Bangladesh Bank further toughens luxury product import rules
Staff Correspondent, bdnews24.com
Published: 11 May 2022 12:09 AM BdST Updated: 11 May 2022 12:09 AM BdST
Importers of cars and home appliances will need to deposit 75 percent of the payment in advance while opening letters of credit as the Bangladesh Bank has further toughened the rules as part of efforts to ease pressure from foreign currency reserves.
It ordered the banks to raise the cash margin for these products in a notice on Tuesday, saying the move aims to keep “more” stable the monetary and credit management amid volatility in the global economy due to conflicts and the COVID-19 pandemic.
For imports of other non-essential products, the margin has been set at 50 percent.
A minimum margin has not been set for imports of baby food, essential food products, fuel, lifesaving medicines and medical equipment, capital machinery and raw material for industries, agricultural products and products needed for government projects.
Bangladesh Bank had ordered the banks in April to keep the cash margin at 25 percent for LCs to import the non-essential products after the country’s trade deficit continued to widen, posting a 64 percent rise to around $25 billion year on year in the first nine months of the current fiscal year. Now the rate has been raised despite a boost in exports as imports also continued to rise.
Bangladesh’s Balance of Payments deficit also surged to a record level, $14 billion as of March, amid an increase in imports as businesses rushed to replenish depleted inventories to meet strong demand due to the pandemic. The latest deficit in the BoP exceeded the previous record of $9.56 billion from 2017-18 fiscal.
The BoP reflects the state of foreign transactions in the country. The expenses include import, export, and other regular earnings and spending. Achieving a surplus in the BoP allows the country to stay away from loans to fill in the gap, while a deficit forces a debt.
But Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, does not think raising the cash margin for LCs will help improve the situation significantly because the big importers have enough cash to open LCs. “Medium and small importers will be under pressure. The pressure of market control and inflation may also mount further.”
He said businesses need to be generous to keep the supply chain stable. “They should concede losses for their own interests. It should be fixed how much of the extra cost businesses and consumers will bear.”
He also said the government should wait and observe the situation some more time to determine whether to provide policy support.
A fall in remittances has put some pressure on Bangladesh’s foreign currency reserves. “There's a bit of pressure right now. Foreign exchange reserves are pooled to balance out the pressure. However, we’ve a reserve of $45 billion. There won’t be any problem if the reserves slip to $40 billion,” analyst Zaid Bakht, chairman of Agrani Bank, had told bdnews24.com in March.
But if the situation persists, it will drive inflation, warned Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
“The government should pay more attention to the management of foreign exchange rates and imports,” he had said.
The government aims to keep inflation within 5.3 percent in 2021-22, but it has been rising since August.
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