The opening of letters of credit (LCs) for imports dropped significantly in the first two months of the 2024-25 financial year, primarily due to nationwide unrest.
According to Bangladesh Bank data, LC opening declined by 13 per cent to reach $10 billion in July-August of FY25 compared with that of $11.51 billion in the same period of FY24.
Business activities came to a standstill in July amid government restrictions imposed during the nationwide protests demanding reforms to the government job quota system, bankers said.
The Anti-Discrimination Students Movement, which organised the protests, ramped up its activities from July 1, leading to a countrywide curfew and internet blackout from July 19, bankers said.
The unrest only subsided after prime minister Sheikh Hasina resigned on August 5 and fled to India, ending her 15-year rule.
The political instability in July, followed by uncertainty after her departure, caused businesses to suspend operations, fearing that the unrest would be prolonged, according to bankers.
LC settlements also saw an 8.29 per cent drop, falling to $10.34 billion in July-August of FY25, compared with those of $11.89 billion in the same period of the previous financial year.
Despite restrictive measures by the central bank and a persistent dollar shortage, LC openings for imports had increased slightly in FY24, reaching $68.69 billion, up from $68.24 billion in FY23.
This rise occurred even as the country struggled with a severe dollar crisis and a dwindling foreign exchange reserve, which caused concern among bankers.
LC openings in the first half of FY24 (July-December) stood at $32.92 billion, compared with those of $34.78 billion in the same period of 2022.
The increase in LC openings prompted the Bangladesh Bank to sell dollars from its reserves.
Over the past 32 months, the central bank sold more than $30 billion from its reserves.
Therefore, gross foreign exchange reserves, according to International Monetary Fund guidelines, dropped below $20 billion on September 11.
The depletion in foreign exchange reserves is raising concerns for both the government and the central bank.
One of the immediate consequences is the strain it has put on the Bangladeshi currency, the taka, which has experienced depreciation against the US dollar, reaching Tk 120, bankers said.
The exchange rate per dollar was Tk 84.81 in June 2021, Tk 93.45 in June 2022 and Tk 106 in June 2023.
The sudden sharp hike in dollar price created chaos in the industry as it significantly raised business cost, which in turn discouraged businesses to open LCs.