According to Bangladesh Bank, in May 2024, despite an ongoing foreign exchange crisis, the country saw the biggest number of Letter of Credit (LC) openings in 23 months, totaling US $ 6.83 billion.
Before June 2022, when it reached US $ 7.02 billion, the greatest LC opening was noted. From then on, there has been a general downward trend in LC openings due to changes in the dollar exchange rate as well as fluctuations in the value of the local currency, the Taka.
There were US $ 5.68 billion worth of LCs opened in April 2024. In comparison to April, the May data demonstrates a noteworthy increase of over 20 per cent. Openings for LC increased by 19.5 per cent in May when compared to the same month in 2023.
Economists and market analysts attribute this trend to several factors, including tax benefits at the end of FY 2023-24 and the anticipation of the withdrawal of tax exemptions on various products in the FY 2024-25 budget.
The Policy Research Institute’s (PRI) Executive Director, Dr. Ahsan H. Mansur, told UNB that a more permissive import policy on a few commodities towards the end of the fiscal year had an impact on the rise in LC openings in May.
Additionally, he said that after the central bank hiked the rate by Taka 7 in a single move on 8th May 2024, merchants hurried to open LCs out of fear of further hikes in dollar conversion rates.
Trade analyst Dr. M. Mashrur Reaz pointed out that the enhanced dollar supply brought on by remittances and foreign loan disbursements was also a contributing factor in the LC reopening following a prolonged period of decline.
Despite ongoing macroeconomic instability in Bangladesh, trade volume and business transactions have increased in recent months. Government policy support on capital imports also impacted LC openings, Dr. Reaz observed.
The increase in LC openings was also influenced by the announcement of higher levies on capital machinery imports in FY 2024–2025. Dr. Reaz emphasised that imports of capital machinery were formerly tax-free.
