LC opening halves in six months

The number of LCs opened in the country has halved in the last six months due to various conditions imposed on the import of products to preserve the country's dollar reserves.

The amount of imports to the country has been decreasing continuously since April this year. LCs involving $9.80 billion were opened in the country in March this year, which decreased to $8.42 billion in April. Since then the volume of LCs has been decreasing steadily.

In September, LCs involving $6.51 billion were opened in the country. Then there was a sharp drop in October, when LCs involving $4.72 billion were opened.

Infographic: TBS

In October last year LCs involving $7.42 billion were opened – which was $2.7 billion or 36.38% higher than that in the same month this year.

People involved in the sector said previously the banks had a shortage of dollars, but they used to pay the import liabilities by buying remittances at a higher price. That opportunity closed due implementing a single dollar exchange rate. Consequently, opening LCs at most of the banks has decreased.

The Bangladesh Bank has started regulating LC opening in various ways to overcome the dollar crisis. It started implementing an LC margin on imports from April this year. However, the central bank is selling dollars to meet the liabilities of importing daily essentials.

The Treasury head of a private bank said at the beginning of last June, small companies faced problems opening LCs, but big traders could open them. Currently, even the big corporations are facing problems opening LCs too.

The managing director of a private bank told TBS on condition of anonymity, "Most of the banks have been facing a dollar crisis due to a decrease in remittance and export income of the country. About 20 banks have negative net open positions in foreign currency. So I am personally concerned about saving dollars rather than opening LCs at my bank."

Remittance inflow to the country decreased by about 15% in the last fiscal year compared to the previous one. In the first two months of the current fiscal year, the pace of remittance inflow picked up slightly but then it declined sharply.

Experts said under-invoicing and over-invoicing of imported goods were also a reason for the dollar crisis, which prompted the central bank to impose LC margin.

In a meeting with top officials of commercial banks on Monday, Bangladesh Bank Governor Abdur Rouf Talukder said for years traders have been opening LCs by showing the product prices higher or lower than they actually are. Oranges, apples, dates and cars were under-invoiced by showing low prices. As a result, the country was deprived of taxes. Besides, the traders have been collecting dollars from abroad through hundi to pay LC liabilities for imported goods, depriving the country of remittances.

He further said those who have been doing such things cannot avoid responsibility in any way and necessary actions will be taken against them.

Earlier, on 31 October, the chief officer of Bangladesh Financial Intelligence Unit Md Masud Biswas said, there has been over-invoicing of up to 200% in some of the imported products during the dollar crisis. As there is a duty of up to 150-800% on car imports, car importers can take advantage of this scope.

Salehuddin Ahmed, former governor of the Bangladesh Bank, said, "The Bangladesh Bank should have imposed conditions on imports earlier. Our trade deficit was the highest in the last fiscal year. During that time many unnecessary products were imported."

He said imports have increased by about 35% in the last year, but there were no signs that industrial productivity has increased as a result of that. Through these imports, a lot of money has been laundered abroad. In order to increase production, the country has to increase imports related to productive sectors. Otherwise, inflation will increase.

Meanwhile, the dollar crisis is not ending even though the imports are decreasing. The central bank sold $7.62 billion in the last fiscal year. In the current fiscal year, dollar sales have been increasing to meet the government's import expenditure even though there is some moderation.

The central bank has sold $5.87 billion dollars so far in this fiscal year.

The country's reserves stood at $48 billion in August last year. As of 16 November, the reserves stood at $34.24 billion.

The Bangladesh Bank sold around $69 million at Tk97 yesterday for government imports.

The commercial banks have been buying remittance dollars at maximum Tk107. They encashed export proceeds at Tk103.50 per dollar.