Ongoing belt-tightening measures the government has undertaken to ease pressures on its foreign-exchange reserves continues squeezing imports as letter of credit (LC) opening plummeted around 27 per cent during ten months to April.
Economists enumerate the domino effect of import-trade contraction on the country's economy in the crunch time.
The drastic fall in import orders is apparently impacting many local manufacturers as the supply of raw materials, capital machinery and intermediate goods also dropped significantly during the period under review, official data show.
During the July-April period of the current fiscal year, 2022-2023, the total opening of LCs was recorded at US$56.36 billion--down 26.80 per cent from the same period a year earlier when LCs worth US$76.65 billion were opened.
A breakdown of the data on restrictive import trade shows the opening of LCs against intermediate goods dropped by 30.39 per cent during the ten months, capital machinery as high as 56.91 per cent, industrial raw materials by 31.85 per cent, consumer goods by 18.19 per cent, machinery for miscellaneous industries by 45.59 per cent and others by 19.53 per cent.
Only petroleum imports, whose market remained volatile since the outbreak of war in Europe, marked a rise, by 2.38 per cent, according to official statistics prepared by Bangladesh Bank (BB).
People familiar with such developments told The Financial Express that the tight-fisting on import has been impacting many local manufacturing sectors, especially those dependent on imported raw materials, thus adding to price rises.
President of Bangladesh Chamber of Industries (BCI) Anwar-Ul Alam Chowdhury Pervez says growing inflationary pressure normally impacts people's purchasing capacity and forces people to consume less.
If consumption falls, production also drops and industrialists do not feel comfort to expand their businesses or import raw materials for enhancing their productivity, the industrial-chamber chief explains the chain of domino effects stemming from import contraction.
"This is what is happening now. Look at the trend of private-sector credit growth. It has been falling gradually. It means private-sector entrepreneurs are reluctant to take credits," he said.
According to BB statistics, the private-sector credit growth dropped to 12.03 per cent in March 2023. The credit growth was 14.07 per cent in August 2022. Since then, it has been on the slope.
The BCI president suggests that the policymakers should allow struggling local industries to import raw materials so that they do not turn sick.
Seeking anonymity, the managing director of a private commercial bank said the fall in import orders is mainly because of the government belt-tightening measures in the wake of extreme volatility in macroeconomic situation on global and domestic fronts.
Under such circumstances, the banker said, running existing machinery in industrial bases is more important than bringing new machinery amid dearth of imported industrial raw materials.
"That's why the import orders for capital machinery dropped hugely. These will not only hamper industrial production but also creation of employment in the coming days," the top bank executive added.
Managing Director and Chief Executive Officer of Pubali Bank Limited Mohammad Ali says as export is declining, so the investment in capital machinery is also going down.
He mentions that many industries used to stock huge volumes of products in the past. But prevailing uncertainty in the global business order coupled with the ongoing tightness in the foreign currencies and lower demand prompted the entrepreneurs not to go for stocking more products.
"That's probably the reason behind the falling capital-machinery import," he says.
The continuous slide in import orders will, however, give some sort of respite to the US$400-billion-plus economy which is going through a stress because of the forex crunch. It will also help further narrow down CAD or current-account deficit.
During July-March period of this fiscal year (FY'23), the current- account deficit declined to US$3.60 billion on a year-on-year basis, which is less than 1.0 per cent of gross domestic product (GDP).
But the domestic resource-mobilisation activities will negatively be impacted because of the drastic fall in the opening of LCs as the government will lose a good amount of revenue from the LC-related activities.
Revenues shortages have already created a spurt in public borrowing from internal and external sources partly to finance the fiscal budget.
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