LC settlement fell by $1.17b in July

Letter of credit (LC) settlements fell by $1.17 billion in the past month, as the government tried to ease pressure on foreign exchange reserves amid imports outpacing exports.

Bangladesh is getting some benefit from the import cost reduction policy to increase the country's reserves and overcome the economic crisis as LC settlements fell, according to the latest report from the Bangladesh Bank. 

According to the report, LC settlement was $6.58 billion in July, down from $7.53 billion in the previous month of June. The LC settlements fell by 9.23% during the one-month period.

Besides, banks opened LCs worth $5.55 billion in July, a decrease from the $7.96 billion registered in June. As a result, the LC opening decreased by 30.20% in July.

In this regard, Bangladesh Bank Executive Director and Spokesperson Sirajul Islam said, Bangladesh Bank is trying to normalise the current economic crisis. 

The new governor has taken various steps after his accession, with the moves now reaping some benefits.

The report also shows that in the first month of this year, LCs worth $6.85 billion were settled in January, $6.55 billion in February, $7.67 billion in March, $6.93 billion in April, $7.25 billion in May, $7.75 billion in June, and $6.58 billion in July.

As a result, LC settlements showed both increasing and decreasing trends, for instance falling by 4.26% in February compared to January, but rising by 12.2% again in March.

The banking sector is now set to see an ease in payment pressure for imports in the coming months as new LCs opening fell by 31% in July, according to provisional data of the Bangladesh Bank.

The LC opening picked up to nearly $10 billion in March amid huge business activities in the post-pandemic era creating payment pressure on banks.

Bangladesh has fallen into a record trade deficit due to the massive increase in imports compared to the exports post-Covid, worsened by the rising prices of all types of products, including energy, in the world market.

The trade deficit stood at $33.25 billion at the end of the outgoing 2021-22 fiscal year, the highest in the country's history. 

At the same time, the deficit in the current account balance of foreign transactions also exceeded $18.5 billion.

Meanwhile, the central bank had to sell $7.7 billion in the outgoing fiscal year due to rising import demand in the country. Besides, it has sold more than $1 billion in one month of the current financial year.

The country's reserves stood at $48 billion as of August 2021, falling to $39.48 billion as of July 27, keeping dollar supply in line with market demand. 

Besides, the price of the dollar was Tk84.81 in June last year. A dollar is currently selling at Tk94.70 after depreciating by around Tk10 in August this year.

The central bank has mandated 100% margin preservation on imports of 27 types of goods, including luxury goods. Over three million LCs have been asked to inform the central bank 24 hours in advance. 

At the same time, a ban has been imposed on the purchase of new vehicles by scheduled banks.