Import bill payments in July hit 8-month high 

Bangladesh in July recorded the highest import bill payments over the past eight months, while letters of credit (LC) opening was also on an upward trend compared to the previous month.

The import bill payments, as per data from the central bank, amounted to $5.77 billion in July. The payments in November last year was $6.51 billion, which is 25% lower than the same month in the previous year.

A policymaking-level central bank official said the bank is currently monitoring import LCs exceeding $3 million. It has led to a decrease in incidents of over-invoicing, which has contributed to the reduction in the LC opening.

"Besides, upon examining the July data, it becomes apparent that we have made more payments in comparison to LC openings. That is, we are reducing the liabilities that we had previously," he told The Business Standard.

He stated that the remaining payments on the previously opened LCs will be reduced by December.

Elaborating on the rise in settlements, the managing director at a bank said many LCs were opened in February on the occasion of Ramadan.

"A significant portion of these LCs was deferred, and because of their maturity, we experienced payment pressure in July," he added.

Importers opened LCs worth $4.42 billion in July, a slight increase from the previous month but much lower than the $6.32 billion in the same month a year ago.

It means that LC opening fell by 30% year-on-year thanks to the central bank's restrictions on imports to fight a dollar crisis, combined with the easing of global prices.

Citing the example of an importer, a senior banker told TBS that, due to the drop in prices, he now spends $28-30 million to bring in products for which he previously required $40 million.

The managing director at another bank said capital machinery import has nearly halved in the last fiscal year. It may adversely affect the economy.

"Capital machinery import means new investment. When investment falls, new job creation slows," he told TBS.

According to the senior banker, a drop in LC opening from July to August last year was understandable given the context of that time.

"But we actually have to measure how long we will reduce imports. Imports should not be forced down for too long," he added. 

He said economic growth will suffer if LC opening remains low for too long.

He attributed the rise in remittance inflow to the maintenance of the dollar rate. In April, banks collected remittance dollars at a higher rate.

"As a result, our remittances surged in that particular month. However, remittances later did not witness further growth due to the central bank's strictness," he added.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the central bank has told them on multiple occasions that the dollar exchange rate will transition to a fully market-based system by September. 

"If this happens, it should lead to an increase in the flow of remittances. In addition, if we can improve the supply of dollars to the economy while also boosting FDI, then we hope to come out of the present crisis," he told TBS.

According to economists, there will be an economic slowdown due to reduced imports. As a result, it will be difficult for the government to achieve the 7.5% growth target set for FY24.

Ahsan H Mansur, executive director of the Policy Research Institute, told TBS that import LC opening combined with other major indicators, including FDI, balance of financial account, deposit growth and loan growth, are not moving in the right direction, which means it will be difficult for the government to achieve GDP growth.

The economist commented that the government's first task now is to rein in inflation and bring the financial account balance to a positive level.

"We have reduced the import and export difference, or trade balance, considerably. We now have to bring the financial account balance into positive territory. If not, the forex reserve of the country will further decrease," he added.

Additionally, the lending rate should be further increased to control inflation, and government expenditures should be brought down significantly so as to reduce borrowing from the central bank.