Despite an increase in foreign exchange reserves and the relaxation of import policies, Bangladesh has not witnessed an anticipated rise in imports.
Instead, both the settlement of letters of credit (LCs) and the opening of new ones have decreased, triggering concerns over the availability of essential goods and potential price hikes during Ramadan.
Economists attribute the slowdown to a weakened economy, emphasising the need for immediate improvement in law and order to restore economic momentum.
“A stable law-and-order situation is pivotal; once that is achieved, economic activities will naturally recover,” said experts.
Market analysts have expressed worries over the prolonged inflation that has severely impacted not only low-income groups but also the lower-middle and middle classes.
If supply shortages lead to further price hikes during Ramadan, it could exacerbate the challenges faced by ordinary citizens.
According to Bangladesh Bank, import expenditures in the fiscal year 2023-24 stood at $66.72 billion (Tk6,672 crores). During the July-September period, this figure dropped to $16.17 billion (Tk1,617 crores).
A report by the Metropolitan Chamber of Commerce and Industry (MCCI), released on Thursday (28 November), revealed that during the first quarter of the fiscal year, overall LC settlements fell by 2.40% compared to the same period in the previous year, while the opening of new LCs declined by 6.74%.
Sector-specific data from Bangladesh Bank underscores the downturn.
Settlement of consumer goods LCs fell by 17.57%, and new LC openings dropped by 8.58%.
Capital machinery LC settlements decreased by 24.96%, while new openings fell by 40.90%.
For intermediate goods, LC settlements declined by 13.38%, and new LC openings dropped by 7.22%.
Former chief economist of World Bank's Dhaka office, Dr Zahid Hussain, said, “Even before, import volumes were insufficient to stabilise essential markets, a situation exacerbated by the previous government’s restrictive measures due to a dollar shortage. Despite an increased foreign currency supply and relaxed policies now, import demand remains subdued, indicating weakened economic activity.”
Dr Zahid Hussain pointed to two primary reasons for the decline.
High inflation has negatively affected real incomes, reducing purchasing power and forcing people to cut non-food expenditures.
Importers face difficulties in securing suppliers' credit, as foreign lenders remain cautious about Bangladesh’s current economic situation.
Highlighting the broader implications, Dr Zahid Hussain added, “Economic activities remain constrained due to security concerns in public spaces, workplaces, and markets. This discourages work, earnings, consumption, and investment. Restoring law and order must be the first priority, with sustained efforts at all levels, from policymaking to enforcement.”
Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, said, "July-September was particularly challenging for the economy. Political unrest disrupted transport, supply chains, and production. Coupled with concerns over foreign reserves, the first quarter was underwhelming. However, we expect some recovery in the October-December quarter, though a full economic revival will take time.”
Hoping for an improved trajectory, Bangladesh Bank's spokesperson and Executive Director Hosne Ara Shikha stated, “We’ve allowed LC openings for essential consumer goods at zero margins and provided facilities for short-term foreign loans through suppliers' credit. This should encourage a gradual increase in imports, and we are optimistic about an improved overall import scenario this year.”
As the nation prepares for Ramadan, ensuring stable supplies and affordable prices remains a critical concern amidst persistent economic headwinds.
