Exporters' dollar retention limit cut by 50% to curb greenback shortage
The retention limit was reduced to 35% in the IT sector, which used to be 70%
The Bangladesh Bank (BB) has cut the dollar retention limit by 50% for the exporters to curb shortage of the greenback in the interbank market and boost its flow.
Merchandise exporters can retain up to 60% of their repatriated export incomes, depending on their local value addition – which has been reduced to 30% in the new regulation, reads a central bank circular issued yesterday.
According to the central bank's rules, exporters can retain a portion of their repatriated export incomes in the ERQ accounts with which they purchase raw materials and make import payments.
Keep updated, follow The Business Standard's Google news channel
The export retention quota (ERQ) has been reduced to 7.5% from the previous 15% for naphtha, furnace oil, bitumen, readymade garments made of imported fabrics, electronic goods and more.
The retention limit was reduced to 35% in the IT sector, which was 70%.
According to bankers, foreign exchange reserves are declining due to an increase in import spending, surpassing remittance income and expatriate export earnings. Consequently, the flow of dollars in the market has declined, prompting the decision to take action.
"The ERQ account limit has been reduced with the aim of boosting circulation of dollars in the market. Consequently, exporters will be forced to encash dollars, which will increase its flow," a central bank official told The Business Standard (TBS).
There's around $700 million in the ERQ account, said the BB official. "With implementation of the circular, half of this amount will be converted into cash, leading to a substantial increase in the inflow of dollars into the market."
Commenting on the issue, Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS that the central bank's move is highly unfavourable for exporters and could potentially impact market diversification efforts.
"At present, our exports to emerging markets constitute approximately 23% of our total exports. This decision is likely to disrupt this growth trajectory," he added.
He further emphasised that such a decision should not have been made without discussion with central bank stakeholders.
