Machinery imports rise, reversing the downturn

Imports of capital machinery edged up in the first six months of the fiscal year (FY) 2023-24, reversing the downturn that persisted for nearly one and a half year as political uncertainty ebbs and exporters expect increased orders from western buyers.

Businesses opened Letters of Credit (LCs) worth $1.34 billion to import capital machinery in the July-December period of this fiscal year, one percent higher year-on-year, data from Bangladesh Bank showed.

During the July-November period of this fiscal year, LC openings for capital machinery imports were 17 lower compared to the same period of FY23 as entrepreneurs did not get adequate amount of dollars from banks in the face of a perennial dollar shortage in the country for nearly two years.

In recent months, political uncertainty in the run up to the parliamentary elections held earlier this month also affected investment sentiment, with many investors taking a go-slow stance in making fresh investment.

Syed Mahbubur Rahman, managing director and chief executive officer at Mutual Trust Bank Ltd (MTBL), said the increase in the opening of LCs for capital machinery import was not significant. However, he said it was good to see that it had not reduced.

"We need to wait for a couple of months more to say if there has been an improvement in the overall scenario," he said, adding that consumer demand is falling locally because of high inflation.

"The world economy is yet to become stable. We are also seeing liquidity pressure due to a shortage of local and foreign currency," said Rahman.

Data from the central bank showed that LC openings for imports of capital machinery for garment, packaging and other industries increased in the July-December period of FY24 compared to a year ago.

For example, exporters opened $142 million worth of LCs to import garment machinery during this period, compared to $128 million in July-December period of FY23.

LC openings for packaging machinery imports surged to $29 million in six months to the end of December 2023 from just $1.7 million a year ago.

Faruque Hassan, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said exporters are enhancing textile capacity as well as upgrading machinery to make them energy efficient and environmentally-friendly so they can cut energy costs and increase value addition.

"We are encouraging our colleagues to strengthen backward linkage industries so that we can improve our value addition," he said, adding that they are importing technical sewing machines to make more technical clothes.

Hassan said exporters are showing interest to upgrade as political uncertainty related to the elections is over.

"We expect demand for clothing to rise globally too as inventory of buyers has reduced and retailers in the West had good sales in November-December months. As buyers will place orders now, entrepreneurs are upgrading their facilities," he said.

Md Ezazul Islam, executive director (Research) at the Bangladesh Bank, said businesses opened higher LCs to import capital machinery in December expecting political stability after the election.