Arrears of foreign LC stood at Tk 12,000cr

Mahfuz Emran: The liability of foreign back to back LCs for import of raw materials for the export sector has increased to Tk 12 thousand crores or $101 crores. Last September, the outstanding amount was $76 thousand crore or Tk 8,360 crore. In three months (October-December) dues increased by $250 million. Tk 2,950 crores of Bangladeshi currency.
Due to the recent reduction in foreign debt repayments due to the dollar crisis and the extension of loan repayments in some sectors, the arrears position has increased.
According to sources, on May 9, the taka depreciated by 7.27 percent against the dollar.
As a result, the price of the dollar increased to Tk 118. Last December, the price of the dollar was Tk 110. According to that, the outstanding balance was Tk 11,110 crores. Now it has increased to Tk 12 thousand crores due to the increase in the price of dollar.
At that time, the liability of foreign back to back LCs increased to Tk 890 crore. These debts have to be paid by buying dollars from the market.
If the previous arrears are paid now, Tk 890 crore more will have to be paid due to the increase in dollar value. Besides, dollars are not available at that price now.
The MDs of the bank bought dollars for the cost of their visit to the United States at Tk 123. That is Tk 5 more than the fixed price. As a result, customers have to buy dollars at a higher price to pay the debt. This will increase the level of debt repayment. If you want to buy dollars at this price, you have to pay Tk 12,423 crores. But the reality is that the dollar is not available for imports below Tk 125. However, in the case of payment of liabilities of other government agencies such as fuel oil or gas import, Tk 125 are being charged for each dollar.
Raw materials for export-oriented industries are imported through foreign back-to-back LCs. The liability is adjusted after the export earnings come into the country. Raw materials are also procured from the country through some local LCs. Earlier there was no liability on foreign back to back LCs for import of raw materials for the export sector. The liability was repaid as soon as the export proceeds came to the country. As a result, there was no arrears in this sector.
But due to the global lockdown during Corona, it was not possible to pay the liabilities of this sector on time. As a result, arrears have accumulated. This liability was small before. But when Russia invaded Ukraine in February 2022, this liability continued to increase due to the global recession and dollar crisis. Back-to-back foreign LC outstanding in FY2020-21 at the time of Corona was $940 million. In the fiscal year 2021-22, it increased to $117 million. In FY 2022-23, due to amortization of liabilities, it came down to $850 million.
Outstanding liabilities rose to $101 billion as installments on those loans were suspended to deal with the dollar crunch and the tendency to open new LCs increased.
According to the report of the central bank, in December 2022, the outstanding liability in this sector was $900 million. In March last year, it decreased to $77 million. In June, the outstanding balance in this sector increased slightly to $850 million. In September, it again fell slightly to $76 million. In December, it rose again to $101 million.
Meanwhile, import of raw materials of export-oriented industries increased by 4.15 percent under foreign back-to-back LC till July-February of the current financial year. Earlier the growth of this sector was negative. Imports decreased by 16.45 percent. Earlier, as the opening of LCs in this sector was less, now the imports are also decreasing. The income of exporting products by bringing raw materials on credit is not coming to the country. As a result, the crisis in this sector is increasing.
In the last financial year, short-term principal repayments of $2.67 billion and interest payments of $940 million were made. 3.61 crore was disbursed in two sectors. $2.9 billion were paid in March of the current financial year.
Due to the dollar crisis, installments of short-term loans have been extended from time to time. The amount of dollars has increased. At the same time, the interest rate increased in the international market and the amount of interest payment also increased. As a result, the amount of foreign debt has also increased.
In addition, the country has to pay off the debt by buying dollars with an increase in the price of the dollar. Due to the postponement of payment of installments of foreign debt, the reserves may have been temporarily relieved, but the country’s foreign liabilities have increased from three aspects. Increase in loan amount, interest rate and dollar value. As a result, borrowers now have to pay more in three ways. Due to these reasons, as the pressure on the dollar is increasing, the pressure on the money is also increasing now. Because banks do not have enough liquidity. As a result, they are not able to provide loans as per the demand of customers.
Besides, the flow of money in the market has decreased under the contractionary monetary policy to reduce the inflation rate. This has curbed the liquidity of the banks and also reduced the growth of credit in the private sector by increasing the interest rates.