July-August political unrest triggers sharp decline in import LC openings

Economists and banking people believe political unrest and stagnation in investments are to blame

The political unrest surrounding the Anti-discrimination Student Movement in July and August has significantly impacted imports in Bangladesh, with economists and people involved in the banking sector attributing the decline in letters of credit, or LCs, to the stagnation in investments.

According to Bangladesh Bank data, both the opening and settlement of import LCs dropped by approximately 13 percent during the first two months of the fiscal year 2024-25.

In July and August, LCs worth $10.03 billion were opened, which is $1.48 billion less than the same period in the previous fiscal year when $11.51 billion LCs were opened.

In addition, LCs worth $10.34 billion were settled, compared with $11.89 billion in the same period of the previous year—a reduction of $1.55 billion.

Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, cited political instability as a key factor in the decline in LC openings.

“There are two reasons for the decrease in LC openings," he told bdnews24.com. "First, the political unrest that disrupted the country's communication systems. Banks were closed during that time, directly impacting import-export operations. The internet shutdown across the country led to communication breakdowns, which in turn affected imports.”

The second reason, Mahbubur continued, is a reluctance among investors. “Investors are not making investments like they used to, which has reduced imports. This decline is due to the instability of the dollar rate, but as stability returns, investment will pick up again.”

The unrest, which began as a job quota reform movement in July, evolved into a mass movement calling for the Awami League government's resignation.

Amid the protests, the government shut down the internet and social media, and several general holidays were declared.

During this period, banks and offices were largely inactive. On Aug 5, Prime Minister Sheikh Hasina left the country amid intense protests.

Factories and government buildings were damaged in the political upheaval, and despite the interim government taking over, protests and vandalism continued, especially in factories.

Due to a lack of police presence, many factories remained closed for an extended period, further affecting imports and exports.

One businessperson told bdnews24.com, “In August, several factories were vandalised, leading to closures for many days. This has affected both import and export sectors.”

However, Zahid Hossain, former chief economist at the World Bank’s Dhaka office, believes that the situation is stabilising with the interim government's efforts.

He emphasised having a business-friendly environment.

"As the interim government takes charge, normalcy is returning to business. Going forward, we need to foster a conducive environment for production and business to prevent further disruptions."