Dollar crisis main cause
Golam Mostafa Jibon: The dollar crisis and the ongoing instability in the international trade have had a severe impact on the import trade. Import of essential products has reduced drastically ahead of Ramadan centering the crisis.
Due to the reduction in import trade, sailors do not have to wait as before to dock their ships at Chattogram port, the main gateway of the country’s foreign trade. Container ships can be loaded day by day. This means that, the current trend of foreign trade is quite negative.
Unable to open LCs, due to the dollar crisis, there is a fear of rising prices due to supply shortage of daily necessities in the coming Ramadan.
There is a fear of rising prices due to supply shortage of daily necessities in next Ramadan as LC could not be opened centering the dollar crisis. Because traders could not open LCs to meet the increased demand for oil, sugar, soybean-palm oil, chickpeas and dates during theupcoming Ramadan.
Recently, the fifth meeting of the task force committee regarding the review of commodity prices and market conditions was held in the conference room of the Ministry of Commerce.
A picture of the import trade emerges after reviewing the information presented in this meeting on the LC situation.
In the meeting, the comparative information of LC opening in October, November and December of 2021 and 2022 was highlighted.
It was found that, in 2022 compared to 2021, 1.5 lakh metric tons less LC has been opened for import of raw sugar in these three months. Out of this, the number of LC openings decreased the most in November and December.
A similar situation was noticed in the import of soybean oil. Soybean oil is imported as crude, refined and soybean seed. LC opening of import of crude soybeans decreased from 1.67 lakh tons to 88,000 metric tons.
Soybean seed import LC opening was 4.71 lakh tons in 2021, which has come down to only 78,000 metric tons in 2022. In this situation, the traders demanded to reserve certain amount of dollars to normalize LC opening.
In the meeting, the businessmen claimed that despite repeated assurances, the dollar crisis has not been eliminated according to the demand for imports.
On the contrary, due to various conditions imposed by banks, the problem in opening letters of credit (LC) for essential products is increasing.
As a result, this situation has been created. In order to avoid the situation, they have asked for special quota facility in dollar supply in case of opening of LC required for import of daily commodities in the country.
At that time, Commerce Minister Tipu Munshi told the concerned importing companies that, the proposal to keep a certain amount of dollars to facilitate the opening of LC for the import of daily necessities will be reviewed with the Central Bank. However, so that there is no difficulty in the import of daily commodities, the Ministry of Commerce will take strong steps to complete the LC process of the concerned importers on a case-to-case basis. As a result, importers can import specific products under special arrangements without LC.
Commerce Secretary TapanKanti Ghosh also said, “If necessary, he has the power to give some permission to import goods without LC (Letter of Credit). If anyone gets into trouble with the LC, they will be given discretionary permission, if reported to the Ministry of Commerce.”
He said that, the month of Ramadan will begin at the beginning of April. As such there is still three months left. However, it takes two to two-and-a-half months to bring those products to the open market after opening the LC of some other products including oil, sugar from the international market.
It is reported that, LC opening of palm oil has fallen to the bottom. If the LC of these products cannot be opened now, it becomes difficult to bring the products before Ramadan.
Although, the condition of opening LC of onion and lentils is somewhat good, traders are not able to open LC of import of chickpeas and dates. Due to which there is concern about their supply.
The Ministry of Commerce said that, the demand for edible oil is 1.5 lakh metric tons per month, while this demand rises to 3 lakh metric tons during Ramadan. Similarly, the monthly demand of sugar increased from 1.5 lakh tons to 3 lakh metric tons. The monthly demand of lentils increased from 40,000 metric tons to 1 lakh tons, the demand of onion increased to 4 lakh tons from 2 lakh tons, the demand of chickpeas increased to 1 lakh tons during Ramadan and the demand of dates increased to 50,000 tons from 5,000 tons.
In the meeting, LC settlement from July to December 2022 was presented. This figure also shows that imports of sugar, crude palm oil, chickpeas and dates have decreased compared to the same period of the previous year. Imports of remaining soybean oil and onion remain normal.
Commerce Minister Tipu Munshi said, “We have decided to take action in this regard. A letter will be sent soon recommending NBR to reduce the duty on sugar.”
He said that, there will be no shortage of daily necessities during Ramadan. Edible oil, chickpeas, lentils, onions, sugar and dates all have adequate imports and stocks in the country. Some are in the pipeline. New LCs are being opened for some products. But how much can be kept normal in the end will depend on the value of the dollar. Hopefully, its price is now on the decline.
Tipu Munshi said, “The way we are preparing, there should not be any problem in the supply of goods during Ramadan. But one fear is always at work behind the market volatility-that is the high demand of consumers for a particular product at a particular time. Due to this, there is shortage and chaos in the supply of that product in the market. As a result, the price also increases.”
“The Indian government has been informed not to stop the export of all the products that we import from the neighboring country India without prior notification. In addition, the Indian government has assured the supply of daily necessities according to the needs of Bangladesh. Considering all aspects, it can be said that in the coming days there will be no shortage of any of our daily necessities, the price will remain normal,” he added.
In the meeting, Prime Minister’s Advisor on Private Industry and Investment Salman F. Rahman said, “The government has taken all kinds of steps to ensure the normal price of the daily necessities of the people of the country. Care must be taken in determining the correct price of the product.”
According to the recommendation of the Tariff Commission in the task force meeting, the LC of essential products especially sugar has been relatively low due to increased demand during Ramadan. In consultation with traders, sugar is not being sold at the price fixed by the government so necessary measures can be taken. At the same time, it is proposed to reduce the duty on sugar.
Besides, it has been recommended to take action in this regard as the local market price is not properly adjusted with the international market price. Also, priority can be given to open LCs for these products to ensure supply of essential products till Ramadan.
Meanwhile, due to various conditions imposed on imports to reduce the pressure on the country’s reserves, the amount of imports is greatly reduced. In the six months (July-December) of the current financial year, import LC openings fell by around $12 billion. LC openings have been declining since June last year after the central bank imposed strictures on LC opening.
LC openings were $8.48 billion in June, $6.39 billion in July, $4.74 billion in October, $4.02 billion in November and $4.11 billion in December.
Treasury department officials of several banks said that, the number of LCs opened by private banks is very low. Because of they are focusing more on collecting dollars than opening LC at this time. In addition, due to the increase in the price of goods in the international market and the increase in the price of the dollar, the cost of imports is higher than that of the goods.
Ahsan H Mansoor, Executive Director of Bangladesh Policy Research Institute, said, “There is no alternative to reducing imports to keep the country’s reserves sustainable and reduce the trade deficit. But now the products which are being imported to the tune of 4 billion per month are not nutritious for our country. Imports should be further increased to between 6.5 and 7 billion dollars.”
Meanwhile, the country’s reserves will stand at $32.6 billion after the payment of $1.12 billion to the Asian Clearing Union (ACU) on the upcoming Monday. Central banks are now selling dollars from reserves to stabilize market conditions. In the six months of the current financial year, $7.47 billion was sold from the reserve, while the record $7.67 billion was sold from the reserve in the fiscal year 2021-22.
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