Remittances received in Bangladesh
Bangladesh received remittances worth $2.53 billion in February – the fourth highest amount received by the country in any month, based on the central bank’s statistics. Remittances received between the July-February period of the current fiscal year were $18.49 billion, up by 23.8% from the corresponding seven months period in the previous year’s $14.94 billion.
Meanwhile, the receipts from exports went up by virtually 11% in the first eight months (July-February) of the fiscal year on year-on-year terms. Mutual Trust Bank Managing Director and CEO Syed Mahbubur Rahman told The Business Standard that year-on-year import increased in February. In addition, imports of industrial raw materials and others also increased year-on-year that contributed towards overall LC openings. Improved remittance inflow and receipts on outbound shipments have contributed towards the amount within the banking system, triggering growth by around 20% month-on-month and year-on-year in both import letter of credit openings and import letter of credit settlements in February. According to the central bank statistics, imports LCs worth $6.26 billion were opened in February that were higher by 19.92% than the corresponding month last year worth $5.22 billion. Over $6 billion LCs have been opened within the first two months of the current year. A top government bank official commented on the increased import LCs by saying that “Remittance inflow and earning from the exports have increased significantly this fiscal year vis-a-vis the previous fiscal year. As such, there are more dollars in the hands of the banks that enable them to open more import LCs.”
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Capital machinery imports reduce
Sector-wise examination of the import LC openings of the central bank indicates that the overall import LC openings increased by 4.62% year-on-year between July-February FY25. Imports of industrial raw materials and consumers’ goods increased while imports of capital machinery decreased by 30%. Imports of intermediate goods and petroleum products also decreased by 7%. Referring to the declining imports of capital machinery, Syed Mahbubur said, “It is alarming that the imports of capital machinery are declining. It also suggests that the industries are not focusing on production development that will have the negative consequence on creating employment. Not investing in machineries suggests that the industries are not developing the capacity for production.”
Positive and Negative Impact:
The growth in import LC openings and settlements has positive as well as negative implications. Positively, the growth indicates a healthier trade environment, more bank liquidity due to remittances and exports, and a rise in industrial production. It also indicates better confidence in the economy since firms can open and settle LCs more efficiently. But on the negative side, a fall in the imports of capital machinery reflects deceleration in long-term investment in industry that may check growth and employment in the future. In addition, increased imports can put pressure on foreign exchange reserves and contribute to inflationary forces if supported solely by modest growth in exports.
Imports LCs settlement increases by 21%
According to Bangladesh Bank figures, February import LC settlements were worth $5.74 billion, up by 20.59% from the corresponding period last year’s $4.76 billion. LC settlements up to the first eight months of the current FY25 were $46 billion versus the corresponding period of the previous fiscal year’s $44.19 billion.
Describing the growth in the settlements, Syed Mahbub said, “Most of the banks, particularly the state-owned ones, are settling the old dues after the instructions of the central bank. That naturally enhances the settlement level of LC.” He also made the point that the increased number of LCs at higher volume – where the payment is received as and when the documents are submitted – is propping up the settlement figures. “There are less deferred LCs in demand these days and buyers are opting for sight LCs. Payments are hence being settled within one month once LCs are opened and the amount settled goes up overall.” Sector-wise July-to-February import LC payments show growth in which industrial raw material payment went up by 10.41% and payment against petroleum and other imports went up as well. But payments for capital equipment decreased most by 25 percent, followed by payments for intermediate goods by 8.5 percent. A managing director at one private bank said that the slowdown in deferred LCs has relaxed the private banks’ payment pressure.
