Bangladesh's imports fell sharply in the immediate past fiscal year as reflected by the slide in the opening of letters of credit (LCs) driven by a shortage of US dollars and restrictions on the purchase of non-essential items from external sources.

Private and public entities opened LCs of $69.36 billion in 2022-23, down 26 percent year-on-year from $94.26 billion a year ago, according to data from the Bangladesh Bank.

"The overall import cost declined because of the proper monitoring of prices by the central bank," said Md Sarwar Hossain, assistant spokesperson of the BB.

In the face of rising pressure on the country's foreign exchange reserves and volatility in the exchange market as imports were higher than exports and remittances, the central bank started tightening measures to discourage imports.

It asked banks to take up to 100 percent of import payments in advances from businesses and started monitoring imports amounting to $3 million and above before allowing businesses to open LCs, with a view to stopping the depletion of the reserves.

Still, the country's reserves fell 25 percent year-on-year to $29 billion on July 26 from a year ago, BB data showed.

Hossain linked the drop in the reserves to the requirement of payments for LCs opened earlier.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, blamed the non-availability of adequate dollars for the slide in LCs opening.

"Besides, the value of overall LCs was lower in FY23 than the previous year because of a decline in the prices of commodities, including petroleum in the international market. There was a lot of unmet demand."

A detailed breakdown of the category-wise LC opening for the entire FY23 was not available yesterday. But data for the July-May period of the fiscal year showed that the opening of LCs for capital machinery nosedived.

During the 11-month period, businesses opened $2.69 billion worth of LCs to import capital machinery, which was 55 per cent lower year-on-year.

The LC opening for the import of industrial raw materials slumped 30 percent to $21.17 billion. The ratio of decline was 24 per cent for intermediate goods, according to the BB.

Overall, businesses opened 18 percent lower LCs at $7.14 billion in July-May.

Mansur, also a former economist at the International Monetary Fund, said the decline in imports along with higher inflation has caused a slowdown in the economy.

"We saw a decrease in imports of capital machinery and industrial raw materials. The fall in capital machinery imports indicates a drop in investment."

"There are mixed performances in the economy. Reducing imports is necessary for the time being. But this is not a solution. The solution lies in increasing export and attracting more remittances that can help the economy regain momentum."