Bangladesh is not receiving the expected level of income from the export of goods. Also, after importing products at higher prices, "cheaper" goods are now being imported.
The discrepancies do not stop there. The information on the opening of letters of credit (LC) at banks does not match that on the dashboard of the central bank’s Online Import Monitoring System (OIMS).
Also, doubts have arisen about the amount of outstanding import bills, with many saying that $12 billion in bills remains unpaid.
The important issues involving foreign trade were discussed in a bankers’ meeting on Wednesday when the central bank claimed that the information on the outstanding bills amounting to $12 billion was incorrect.
The amount is $3.5 billion in both the public and private sectors, instead, according to Bangladesh Bank (BB).
Big difference in data
Many banks are providing the BB with wrong information on import bills.
Soon after an LC is opened, the information is uploaded to the OIMS, which shows the import bill reached $40.09 billion on June 30.
However, separate data from the Foreign Exchange Policy Department of the central bank says the amount was $23.73 billion.
This depicts a mammoth $16.36 billion gap in the import data.
The overdue bills as of June 30 were $516.19 million, as mentioned in the letters sent by different banks to the Foreign Exchange Policy Department of the central bank, according to the BB.
But the data from the central bank’s OIMS shows that the overdue bill over the period amounted to $153 million.
This prompted the BB to seek an explanation from the banks concerned about the massive gap between the data on the overdue bills. At the same time, the banking regulator asked the banks to report timely and correctly.
Additionally, the BB then instructed the banks to update the information on each LC separately every day while giving information on all LCs together on a daily basis.
But many banks are not conforming to the instructions, even though the central bank asked them to comply with its directives within 15 days.
What bankers, experts say
A BB official, preferring anonymity, said that it is only the banks that can better describe such a mammoth difference in the outstanding bills.
He thinks that wrong reporting by the respective branches of the banks led to the information debacle.
The managing director (MD) of Mutual Trust Bank Limited, Syed Mahbubur Rahman, said that the banks in question have already started working together with the BB to fix the issue.
"Perhaps, some of the banks inadvertently made mistakes while providing information on LCs to the BB, causing the massive difference in the information over outstanding bills," he said.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), opined that the central bank must clarify the confusion that emerged centering the import bills.
"The loopholes should be immediately detected and sorted out. Such gaps in the amount of import bills raise doubts," he said.
The economist went on to say that there may be glitches on the dashboards.
Those responsible for the mistakes have to be identified since this is a punishable offence, Mansur said, suggesting that the BB and the banks concerned double-check the information on LCs.
"If the central bank does not get a clear picture of that, it must carry out an audit in the banks. There should not be any difference in the estimate of import bills," he said.
In Wednesday's meeting, the BB said that products were being imported at higher prices earlier. Following various measures, the practice has dropped by around 80% now, and products are being imported at lower prices.
About 30 cents are being sent for $1 worth of goods imported. The remaining amount is being sent through Hundi (an informal way of transferring money from one country to another, which is illegal in Bangladesh).
"As a result, Hundi is continuing. It involves money laundering," the meeting was told.
Bankers were requested to take initiatives to help check Hundi.
At the meeting, the MD of a commercial bank said that many influential businessmen are violating the provision of giving details in the EXP form about the export goods and the importer before the products are loaded into a vessel.
"We can’t even tell them anything about that," he said.
Reacting to that, the BB governor asked them to take legal action when needed.
$500m monthly deficit
Outstanding import bills and foreign debt repayments do not provide the required dollar resources every month. Currently, the average income is $7 billion per month. Against this, $6.5 billion is being paid in immediate import bills. At least another billion dollars is being spent on debt repayments.
Besides, various services, royalties, and return on profits abroad are causing additional expenses, adding to the shortage of dollars every month.
LC debt is a type of short-term loan. It can be extended from six months to one year, but this increases the interest on the loan. As a result, one has to pay extra money, which raises the pressure on the dollar. The higher the short-term debt, the riskier it is for the economy.
A big chunk goes to fuel imports
Natural gas, coal and fuel oil, and furnace oil are used as primary fuels for power generation in the country. Most of these fuels are imported.
Currently, the annual import cost for these fuel items amounts to $5 billion.
About 92% of the fuel the country needs is imported. The Bangladesh Petroleum Corporation is importing various types of energy products. Six million tons of fuel are imported annually, including diesel, jet, fuel, furnace oil, and other petroleum products. The Energy and Mineral Resources Division is struggling to collect the money needed to import this huge amount of energy.
Raw material import arrears for export-oriented industries
Due to the dollar crisis, commercial banks are not able to regularly pay back-to-back LC debts for the import of raw materials for export-oriented industries.
As a result, a large amount of debt is still unpaid in this sector. Due to the low supply of dollars, the repayment period is being extended in phases. In December last year, the amount stood at $1.18 billion.
In December 2021, the amount was about $1.1349 billion.
It means outstanding LCs in this sector have increased by 20.55% in a year. As mentioned, until September 2020, there were no arrears in this sector.
Pressure on dollar increasing
About $12 billion will have to be paid by next December.
About $3.196 billion will have to be repaid in government and government-guaranteed loans. The rest will be paid by the private sector.
Of more than $7 billion owed to the private sector, $3 billion was repaid in the first six months of this year.
Additionally, $1.62 billion in long-term debt from the private sector has to be paid by December this year. Besides, about $6 billion more in short-term debt has to be paid.
Until March of this year, the amount of public, private, and foreign loans stood at $95.71 billion.
In the first half of the current fiscal year (July-December), the government and government-sponsored debts amount to $3.196 billion. Of the sum, $760 million is interest.
Causes of dollar crisis
In January, private sector entrepreneurs took short-term loans of $2.18 billion from abroad. But this month, they have to pay more than $3.2 billion in interest and principal on the loan. Repayments were about $2.656 billion against $1.825 billion in debt in February. Thus, every month until June, foreign loan disbursements were higher than receipts.
In the first six months of this year, private sector entrepreneurs took a total of $13.69 billion in foreign loans, against which they paid $16.74 billion. As a result, in the first six months of this year, more than $3.05 billion were paid off.
Banks in the country had to provide this additional $3.05 billion. This affected other sectors. Many importers could not open LCs during the period of the dollar crisis, increasing the pressure on debt repayment. Again, due to the dollar crisis, the taka was regularly devalued.
According to the BB, in June 2022, the foreign debt of the private sector was $25.95 billion, which was the highest in the history of the country. However, loan disbursement decreased compared to loan repayments ever since, causing the foreign debt to decline gradually.
An analysis shows that only deferred payments have increased in the foreign debts of the private sector. Many LCs could not be settled on time, mainly due to the dollar crunch. Hence, deferred payments have increased.
BB officials say short-term foreign debt in the private sector declined most in 2018 over the past decade. Since then, it has increased every year. In 2021, it jumped by 69%, a record increase. However, this debt has started to decrease since the third quarter of last fiscal year.
There has been pressure since the beginning of last year to repay short-term loans taken from foreign sources. Due to this pressure, the dollar market in the country became unstable. In 2022 alone, the foreign debt of the private sector reached a maturity of about $18 billion. In addition, the public sector is also under pressure to repay foreign debt of $5 billion. However, the tenure of public-private loans has been extended subsequently.
The central bank has predicted that the amount of foreign debt in Bangladesh will be $115 billion after December. At the end of 2024, the amount will stand at $130 billion.
But much to everyone’s relief, Bangladesh's debt-to-GDP ratio is still at the safe limit of about 37%.
