Bangladesh witnessed its highest Letter of Credit (LC) openings in 23 months, amounting to US $6.83 billion in May 2024, amid an ongoing foreign exchange crisis, according to Bangladesh Bank.
Previously, the highest LC opening was recorded in June 2022, reaching $7.02 billion. Since then, fluctuating dollar exchange rates and the domestic currency, the taka, have generally led to a decreasing trend in LC openings.
In April 2024, LCs worth $5.68 billion were opened. The figures for May show a significant increase of more than 20% compared to April. Compared to the same period in 2023, LC openings in May rose by 19.5%.
Economists and market analysts attribute this trend to several factors, including tax benefits at the end of FY2023-24 and the anticipation of the withdrawal of tax exemptions on various products in the FY2024-25 budget.
Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), explained to UNB that the increase in LC openings in May was influenced by a more lenient import policy on some items towards the fiscal year's end.
Additionally, traders rushed to open LCs fearing further increases in dollar exchange rates after the central bank raised the rate by Tk7 in a single move on 8 May 2024, he added.
Trade analyst Dr M Mashrur Reaz noted that the increase in LC openings after a long period was also due to an improved dollar supply, thanks to remittances and foreign loan disbursements.
Despite ongoing macroeconomic instability in Bangladesh, trade volume and business transactions have increased in recent months. Government policy support on capital imports also impacted LC openings, Dr Reaz observed.
Furthermore, the announcement of new taxes on capital machinery imports in FY 2024-25 contributed to the spike in LC openings. Capital machinery imports were tax-free until now, Dr Reaz pointed out.
