Small businessmen are unable to open LC due to dollar crisis

Siddiqur Rahman, a merchant, brought high-quality textiles from China, Thailand and India and supplied them to the capital’s shops. For this, they have to open a loan certificate (LC) of Rs 5-6 crore every month. For so long bankers used to come to him to open LC. Now Siddiqur Rahman is unable to open LC even after taking oath to the bankers.

This situation is not only of one Siddiqur Rahman, but the small and medium quality importers of the country are also at risk of debt opening. The dollar declared by Bangladesh Bank in the country’s interbank money market is 8 rupees 60 paise. However, dollars are not available in any bank at this price. Banks are charging Rs 90-95 per dollar from big businessmen. And it is collecting more from medium and small traders. In such a situation, the value of every dollar is said to be up to Rs 98.

According to businessman Siddiqur Rahman, bank officials say that there is no dollar in the market. Hence it has become difficult to open LC. Dollar is being bought at the same rate which the bankers are saying when pressed. Last week, I had to buy a dollar for Rs.96.

Bankers are also accepting the complaints of traders. They say they have to buy remittances from currency exchange companies at the rate of Rs 95. Banks will not sell at a loss to the customers. In the interest of the bank, large merchants have to pay dollars in the purchase price. But it is not possible to give dollars to small and medium traders at the same price. As a result, they have to charge extra cost from this class of traders. This has been said by the top officials of at least three banks in the country as well as branch managers of several banks. However, none of them agreed to speak while revealing their names.

In the first nine months of the current financial year (July ’21-March’22), Bangladesh imported goods worth ₹6.152 billion, an increase of 43.8% over the corresponding period of the previous financial year. Most of the banks in the country are struggling to pay the LC liability for record imports. This has created considerable volatility in the foreign exchange market including the dollar. As a result, the price of every strong foreign currency in the country’s market has risen.

The central bank is selling dollars in the market almost every day to prevent devaluation of money. ₹503 crore has already been sold from reserves in the current financial year. Even after this, the central bank is not able to control the price of the dollar. In the country’s interbank money market last Thursday, the declared rate of dollar was 8 rupees 60 paise. However, banks have done dollar transactions by Rs 9-10 more than the declared value. But the declared price in June 2021 was Rs 84 to 80 paise per dollar.

However, the opposite picture is being seen in the dollar retail market (carb market). Generally, the dollar value in the carb market is 2-3 rupees more than that of the bank. But now the situation has completely changed. Last Thursday, the price of one dollar in the carb market was Rs 94-95.

Syed Mehboob Rahman, Managing Director of Mutual Trust Bank, does not consider the rise in the value of the dollar from the retail market to the banking channel as unusual. He told Banik Barta that the demand for dollars in banking channels is much higher than in the carb market. Banks buy and sell large amounts of dollars simultaneously. Due to high demand, banks are being forced to buy dollars from exchange houses at prices above Rs 94.

 

Syed Mehboob Rahman said that the banks which have good remittance and export earnings are in relatively good shape. The major challenge is to settle the amount of imported LCs already opened. Bangladesh Bank has taken initiative to curb import of luxury goods. However, it remains to be seen what share of such products in the total imported products. There will be heavy pressure on repayment of import liabilities and foreign debt in the coming days.

Despite the huge growth in the country’s export sector, the trade deficit has crossed a record in the current financial year. As a result, in the first nine months of the financial year, the government’s current account deficit stood at ₹14 billion. The country’s balance of payments deficit has also exceeded 3 billion. This shortfall is on account of slowdown in remittances as well as failure to cope with the pressures of import growth.

With the record trade deficit, new concerns are also being added to the country’s economy. Every year the amount being exported is not being refunded. In the last two and a half years alone, the gap between exports and remittances has crossed 1291 million or $12 billion. Under the influence of Corona, the trade dispute of Bangladeshi exporters with foreign buyers is increasing. At the same time, the incidence of depreciation of commodities relative to exports is also increasing. Export repatriation has also been negatively impacted by the extension of repayment period for bonds.

Experts say that the increase in export earnings is much less than the increase in import expenditure. As a result, the country’s trade deficit has reached a record high. The global financial crisis caused by the coronavirus and the war in Ukraine has caused the prices of food items, including fuel oil and gas, to skyrocket. There is no sign of this situation returning to normal soon. As a result, the government’s current account and balance of payments will become even larger at the end of the current year. If this situation continues in the next two years, then there will be a disaster in the country’s economy.

According to Bangladesh Bank, Bangladesh has exported goods worth Rs 3.61 billion in the first nine months of the current financial year. Which is 32.92 percent more than the same period of the financial year 2020-21. In contrast, the country imported goods worth Rs 8,152 crore in the first nine months of the current fiscal. There has been an increase of 43.6 per cent in imports as compared to the same period of last financial year. The record increase in imports has created a trade deficit of 2.49 trillion.

The country’s trade deficit will be filled by remittances sent by expatriates. But the growth of remittances declined by 16.84 per cent in the first nine months of the current financial year. At present, remittances of 1 thousand 529 crore dollars have come in the country. In nine months, the remittance and export earnings stood at Rs 5,192 million in foreign exchange. Bangladesh, on the other hand, imported goods worth Rs 8,152 crore at the same time.

In the first nine months of the current fiscal, the average import expenditure stood at ₹830 million. If imports remain at the same rate for the remaining three months of the fiscal year, the country’s import expenditure would exceed 72 billion by the end of the year. This record-breaking import growth could widen the current account deficit by 20 billion. In such a situation, Bangladesh Bank has taken the initiative to rein in imports. The minimum cash margin for import credit for personal cars, electrical equipment used as home appliances has been fixed at 65 per cent. At the same time, the cash margin for non-essential products has been fixed at 50 percent.