Exporters’ dollar retention limit lowered again

The Bangladesh Bank has once again lowered the US dollar retention limit that exporters have to maintain in their foreign currency accounts from the shipment proceeds as Bangladesh continues to face the shortage of the American greenback.

Traders are allowed to keep a portion of their earnings in the export retention quota (ERQ) accounts to settle back-to-back letters of credit liabilities without facing exchange losses.

For example, merchandise exporters are entitled to a foreign exchange retention quota of 60 percent of repatriated FOB (free on board) value of their exports.

For the shipment of goods having a high import content like products such as naphtha, furnace oil and bitumen, garments made of imported fabrics and electronic goods, the retention quota is 15 percent, according to the central bank guideline of 2018.

Exporters of software, data entry and processing and other ICT-related services may retain 70 percent of net export earnings.

But in July last year, the BB asked banks to encash 50 percent of the balance held in the ERQ accounts immediately.

Traders are allowed to keep a portion of their earnings in the export retention quota accounts to settle back-to-back letters of credit liabilities without facing exchange losses

It also ordered them to revise downwards the retention limit from 15 percent, 60 percent and 70 percent to 7.50 percent, 30 percent and 35 percent, respectively.

The tenure of the reduced limit ended on December 31, meaning the cap went back to the previous level from January 1 since no order was issued by the central bank immediately.

Yesterday, the central bank brought down the limit to 7.5 percent, 30 percent, and 35 percent, again. This time, the central bank, however, has not said how long its latest instruction would remain in place.

In July of 2022, the BB had said the retention of foreign currencies in such accounts for a longer period without using them is a cost to exporters since deposits in the taka bear adequate yield.

The latest move from the BB comes as the country continues to witness the forex shortage owing to the depletion of the forex reserves amid higher import bills against lower-than-expected remittance and export receipts.

Thus, the forex reserves came down to $21.45 billion on September 21.

A central banker yesterday said if exporters keep a lower amount of export proceeds in the ERQ accounts, the liquidity in the banking system improves.