Exporters want time to pay as buyers defer payments

Bangladesh Bank forcing them to repay LCs on time

The country's apparel manufacturers and exporters are asking for flexibility when clearing raw material import payments from the Bangladesh Bank, as there are delays in payments from buyers, deferred shipments, order declines, and overall production disruption.

Earlier on October 26, the central bank warned commercial banks that if they fail to pay their import bills in time, their authorized dealer (AD) licences for forex trade will be revoked.

Apparel makers' inability to clear letters of credit (LCs) within deadline is making things difficult for the AD banks.

In this situation, a number of commercial banks are putting pressure on the exporters to clear their LCs as soon as possible, otherwise they will have to deal with forced loans, said industry insiders.

According to the central bank, there is a guideline for export financing through commercial banks. 

But a number of banks have not been complying with it, which is harming the country's image abroad. 

The central bank has instructed the commercial banks to follow the rules.

However, apparel manufacturers said that the central bank decision came at a time when the sector was passing through turbulent times as buyers were already deferring shipments and delaying export payments. 

Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said that they had several issues going for them. 

“Our request is to keep it as before. We are getting lesser orders already and the export growth is also very narrow,” he added.

Now if the central bank takes such a decision, then exports may decrease further. It will become difficult to achieve the [$100 billion export] target, he added.

In this regard, a BGMEA delegation met with central bank Governor Abdur Rauf Talukder on Monday and sought policy support for avoiding forced loans created through non-payment of LCs.

BGMEA President Faruque Hassan led the delegation and said that in this crucial situation, if the central bank withdrew its support, how would they clear LCs where they do not receive export payments on time?

“Banks are already putting pressure on us to clear import bills, but where is the money? Our buyers have not paid export bills worth millions of dollars. Export items worth nearly $1 billion are still in our warehouses,” he added.

He also said that they have requested the central bank to extend export bill repatriation considering the ongoing situation of the country's export sector. 

“We also urged to postpone the issuance of forced loans on a case-by-case basis,” he went on saying that they discussed several issues with the Bangladesh Bank governor, and everything they requested is logical.

The central banks in other countries are providing good policy support to their export industries amid the ongoing economic crisis, but this is not the case for our Bangladesh Bank, he added.

The BGMEA president noted that the central bank governor has agreed to consider their recommendations.

Nipa Group Managing Director Md Khosru Chowdhury said that before the circular, they negotiated with their suppliers to delay LC payments. But the circular is now standing in the way of that too.

According to the industry insiders, nearly 1,000 factories are suffering from shipment deferments and rescheduling of shipping dates issues.

They also said if the factories have an average of $1.5 million worth of clothes in stock, the total would reach $1.5 billion.

They believe that the government may adopt a hardline on clearance of LC payments for luxury items, but they should exempt the export-oriented industries, considering the sector's significant contributions to the country's economy.

However, according to the Export Promotion Bureau (EPB) data, the apparel sector earned $3.67 billion in October, fetching a narrow positive YoY growth of 3.27%, which was $3.56 billion in October of last fiscal year. 

Moreover, the apparel sector of the country posted $42.61 billion in export earnings in FY22.

However, manufacturers also fear a drop in orders as rising fuel prices and inflation have cut the consumers' purchasing power in European countries and decreased the demand for clothing products.