Recent data for the July-September quarter indicates positive changes in the country’s economy, with a noticeable increase in the number of letters of credit (LCs) opened for product imports. In the fiscal year 2024-25, the growth of LCs was only 0.18%, but in the first quarter of 2025-26 (July-September), it saw a significant rise of 10.82% compared to the same period last year. This surge is largely attributed to an increase in food and capital machinery imports, as well as higher LC openings for raw materials used in manufacturing industries.
Despite the rise in LC openings, growth in private sector lending continues to decline. In August, private sector credit growth slowed to 6.35%, down from 9.86% in August of the previous year. This raises the question: who are the entities opening these LCs? The information comes from sources within the Bangladesh Bank.
In terms of capital machinery imports, the value of LCs opened amounted to $471.6 million, a 22.87% increase from the previous year. This growth is being seen as a positive sign for the economy, though experts suggest that the current political uncertainty surrounding elections may delay the strengthening of this positive trend, according to Dr. Mostafizur Rahman, a Senior Fellow at the Centre for Policy Dialogue (CPD).
Officials from Bangladesh Bank noted that import volumes had plummeted during the previous fiscal year but began to show some recovery starting in July, with LC openings growing by more than 10%. However, normal conditions in trade and commerce have not yet fully returned. There has been an increase in the import of capital machinery in some industries, as such equipment needs to be replaced or upgraded regularly, while food imports have also risen. Still, a fully conducive environment for business has not been established.
In the 2024-25 fiscal year, LC openings grew by just 0.18%, while LC settlements increased by 4.18%. During the 2023-24 fiscal year, goods imports reached $68.35 billion, a 2.44% rise from the previous year. However, LC settlements for capital machinery imports fell by 25%, and there was a decline in settlements for other goods as well.
Economists believe that increasing imports could help stimulate the economy. With higher imports of capital machinery and industrial raw materials, factory production would rise, leading to more job creation and greater economic momentum.
Mohammad Ali, Managing Director of Pubali Bank, pointed out that some factories are receiving substantial orders, and many older factories are being modernised, which has contributed to the increase in capital machinery imports. In the absence of a peak season for food production, private industrial groups are importing food products, driving up the number of LCs opened.
Following the fall of the Awami League government last year, many businesses linked to the ruling party fled the country, while several prominent business figures were arrested in connection with various cases. As a result, trade and business activities have become stagnant, and demand for private sector credit has decreased, leading to a slowdown in private sector loan growth.
Dr. Mostafizur Rahman of CPD noted that while the increase in LC openings is a positive indicator for the economy, it does not guarantee overall economic improvement. If exchange rates remain stable and reserves increase, imports may continue to rise. However, the high inflation rates are keeping interest rates from falling, which could have a negative impact on the economy.