Relaxing LC opening restrictions for essential imports


FE Team | Published: January 12, 2023 21:42:40 | Updated: January 14, 2023 21:54:18


Relaxing LC opening restrictions for essential imports

Belt-tightening by the central bank on LC opening through a number of actions in the past months was indeed a temporary measure to regulate trade transactions so that precipitous fall in foreign exchange reserve could be averted. The actions, among others, included restriction on import of non essential goods by imposing higher LC margin, and notifying at least 24 hours before opening import LCs valued above US$3.0 million. Given the declining reserve, these were considered steps in the right direction. The outcome was evidently positive. Trade gap following these and few other regulatory measures decreased, so also the current account deficit. Import data show that in the six months of the current fiscal, till December '22, the number of import LCs has halved.

The BB circulars, as can be seen, are area-specific- meant to discourage import of non-essential and luxury goods, and monitor LC opening beyond a certain ceiling, i.e., $3.0 million. However, it is true that because of the restrictions, commercial banks have been shying away from opening LCs, irrespective of the type of products-commercial or industrial. As a result, imports are badly affected, even in respect of essential products including primary commodities, capital machinery, spare parts, and industrial inputs for both export manufacturing and domestic consumption. The issue was recently raised by the president of the Dhaka Chamber of Commerce and Industry (DCCI). In a meeting with the Commerce Minister, he urged upon the government to loosen the belt so that essential imports could be carried out smoothly. It is quite obvious that the current situation cannot continue for far too long as it has a multiplier effect on both domestic market and export. Cost-benefit analysis is important in this context in order to have a clear view of the factors at play. The BB, experts are of the opinion, should do its homework in this regard. The simple logic here is that spending foreign exchange on import must not be seen as sheer pumping out of limited forex resource. Containing domestic prices of commodities and earning foreign exchange through import of raw and intermediate materials for export manufacturing are crucial to the sustenance of the economy. This helps curb inflation on the one hand and restock the forex reserve on the other.

The BB, understandably, has to keep watch on many fronts including, among others, timely repayment of foreign loans and unscrupulous business transactions leading to money laundering by means of over-invoicing, if things are let loose. However, one good thing to note here is that export is experiencing a rebound. As for workers' remittance, although not up to the mark at the moment, it is expected to increase with the surge in the number of migrant workers lately.

Crafting a strategy is thus important. Keeping in view the limitations, it is imperative for the BB to devise a priority check list to facilitate LC opening in respect of mainly essential industrial inputs with some flexibility, at least for the time being as a test case.

Share if you like