Buyer's-credit use for overseas procurement by Bangladesh has plummeted over the years, stoking concern about smooth import operations crucial to rolling industries and keeping export-shipment lead times.
Buyer's credit accounted for 23.9 per cent of Bangladesh's total imports in the fiscal year ending June 2024, marking a 4.7-percentage-point drop from 28.6 per cent in FY23, according to the latest data from Bangladesh Bank.
This marks a steady decline from the FY21 level, when buyer's credits constituted 30 per cent of total imports, and FY22, when it stood at 29.5 per cent.
The shrinking share of such credits underscores the challenges facing the country's import-dependent economy as it is raising the share of settlement in cash that is also in short supply.
Buyer's credit is a financing arrangement wherein exporters' financial institutions provide loans to importers to facilitate trade in a manner of forfeiting.
It is typically short-term and expedites the import process, playing a critical role in ensuring uninterrupted supply chains, particularly for raw materials and essential goods.
Economists and industry-insiders attribute the reduction in buyer's credit volume to a lack of confidence among financial institutions in exporting countries.
Dr Zahid Hussain, an independent economist, explains the conundrum: defaults in settlements have risen in recent years due to volatility on Bangladesh's foreign- exchange market.
"The dollar shortage in Bangladesh has made foreign financial institutions more cautious, leading to a drop in the availability of buyer's credit," he says.
The shortage of buyer's credit not only delays shipments but also adds to pressure on local industries, which rely on timely import to sustain operations.
Dr Hussain, who had worked as lead economist of the World Bank in Dhaka, emphasizes the importance of such external credits in maintaining the efficiency of Bangladesh's industrial sector.
"Such credit ensures quick transportation of goods, supports factory operations, and helps curb inflation by stabilizing supply chains," he notes, at a time of steep inflation-fueled price rises in the country.
"Ensuring a steady flow of buyer's credit is vital for Bangladesh to maintain industrial production, stabilise inflation, and uphold its global trade commitments," the economist concludes.
Managing Director and CEO of Mutual Trust Bank (MTB) Syed Mahbubur Rahman has highlighted multiple reasons behind the ebbing external-credit flow.
Local banks have been receiving a lower volume of trade loans, which has contributed to the fall, he says.
Mr. Rahman also notes that the depreciation of the local currency has made buyer's credit more expensive in terms of local currency, exacerbating the trade and business woes.
The banker further points out that the demand for loans in the economy remains subdued.
Former BGMEA President Anwar-Ul-Alam Chowdhury Pervez echoes this sentiment, saying that delays in securing financing could disrupt production schedules and increase costs for manufacturers.
"A slowdown in imports can lead to shortages of raw materials, causing manufacturers to miss lead times for shipment," he says.
"Banks are also finding it increasingly difficult to settle international payments on time," he adds.
However, import payments for goods and services in the fiscal year 2023-24 were approximately $81 billion, compared to $77.51 billion in 2022-23, $77.23 billion in 2021-22, and $52.5 billion in 2020-21.
Bangladesh primarily imports with cash payments, followed by buyer's-credit buys. Other financing options include loans and grants, such as IDB loans.
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