Bangladesh witnessed its highest Letter of Credit (LC) openings in nearly two years, amounting to $6.83 billion in May 2024, despite an ongoing foreign exchange crisis, according to Bangladesh Bank.
The last peak in LC openings was recorded in June 2022, with $7.02 billion. Since then, fluctuating dollar exchange rates and the weakening domestic currency, the Taka, have generally led to a downward trend in LC openings.
In April 2024, LC openings totaled $5.68 billion. The May figures represent a substantial increase of more than 20 percent compared to April, and a 19.5 percent rise compared to May 2023.
Economists and market analysts attribute this surge to several factors, including end-of-fiscal-year tax benefits and the anticipation of tax exemptions being withdrawn in the FY 2024-25 budget.
Dr. Ahsan H. Mansur, executive director of the Policy Research Institute (PRI), stated that the rise in May’s LC openings was influenced by a more lenient import policy towards the fiscal year’s end. Additionally, traders hurried to open LCs fearing further hikes in dollar exchange rates after the central bank increased the rate by Tk 7 on May 8, 2024.
Trade Analyst Dr. M. Mashrur Reaz noted that the rise in LC openings after a prolonged period was also due to an improved dollar supply, thanks to remittances and foreign loan disbursements. Despite ongoing macroeconomic instability, trade volume and business transactions have grown in recent months. Government policy support on capital imports also played a role in the increase, Dr. Reaz observed.
Furthermore, the announcement of new taxes on capital machinery imports in the FY 2024-25 budget contributed to the spike in LC openings. Until now, capital machinery imports were tax-free, Dr. Reaz pointed out.
