Inflation hits import hard

Country’s imports of goods and machinery have nosedived in recent months following a severe dollar crisis. Latest data reveals that the decline in imports plummeted as much as to 70% during the July-September period – thereby leading to inability on part of many businesses to even open the much-required Letters of Credit (LCs).

Product prices, too, have surged to an intolerable level, which is resulting in a standstill in business expansion.

Bangladesh Bank (BB) said the import of edible oil decreased by 45.5% during the mentioned period, while pulses imports declined by 40%. On the other hand, sugar imports increased by a significant 161%, but rice imports witnessed a staggering drop of 98%.

Data shows, intermediate goods import fall by 28.3 percent, petroleum goods 5.7 percent in July September while garment goods import reduced by 25.6 percent. Of these, raw cotton import declined by 34.6 percent, yarn import 18.4 percent, textile and articles 22.4 percent, staple fiber 20.9 percent, dyeing and tanning materials 13.7 percent, clinker 34.9 percent, oil seeds 55.4 percent , chemicals 11.5 percent, pharmaceuticals products 3.5 percent, fertiliser 69.2 percent, plastic and rubber  24.6 percent, iron and steel 22 percent,   capital machinery 19.5 percent, capital goods 20 percent and other products 24 percent and EPZ related import fell by 27.9 percent. 

Nevertheless, it's important to note that Bangladesh Bank initiated import controls in July of the previous year to mitigate the dollar crisis. Additionally, import duties were raised on certain products. Consequently, the opening and settlement of Letters of Credit (LCs) have continued to decline since July of that year. Concerned parties have expressed that a further reduction in LC openings would exacerbate the economic stagnation.

Furthermore, in addition to the dollar crisis, entrepreneurs have displayed reluctance to pursue new investments, especially given the fact that it is an election year. Compounded with the already high levels of inflation, experts are concerned that without investments geared toward employment generation, the economy could face even more severe stagnation in the foreseeable future.

“The substantial decline in the world's purchasing power has had a severe impact, leading to a crisis in exports. Moreover, the reduction in imports of goods indicates that employment opportunities within the country are also facing a crisis. As a consequence, there is a looming threat that investments in the industrial sector will come to a standstill,” Dr Ahsan H Mansur, Executive Director of Policy Research Institute of Bangladesh told The Daily Messenger.

“The onset of the pandemic began to significantly impact investments and businesses from the last quarter of the FY 2020. Many companies faced immense challenges in sustaining production and were compelled to abandon their planned expansion efforts, which had a direct impact on imports of heavy machinery, he said, adding: “Currently, a considerable number of companies have resumed their expansion plans, offering the potential for robust growth. However, the sudden outbreak of conflict has resulted in a market slowdown, posing new challenges to the previously optimistic outlook.”

Zainul Abedin, Proprietor of AAA TRIMS World said a political turmoil is currently unfolding among major countries, which has led to the creation of trade gaps. As a consequence, a growing number of work orders are being redirected away from China and Vietnam to other nations. 

He added: Presently, Bangladesh stands as a top choice for buyers. However, the persistent issue of inflation is eroding the purchasing capacity of these buyers, presenting a significant challenge to the country's trade dynamics.

 “Over the course of a 40-year journey, Bangladesh has successfully developed a robust infrastructure for manufacturing ready-made garments. The country has demonstrated its ability to sustain production even in adverse circumstances, creating a strong dependence among buyers. Should the economic situation improve, Bangladesh is well-positioned to generate profits once again, given its resilience and capacity in the ready-made garment industry,” he said.

In the period from July to September of the fiscal year 2024, the import figures for various commodities were---Edible oil imports amounted to $502.3 million while Pulses imports totaled $77.1 million. Imports of intermediate goods reached $9,466 million, Petroleum  $1,603 million, Raw cotton $831 million, Yarn $665.4 million, Accessories $1,666.7 million, Staple fiber $305.8 million, Dyeing products $210 million, Clinker $214.3 million, Oil seeds $232.4 million, Chemical $845.9 million, Pharmaceutical products $86.3 million, Fertiliser $744.5 million,

Iron and steel $1,529.8 million, Capital machinery $1,047 million, Capital goods $1,834.6 million. 

In the same period of last year import figure of some products aggregated,  including edible oil imports stood $922.4 million, pulses $128.60 million, intermediate goods $13207.30 million, petroleum $1700.80 million, raw cotton $1353.20 million, yarn $815.20 million, accessories $2146.30 million, staple fiber $386.50 million, dying products $244.10 million, clinker $329.40 million, oil seeds $521.50 million, chemical $955.80 percent, pharma products $89.40 million, fertilizer $1716.70 million, iron steel $1960.70 million, capital machinery $1300.40 million, capital goods $2293.70 million.

During the first quarter of the current fiscal year, LC openings have declined significantly due to the dollar shortage. In the period from July to September of the fiscal year 2023-24, Bangladeshi entrepreneurs opened Letters of Credit (LC) amounting to $15.89 billion for various imports. This represents an 18% decrease compared to the corresponding period in the previous financial year when LCs worth $19.38 billion were opened by traders in the first three months of FY2022-23.

Besides, according to Bangladesh Bank data, LCs worth 16.49 billion dollars have been settled during July-September. This figure was $22.11 billion in the corresponding period of the previous year. As such, LC settlement has decreased by 25.40 percent in these three months.

A total of $7,219.80 crore (72.20 billion) LCs were opened by traders for the import of various products during the entire fiscal year 2022-23, which was about 26 percent less than the previous fiscal year (2021-22).

In response to the ongoing dollar crisis, the government and Bangladesh Bank have implemented several measures to curb the import of luxury and non-essential goods. However, despite these efforts, the negative trend persists. The decline in imports extends to all categories of products, including critical items like capital machinery and industrial raw materials, which are essential for establishing new industries.

Economists hold the belief that this trend is likely to persist throughout the remaining months of the financial year, and it will have adverse effects on investments within the country. Industrial production is expected to decrease as a result, and, in summary, the overall economy is anticipated to be negatively impacted.

As of October, exports have already seen a decline, with a decrease of 13.64%. Furthermore, during the period from July to October, exports of primary commodities dropped by 9.49%, agro-products by 4.34%, leather and leather goods by 24%, jute and jute goods by 11.26%, and home textiles by a significant 45%. These figures underscore the challenging economic conditions the country is currently facing. At the same time of current year, plastic products export grew by 14.14 percent, while manufacturing products by 3.94 percent.