Bangladesh sees record jump in LCs as imports surge

Bangladesh has set a new record for opening letters of credit or LCs for imports.

Abdur Rahim Badal Chief Economics Correspondentbdnews24.com
Published : 27 July 2018, 08:10 AM
Updated : 27 July 2018, 08:10 AM

In the first 11 months of fiscal 2017-18, $64.4 billion of LCs was opened, up 48.25 percent year-on-year, according to the latest data from Bangladesh Bank.

During the period, the LC openings surged due to the higher import orders for food grains, petroleum and capital machinery, said an official of the central bank.

The jump in LC openings for the payment of imports has not been seen before.

“There's nothing to worry about,” said Ahsan H Mansur, executive director of the Policy Research Institute.

Necessary equipment imports for the ongoing mega projects have abnormally increased LC openings, he said.

From July through May in the last fiscal year, import orders for rice soared 2,110 percent, wheat 35 percent, onion 90 percent and fuel oil 49.57 percent.

The BB figures show the actual import of capital machinery or industrial equipment used for production increased by 28.75 percent during the period.

Orders for equipment for the Rooppur power plant were the main reason behind the soaring LC openings, Mansur told bdnews24.com, responding to a question on why import was rising.

In addition, LC openings have also surged due to the imports of equipment for other mega projects, such as Padma bridge and metro rail, he said.

Higher imports of rice, fuel oil, capital machinery and industry raw materials have added to import costs, he added.

On its economic impact, the economist said: "The rising import is seen as a positive sign for the economy. Increasing import orders for the raw materials and the capital machinery mean rising investment.”

"Some products were imported under cover of other products. Often empty containers arrive. People make money through over-invoicing,” Mansur said.

"That's why I’m a bit anxious too."

The higher import payment may put pressure on the country's foreign exchange reserves, said Mansur.

"We were in a comfortable position for a long time. The reserves had risen to almost $34 billion. But higher imports will cut into the reserves,” he said.

"If export earnings and remittances had increased there would not have been any problem. But remittance and export earnings are increasing at a slower pace.”