Capital machinery imports fall in Bangladesh

Opening of letter of credit (L/C) for importing capital machinery during the July-March period of the current fiscal year (FY) declined by as much as 31.53 percent from the same period last year, the central bank data show.

Total L/C opening also showed a negative growth of 6.14 percent during the nine-month period of FY2008-09 compared to that of the previous FY.Experts termed the trend a 'collapse in new investment demand' and blamed the ongoing Western recession for this decline.

“Setting up new industrial units is being postponed on the recession effects,” said Khandaker Ibrahim Khaled, chairman of state-owned Bangladesh Krishi Bank and a noted economist.

Zaid Bakht, a research director at Bangladesh Institute of Development Studies, also said uncertainty in the world economy has caused this investment decline.
The investment pessimism appears to be intense among the textile industries where L/C opening rate for capital machinery import has declined by around 40 percent. There is also a substantial drop in L/C opening in other sectors such as food grains, petroleum and raw materials.
Raw material import also showed a negative growth of 0.53 percent, meaning that the existing companies are facing problems with their business.
The Bangladesh Bank (BB) data show only $876.22 million worth L/Cs were opened in the first nine months of the current fiscal year to be ended in June compared to $1,279.71 million during the same period last year.
L/C opening for import of industrial raw materials also declined by around $20 million to $1,556 million during the period.
During the July-March period of 2008-09 total L/C opening was of $16,417 million, which was $17,490 million in the same period last year.
This drastic fall in L/C opening had occurred before the country began to feel the full impact of the ongoing global financial crisis. Entrepreneurs seem to be very cautious about new investments and even expanding their existing activities.
“No new investment means no new jobs,” said Ibrahim Khaled, also a former BB deputy governor.
He said banks are flooded with liquidity indicating that they hardly receive any new investment proposals.
“Investors will show a 'wait-and-see' attitude until the announcement of the next fiscal year's budget,” said Zaid Bakht.
He cautioned the government about the implementation of the stimulus package, otherwise aggregate demand might decline.