Bangladesh Bank on Sunday reduced its export development fund (EDF) lending to exporters, seen by many as a latest measure suiting IMF loan prescription related to arithmetic of the country's forex reserves.
The ceiling has now been reduced on average by $5 million from each category.
There are broadly three categories of imports eligible for the financing facility introduced in 1989 for import of raw materials for manufacturing exportable goods.
They are general imports brought under the back-to-back letter of credit, members of the BGMEA, BKMEA, and leather exporters as well as the bulk imports by textile millers and dyeing- yarn makers.
Md Sarwar Hossain, director at the foreign-exchange policy department of the Bangladesh Bank, signed the circular trimming the Export Development Fund or EDF entitlement.
According to the circular, for the general back-to-back LC imports, the new ceiling is $10 million, down from $15 million, for input procurement against relevant export orders.
The limit for import financing under back-to-back LCs by individual member-mill of the BGMEA and the BKMEA is set at $20 million instead of $25 million and $15 million from $20 million respectively.
This category is an individual exporter of the leather goods and footwear sector. Here it also has been cut by $5 million to $15 million.
In addition, in the case of bulk import, the maximum eligible limit by a member of eligible associations is revised down to a limit of $5 million.
The cap for Bangladesh Textile Mills Association (BTMA) is $20 million and BDYEA (Bangladesh Dyeing and Yarn and Exporters Association) $10 million.
According to a foreign-exchange circular No. 45, dated December 31, 2017, authorized dealers can borrow US-dollar funds from EDF against their foreign-currency loans to manufacturers-exporters for input procurement.
Currently, the EDF outstanding just amounts to $5.2 billion.
The Bangladesh Bank move in March was the introduction of the penalty of 4% on the banks' overdue amount of loans disbursed from the EDF.
If the loans and interest are not repaid by the deadline, the Bangladesh Bank can debit the overdue amount from the foreign-currency-clearing accounts that the AD banks maintain with it.
The Bangladesh Bank said it has been observed that the EDF loans are not being realized in accordance with its instructions.
In early January, the central bank formed the Tk10,000 crore worth of export-facilitation fund as an export pre-finance scheme with the revolving fund under a government drive for propping up reserves.
This is actually an alternative fund to the EDF.
The central bank has brought down the volume of the EDF to slightly over $5.2 billion from about $7 billion seen before Bangladesh's foreign-currency reserves started coming under pressure owing to a surge in import bills in the middle of 2022 in the wake of global price spikes.