Staff Correspondent: Earlier there was no liability on foreign ‘back to back’ LCs for import of raw materials for the export sector. Due to not being able to pay the liabilities on time in this sector since the time of Corona, there is arrears. As of last June, the outstanding balance in this sector stood at $85 million. Which is Tk 9,400 crores in Bangladeshi currency. However, compared to June last year, the status of deposits in this sector has decreased by $320 million. Which is Tk 3,550 crores in local currency.
In the space of one year, the liability of foreign ‘back to back LC’ has decreased by 27.35 percent. These data have been obtained from a report prepared by Bangladesh Bank on the overall picture of the export sector.
According to the conventional rules, raw materials are imported for the export industry, against ‘back-to-back’ LCs, the bank pays the entire value of the raw materials as a loan in the name of the exporter. After the export price reaches the country, the bank adjusts the loan amount and transfers the remaining amount to the exporter. For this reason, banks consider such loans safe and finance them.
Earlier there was no outstanding dues of LCs of these sectors. Due to the global lockdown during Corona, regular export earnings in the country are hampered. As a result, the bank was not able to adjust the loan from the export income. Due to this, the arrears in this sector are increasing.
It can be seen from the report of the Central Bank, due to Corona, in the last fiscal year 2020-21, the liability of foreign ‘back to back LC’ was outstanding of $94.13 million. Which is 7.95 percent of the total short-term loans. At that time, the total short-term debt in the private sector was $1,183 million. Russia invaded Ukraine in February 2022 before the negative impact of Corona on domestic and international trade was over. After that, the prices of all kinds of products increased in the international market. Due to this, the cost of import also increases. Foreign exchange inflows also decrease due to decline in export earnings and remittances. The dollar crisis is evident. The price of the dollar continues to rise unabated. When the dollar crisis became evident, the outstanding liabilities of foreign back-to-back LCs continued to increase.
In the fiscal year 2021-22, it increased to $116.68million. Which is 6.59 percent of the total short-term foreign debt. At that time, the total short-term foreign debt of the private sector was $1,776 million.
In FY 2021-22 compared to FY 2020-21, outstanding liabilities of foreign back-to-back LCs in this sector increased by $230 million. The growth rate was 24.47 percent. Imports continued to decline as a result of strict import controls imposed to counter the dollar crisis. Exports of goods also decreased during the global recession. As a result of this, as the export orders decrease, the import of raw materials also decreases. As a result, the outstanding liabilities of foreign LCs of this sector also decreased in the financial year 2022-23. In June last year, it decreased to $846.5 million. Which is 6.22 percent of the total short-term loans in the private sector. $32 million less than the previous fiscal year. Tk 3,550 crores in local currency. The rate of decline is 27.35 percent. In that year, the total short-term debt was $1,366 million.
Back to back LCs were opened in the last fiscal year 2022-23 at $8.38 billion. $953 million have been settled out of this. LC openings fell by 31 percent and imports by 19 percent compared to last fiscal year 2020-21. Back-to-back LCs were opened in July-October last fiscal year for $3.15 billion. Tk 308 crore was opened during the same period of the current financial year. LC openings fell by 2.04 percent during that period. In the last financial year, at that time, imports under back-to-back LCs were $3.73 billion.
The import of the current financial year is $275 million. Which is 26.18 percent less. The Central Bank has predicted that a total of $800 million last November and $750 million back-to-back LCs can be opened this December. i.e. back to back LC is decreasing. Due to its decrease, the export earnings may also decrease in the future. The amount of unrepatriated export earnings till last June was about $135 million. Many are unable to pay the price of goods as foreign buyers are affected by the global recession. Due to this, the export income coming to the country is less.
Imports have been controlled for the past two quarters to deal with the dollar crisis and conserve foreign exchange reserves. Extensive import controls, global recession and increase in prices of goods in the international market have reduced the import of raw materials for export-oriented industries. Its negative impact has already started falling on the export sector. Among them, the issue of workers’ rights has emerged as a new threat in the labor policy of the United States.
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