Economy
Rising dollar inflow leads highest LC openings in 23 months
A surge in the inflow of remittances and export proceeds has led to an increase in dollar supply in commercial banks, resulting in the highest letter of credit (LC) openings in the last 23 months in May.
However, LC settlements during the same period experienced a slight decline compared to April.
Bangladesh Bank data shows in May, both the government and private commercial banks opened import LCs amounting to $6.83 billion.
The previous highest $7.02 billion worth of LCs were opened in June 2022. Since then, despite fluctuations, LC openings have generally followed a decreasing trend.
In April of the current year, LCs worth $5.68 billion were opened. LC openings in May increased by more than 20% compared to April. In comparison to the same period in 2023, LC openings in May increased by 19.5%.
According to several policy-setting officials from both government and private commercial banks, the inflow of dollars in May was higher compared to normal times. One significant reason cited was the receipt of remittances amounting to $2.25 billion in that month. The figure stands in contrast to an average monthly remittance inflow of less than $2 billion in the current fiscal year.
Besides, despite a decrease in overall exports in May, there was a slight increase in export LCs in banks compared to previous times. Payments for previously made exports started arriving. With the initiation of the crawling peg in the exchange rate on 8 May, exporters are obtaining more favourable rates for dollars, prompting them to bring these back into the country.
Syed Mahbubur Rahman, managing director and chief executive officer, Mutual Trust Bank, told the nes reporter, “Due to the recent activation of the interbank dollar market, which was previously inactive, banks are now able to collect dollars from there. As a result, even though some banks have experienced a decrease in remittances, they are gaining confidence in acquiring dollars from the interbank market. This assurance has enabled them to open more Import LCs.”
The banks in the country are benefiting from the introduction of the crawling peg in the exchange rate system, he said.
“The crawling peg system has reduced the gap between the market rate and the dollar rate, giving customers more confidence to open LCs.”
Mahbubur also said similar to industrial raw materials, the volume of LCs for intermediate goods imports also rose. He mentioned that this trend is positive for the economy.
The deputy managing director of a private commercial bank said due to a favourable inflow of dollars in May, commercial banks are increasing their LC openings.
He mentioned that there has always been demand for LC openings, but previously they used to be more cautious in approving import LCs. For example, if someone applied for 5 LCs earlier, they might have approved only 2. However, in May, due to the good dollar flow, they on average approved 4 out of 5 LC applications.
In May, there was a slight increase in opening LCs for government imports, including jute oil and fertilisers. An official from a state-owned bank said one of the main reasons for this increase is the greater availability of foreign exchange, which facilitated more LC openings in bank accounts.
Ali Reza Iftekhar, managing director and chief executive officer of Eastern Bank told the news reporter, “Our liquidity situation in dollars has improved compared to before. Remittance flows are now steady. Moreover, our bank’s export proceeds have also increased. Additionally, there are now dollar transactions happening in the interbank market, which has led to an increase in dollar inflows.”
Transactions in this market were almost closed for a long time, he said, adding, “As a result, we have been able to increase our LC openings for imports. This trend will gradually move towards further improvement.”
LC openings, however, may decrease slightly in June due to the banks’ accounts being closed for a few days during Eid, said a senior official of a leading private bank.
“Besides, RMG and production-related houses remained closed for several days during Eid. As a result, there is reduced demand for raw materials. These factors contribute to a trend of decreased LC openings for imports during the Eid months.”
In the first 11 months of the current fiscal year, a total of $63.02 billion worth of import LCs were opened — a slight year-on-year increase from $62.08 billion.
LC settlements in May decrease slightly
In May, banks settled import LC payments totalling $5.48 billion, which was 5% lower compared to April, central bank data shows.
A senior official of the central bank said currently, the pressure on deferred LC payments has reduced compared to before. “Banks have reduced opening deferred LCs to mitigate exchange rate risks. Consequently, the volume of payments has also decreased,” he said.
In the first 11 months of the current fiscal year, LC settlements for imports decreased by 12% to $60.79 billion compared to the same period of the previous fiscal year.
A managing director of a private bank said due to lower LC openings in the past two years, pressure on payments reduced. Currently, banks are selling dollars at rates between Tk118.40 and Tk118.70 for LC settlements. On the other hand, they are collecting dollars from remittances at rates ranging from Tk117.80 to Tk118.30.
The National Board of Revenue (NBR) is preparing to scrutinize government officials suspected of amassing illegal wealth and assets through corrupt practices. This move aligns with the government’s broader goal of creating a corruption-free and fair Bangladesh.
NBR Chairman Md Abdur Rahman Khan, speaking at the inauguration of a recent NBR program, emphasized the importance of this initiative. “We definitely aim to establish a discrimination and corruption-free Bangladesh,” he said, noting that preparations for this effort are already underway. Khan, however, cautioned that the progress of these preparations might not be immediately visible to the public, stating, “You cannot see the move of these preparations from the outside.”
Submission of Wealth Statements by Government Officials
In parallel, Md Mokhles Ur Rahman, Senior Secretary of the Ministry of Public Administration, announced that all government officials and employees must submit their wealth statements by November 30 to their respective ministries and departments. Furthermore, wealth reports will be required annually, with a deadline of December 31 each year.
The submission of these statements is part of a broader government strategy aimed at increasing transparency and accountability. The government has provided a specific format for the wealth declarations, which must be submitted in sealed envelopes to the relevant authorities. Any failure to submit the statement or providing false information will result in legal consequences.
NBR’s Ongoing Preparations
While the NBR chairman did not provide an exact timeline for when actions against corrupt public servants would begin, he reassured the public that the organization is steadily advancing its efforts. “We are putting matters on the right track gradually, placing the right things in the right place,” he remarked, noting that the NBR is currently collecting relevant data on this issue.
Legal Framework and Historical Context
According to the Government Servants (Conduct) Rule, 1979 (amended in 2002), all government servants are required to submit wealth statements when they begin their service and update them every five years. This rule was originally intended to combat corruption and ensure accountability, but it has largely remained limited to paper, with little enforcement. Despite several letters from the ministry over the years, there has been little progress in implementing these regulations.
However, the interim government has recently reinforced these requirements, driven by growing concerns about corruption within the public sector. On August 14, the interim government’s Legal Adviser, Professor Asif Nazrul, announced that all judicial officers and their families must submit both domestic and international asset declarations within 10 working days, following consultations with the Supreme Court.
Widespread Corruption Sparks Action
Allegations of widespread corruption have put the issue of illegal wealth among government employees in the spotlight. This has prompted renewed calls for greater accountability and stricter enforcement of wealth declaration rules to curb corruption within the public sector.
The most pressing challenges facing industries over the past six months have been the scarcity of bank funding and ongoing issues with gas and electricity supply, according to Ashraf Ahmed, President of the Dhaka Chamber of Commerce and Industry (DCCI).
Speaking at a seminar titled “Bi-economic State and Future Outlook of Bangladesh Economy – Private Sector Perspective,” organized by the DCCI on September 28, Ahmed stated, “We are still grappling with gas and electricity shortages. If we cannot address the issues of labour unrest and energy shortages, and fail to keep factories operating continuously for at least four hours a day, it will severely impact exports.”
Ahmed further noted that production in Micro, Small, and Medium Enterprises (MSMEs) is also declining. He warned that if these challenges persist, they would not only affect export levels but also significantly harm employment.
Impact on Non-RMG Sectors and the Importance of Alternative Solutions
The DCCI president emphasized that the crisis extends beyond the ready-made garment (RMG) sector, severely impacting non-RMG sectors as well. “We are already hearing that gas reserves are depleting. However, if the nuclear power plant is connected to the grid by the end of this year, there may be a positive shift. Immediate alternative measures are critical to overcoming this situation,” he added.
Ahmed also highlighted that labour unrest, initially confined to Ashulia, has now spread to other regions, raising concerns about its potential to disrupt industrial stability further.
Threat to Investment and Call for Confidence Restoration
Addressing the broader economic outlook, Ahmed stressed that restoring confidence in resolving the energy and labour crises is vital for maintaining investment levels. He warned that private sector investment growth, which has remained around 24% over the past three to four years, could face setbacks if confidence is not rebuilt.
Financial Reforms and Economic Stability
In his address, Ahmed pointed out that the interim government had proposed several financial reforms aimed at stabilizing the economy. “If these reforms are properly implemented, they will positively influence the economy, although it may take time to see results. Increasing tax revenue is also crucial for improving the government’s capacity to repay international debts, so revenue collection should be prioritized,” he noted.
Ahmed also remarked on Bangladesh Bank’s efforts to curb inflation by raising the policy rate. However, he cautioned that the effects of this measure would take three to six months to materialize. He also highlighted the need for careful handling of reforms in the banking sector, particularly for the 10 to 12 weak banks under scrutiny, to avoid negative consequences for the entire industry.
Recommendations for Industry and MSMEs
In his concluding remarks, the DCCI president recommended that bank loans to the industrial sector and MSMEs should be maintained at a consistent, normal level to ensure the stability and growth of these sectors.
Speakers at a discussion today said all people of the country have the right to seek and receive information from government entities (except those concerning national security) and private authorities to ensure transparency.
The right to access information is an integral part of the right to freedom of thought, conscience, and expression, said the speakers marking International Information Rights Day 2024 at a discussion at the information commission in Dhaka’s Agargaon area.
The speakers said Bangladesh has enacted the Right to Information Act to ensure the free flow of information to establish good governance.
Transparency International Bangladesh (TIB) Executive Director Dr Iftekharuzzaman and Information and Broadcasting Ministry Additional Secretary (secretary in-charge) Md Nazrul Islam spoke the discussion as special guests with Information Commission Director SM Kamrul Islam in the chair.
Directorate of Primary Education Dr Md Abdul Hakim presented the keynote paper while Information Commission Deputy Director Md Salah Uddin gave the welcome address.
They said the act has formed a path for establishing good governance along with ensuring transparency and accountability in the activities of all government and non-government organisations.
The speakers noted that the Information Commission is working relentlessly to bring the benefits of the RTI Act to the doorsteps of the people.
All stakeholders including government entities, and electronic and print media should be involved in creating awareness among people about the RTI, they said.
They also said every government organisation is bound to provide all information that the people have the right to know.
