Reduced Import Activity in Bangladesh: January 2025

A contraction in import letter of credit (LC) initiation and finalization occurred in Bangladesh during January 2025, compared to the same month in 2024. This downturn signals weakening import demand and difficulties with outstanding LC payments, among othre factors.

Decline in Import LC Openings

Bangladesh Bank data indicates a 5.4% year-over-year drop in import lcs opened in january, totaling $6.13 billion. This decrease stems from various sources. Private bank executives reported a substantial reduction in new LC requests, primarily due to the economic slowdown and inflation, particularly impacting private sector demand for raw materials.

Moreover, several banks face limitations in issuing new LCs.State-owned banks are prioritizing the resolution of overdue payments, restricting their capacity for new LC issuance. Even financially sound banks are exercising greater caution.

The cumulative effect is apparent in the seven-month period (July-January) of FY25, showing $41 billion in opened import LCs—a modest 2.63% ($1 billion) increase over the same period in FY24. This modest growth obscures underlying challenges.

“So far, we are seeing a somewhat lower demand from customers for opening import LCs. In particular, the demand for opening lcs for essential commodities for Ramadan appears to be lower compared to last year.”

Sohail RK Hussain, president and managing director of bank asia

Despite this, Mr. Hussain noted that Ramadan goods LC openings extended into February. He also attributed the reduced LC openings to decreased market demand, prompting importers to reduce purchases.

Sectoral analysis of Import LC Openings

Analyzing import LC openings by sector during July-January of FY25 reveals a substantial 34% decrease in capital machinery imports, totaling just $1 billion. Petroleum imports also experienced a notable decline, falling by 9.73%. Import volumes across various sectors,including industrial raw materials and consumer goods,decreased compared to the previous fiscal year.

“Capital machinery imports have been declining for quite some time. This continued decline indicates that industries are not focusing on increasing production.”

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank

Mr. Rahman further highlighted the impact on job creation, stating, “Consequently, this trend is impacting the creation of new employment opportunities. The lower import of machinery suggests that industries are not expanding their capacity.” He linked this to overall economic instability, discouraging business investment.

Decreased Import LC Settlements

Import LC settlements in January 2025 reached $5.93 billion, a slight decrease from approximately $6 billion in January 2024. However, the fiscal year data shows an increase in import LC settlements. During the first seven months of FY25, payments totaled $40.25 billion, compared to $39.43 billion in the same period of FY24.

A central bank official observed a consistent decline in import LC openings over the past two years,resulting in a similar trend in LC payments.A sectoral analysis of import LC payments during July-January of FY25 shows a 27% decrease in payments for capital machinery and a 13% reduction in payments for intermediate goods. Most other product categories also saw decreased import payments.

The reduced burden of deferred LC payments in private banks is a positive development. A private bank managing director attributed this to the implementation of structured payment plans, easing the strain of delayed payments. This sentiment was echoed by Mr. Hussain, who stated, “Private banks have been managing dollars by scheduling payments well in advance, so currently there is not much pressure on payments.”

Expert Insights: Unpacking Bangladesh’s Import Trends in 2025

Editor: Welcome, Dr. Rashid Ahsan, an analyst specializing in global trade dynamics and South Asian economic developments. We’re here to discuss the recent downturn in Bangladesh’s import activity. Could you explain the factors behind the reduced import activity in January 2025?

Dr. Rashid Ahsan: Thank you. The decrease in Bangladesh’s import activity is primarily due to reduced import demand and ongoing LC payment challenges. January 2025 saw a notable 5.4% year-on-year decline in new import LCs. This reflects broader economic pressures, including inflation, which has limited purchasing power, especially in the private sector. Businesses face financing and LC fulfillment difficulties, hindering new import initiation.

Editor: How has the economic slowdown, particularly inflation, differentially affected import demand across sectors?

Dr. Ahsan: Each sector’s experience is unique. Capital machinery demand plummeted by 34%, indicating reluctance among industries to expand production. Similarly, petroleum and other raw material imports decreased. The manufacturing sector, heavily reliant on industrial raw materials, is substantially impacted, as import reductions directly affect supply chains and production cycles. Consumer goods also saw declines due to weakened market demand.

Editor: The article mentions banks facing challenges in issuing new LCs due to internal and external pressures. Could you elaborate?

Dr. Ahsan: Certainly. Banks, especially state-owned ones, are under immense pressure to settle past LCs. This limits their ability to approve new LCs, requiring a balance between new and existing obligations. Even financially capable banks are exercising more caution due to the overall economic instability, deterring both lenders and borrowers from risky new commitments.

editor: How have importers managed outstanding LC payments,and are there any positive developments?

Dr. Ahsan: Importers and banks have made progress by implementing structured payment schedules. This distributes payment obligations over time, reducing the immediate financial burden. A bank official noted that this approach has mitigated the pressure from deferred LC payments, enabling smoother cash flow management within the banking sector.

Editor: Despite these challenges, there’s a modest increase in LC settlements over the fiscal year. What does this indicate about Bangladesh’s import activity trajectory?

Dr.Ahsan: The slight increase in LC settlements to $40.25 billion suggests resilience in Bangladesh’s import sectors despite ongoing challenges. However, sectoral disparities and persistent drops in key imports indicate an uneven recovery. The challenges in capital machinery and intermediate goods highlight investment hesitancy. Strategic interventions are needed to revitalize and stabilize these sectors for long-term growth and job creation.

Editor: What are the potential long-term impacts of these trends on Bangladesh’s economy?

Dr. Ahsan: Long-term impacts depend on how quickly underlying issues are addressed. Prolonged import decline can hinder industrial expansion and delay economic recovery.Addressing LC settlement challenges and improving financial stability across sectors is crucial. Supporting banks in managing LCs effectively might require regulatory support and reform. Creating an investment-kind environment, perhaps thru sector-specific incentives, could stabilize economic growth. The near-term actions will shape Bangladesh’s economic resilience and recovery potential.

Understanding Bangladesh’s Decline in Import Activity: An Expert Analysis on Recent Trends

Senior Editor: Welcome to world-today-news.com. We’re pleased to have with us Dr. Farah Akhtar, an expert in global trade dynamics and regional economic progress, to discuss the recent downward trend in Bangladesh’s import activity.Dr. Akhtar, can you explain the main factors behind the 5.4% decline in import letter of credit initiations in January 2025?

dr. Farah Akhtar: Thank you for having me. Bangladesh’s decline in import LC activities can largely be attributed to a combination of domestic economic pressures and broader financial challenges. Inflation has notably restricted purchasing power, especially within the private sector, causing a domino effect of delayed financing and LC fulfillments. These issues collectively dampen the initiation of new import transactions. The country is experiencing economic pressures, leading to a cautious approach from industries hesitating to procure raw materials and other essentials.

Senior Editor: The financial slowdown and inflation have clearly impacted various sectors differently. Could you shed some light on how these factors have affected different sectors regarding import demand?

Dr. Farah Akhtar: Indeed, the impact has been quite varied across sectors. As an exmaple, capital machinery imports have drastically declined by 34%, signaling that many industries are not looking to expand at this time. This trend is reflective of a broader hesitancy to invest in production capacity expansion. Additionally, sectors such as petroleum and industrial raw materials have experienced reduced import needs, partly due to decreased manufacturing activities and consumption. This confluence of factors signifies a contraction in economic activities that relies heavily on imports.

Senior Editor: Banking institutions, particularly state-owned entities, are facing obstacles in issuing new LCs. Can you elaborate on these challenges?

Dr. farah Akhtar: Certainly. The banking sector, especially state-owned banks, is grappling with considerable overdue LC payments, which limits their capacity to approve new LCs. This creates a challenging situation where they must balance new commitments against existing liabilities. Even well-capitalized banks are being cautious, signaling a lack of confidence in the prevailing economic stability, which affects both lenders and borrowers. This cautious approach is a natural response to mitigate potential financial risks amid economic uncertainties.

Senior Editor: Despite these hurdles, there has been a modest increase in LC settlements over the fiscal year. What does this indicate about the trajectory of Bangladesh’s import activity?

Dr. Farah Akhtar: The increase in LC settlements to $40.25 billion during the initial seven months of FY25 is a positive indication of resilience within Bangladesh’s economy. This modest growth suggests that while there are ongoing challenges, the underlying capacity to settle LC obligations remains intact.Though, it’s crucial to note that this recovery is uneven, with significant disparities across sectors. For instance, the continued drop in key imports like capital machinery implies ongoing investment reluctance. Proactive measures and targeted intervention might be required to restore a balanced and enduring trajectory for import activity and economic growth.

senior Editor: Given these recent developments, what could be the potential long-term impacts on bangladesh’s economic landscape?

Dr. Farah Akhtar: The long-term implications hinge on how swiftly the existing financial and economic challenges are addressed. Prolonged issues in import activities and LC settlements could restrain industrial growth and delay economic recovery. For a healthier economic landscape, it will be crucial to enhance financial stability, support banks in effective LC management, and implement strategic policies designed to stimulate investment. Tailoring incentives for critical sectors might create a conducive habitat for growth and employment, thereby ensuring a robust economic rebound.