensured, businesspeople will return to work, production will start, and affected companies will attempt to recover."

Data from the report shows that while LC openings and settlements increased in September, they declined overall in the first three months of the current fiscal year. Raw material imports for the industrial sector stood at $5.72 billion from July to September, up from $5.29 billion in the same period last year. LC openings in September reached $5.57 billion, compared to $5.2 billion in September 2023. Import settlements for September this year were $5.87 billion, marking a 24% or $1.15 billion increase from the previous year’s $4.72 billion.