Capital machinery imports are recovering slowly as concerns over political uncertainty ease and banks show more willingness to facilitate investments amidst increased liquidity in terms of US dollars and stability in the exchange rate.

During the July-January period of this fiscal year (FY), LC openings for capital machinery grew three percent year-on-year to $1,557 million, according to Bangladesh Bank data.

Mohammad Ali, managing director and chief executive officer of Pubali Bank, said the availability of dollars had increased. "We are also seeing stability in the exchange rate. Political stability is also giving impetus to investors," he said.

However, businesses and analysts said the recovery does not mean that economic challenges are over.

Bangladesh opened letters of credit (LCs) worth $3,900 million to import capital machinery in the July-January period of FY2021-22 as investors rushed to invest following the easing of Covid-19 restrictions.

However, imports of capital machinery plunged 61 percent in the following fiscal year, touching a five-year low in face of a US dollar crisis and the central bank's move to restrict imports.

"A slight increase in LC openings seems positive primarily, but it is not yet time to say that the overall economy is rebounding," said Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue.

He feels it can be considered the economy is moving forward if this trend continues for the next few months.

Moazzem said as the local currency weakens against the US dollar, investors have to spend more to import capital machinery and industrial raw materials. Besides, the dollar crisis is still prevalent, he said.

"If the local currency strengthens against the greenback in the coming days, there will be a positive impact on the country's overall economy," he said.

Imports of raw materials in most industries are still declining. Unless that changes, the economy will not accelerate, he noted.

However, he believes the marginal increase in capital machinery imports was a positive sign amidst the increase in US dollar price this year.

According to industry insiders, they opened LCs at the rate of Tk 105 to Tk 106 per dollar and settled at them at Tk 112 in the last fiscal year. But now, they are opening LCs at Tk 111 per dollar and settling them at Tk 122 to Tk 125.

"The growth in LC openings is a positive sign for the economy despite the economic stress," said Mohammed Amirul Haque, managing director of Premier Cement Mills PLC.

He also advocated to fix imports of consumer goods during moments of crisis.

Bangladesh imports foreign fruits at the cost of millions of dollars, which is unnecessary at this moment, he said, adding that the pressure on the forex reserve would reduce if LC openings for such imports could be limited.

He added that importing fish from abroad is ridiculous considering that Bangladesh is one of the leading countries in terms of fish production.

"How can we say that there is no under-invoicing behind it?" he questioned.

He also said the contractionary monetary policy of Bangladesh Bank should continue in order to keep the economy on the right track.

Asif Ibrahim, chairman of the Chittagong Stock Exchange, said the economic situation that Bangladesh is facing does not have a quick remedy.

"No policy can fix it overnight," he said.

Fixing it would require some time-bound policies and compliance-related actions, he said, adding: "Income tax reform is needed. The strategy needs to be designed to attain 50 percent tax from this segment."

Dependency on indirect taxes, such as VAT, is now over 70 percent and this needs to be reduced to 50 percent, he said.

According to him, the VAT and Supplementary Duty Act 2012 needs to be revisited to free the VAT mechanism from cascading effects.

Total VAT incidence must be kept at 15 percent, but due to ineffective VAT credit mechanisms, sometimes the effective VAT rate is set above 30 percent, he noted.

The interest rate corridor based on the Six-Month Moving Average Rate of Treasury Bills (SMART), has increased the interest rate, he said.

There should be a circuit breaker for the rate of treasury bills, otherwise, the economy may face an unusually overheated situation, Ibrahim added.

Ferdaus Ara Begum, chief executive officer of Business Initiative Leading Development (BUILD), said there is no way to understand whether the economy is recovering based solely on increasing capital machinery imports.

If other indicators are positive, then the economy can be considered to be moving towards improvement, she noted.

Bangladesh Bank's banking sector reform roadmap of last week will come to no use if the implementation failures of previous roadmaps cannot be understood, said eminent economist Wahiduddin Mahmud yesterday.

"I have previously been involved with two banking sector reform roadmaps, so I am aware of those…Why did we deviate from those roadmaps? ...influential groups prevented their inclusion in the banking law," he said.

"Implementation is difficult when we lack knowledge of the deficiencies of regulations… we have to know the history of the regulations and why the regulations were amended repeatedly," he said.

"The banking sector's present scenario cannot be understood if the history of the regulations remains unknown, such as that over the amount of loan bank sponsors can take from their own banks and the number of family members who can sit in a bank's board," he said.

Mahmud, also a former adviser to a caretaker government, was addressing the launch of the fifth edition of Banking Almanac at National Press Club in Dhaka yesterday.

It is not always wise to follow the recommendations of World Bank and International Monetary Fund (IMF), as the situation in Bangladesh is quite different from that in other countries, he said.

"Maximum limits must be set on interest rates otherwise weak banks will not get deposits and bank loans will be taken by only those groups who are not willing to pay those back," he said.

The banking sector is the heart of the economy yet everyone knows about its "sorry state", added the economist.

Recently the international credit rating of Bangladesh was downgraded, he said, adding that this rating reflects the country's economic condition.

"The evaluation of credit rating agencies is more important now than the certificate of the World Bank and the IMF," said Mahmud.

Regarding the Banking Almanac, he said it contains information regarding default loans in the country but no information about the loans that have been written off.

Written-off loans may be included in a bank's profit and loss account but the defaulter should always be held liable, he said.

"Not only default loans, written-off loans are also an indicator of a bank's bad health," he said.

Nowadays word is going around that small and weak banks will be merged and the authorities have realised that there are too many banks, he said.

"We had said earlier that there was no need for any more banks in the market," he said.

Private banks will not take up the burden of weak banks while forced mergers with state-run banks will not bring about any good, he said.

Reforms taken up by the central bank are very strange, said Salehuddin Ahmed, a former Bangladesh Bank governor.

Once upon a time, borrowers had to pay 30 percent of the total loan to reschedule it but now they have to pay only 2 percent, he said.

He criticised the latest banking sector reform roadmap, saying that it would allow banks to write off bad loans in two years whereas it was three years previously.

"It is a trick to reduce bad loans," he said, adding that banks should be allowed to fail.

Nowadays, data mismatch has become a trend, which is not good for research, said Ahmed, also chairman of the board of editors of the Banking Almanac.

Bangladesh Bank's export data differs from that of the Export Promotion Bureau while the central bank's forex reserve data differs from that of International Monetary Fund calculations, he said.

Mohammed Nurul Amin, chairman of the FAS Finance and Investment and member of the board of editors of the Banking Almanac, gave the welcome speech.

Bangladesh Bank has published a list of 39 firms that are authorised to audit banks and finance companies.

Earlier, the central bank prepared a list of 31 chartered accountant firms to audit banks and finance companies.

After a comprehensive review of appeals of several audit firms, the authority has decided to add eight more firms to the existing list, the BB said in a notice today.

Below is the list of the audit firms:

1. A. Qasem & Co

2. A. Wahab & Co.

3. ACNABIN

4. Ahmed Zaker & Co.

5. Ahsan Manzur & Co.

6. Anil Salam Idris & Co.

7. Arun & Company

8. Aziz Halim Khair Choudhury

9. Basu Banerjee Nath & Co.

10. Chowdhury Bhattacharjee & Co.

11. Das Chowdhury Dutta & Co.

12. Dewan Nazrul Islam & Co.

13. G Kibria & Co.

14. Hoda Vasi Chowdhury & Co.

15. Hoque Bhattacharjee Das & Co.

16. Howladar Yunus & Co.

17. Hussain Farhad & Co.

18. Islam Aftab Kamrul & Co.

19. Islam Jahid & Co.

20. K M Alam & Co.

21. Kazi Zahir Khan & Co.

22. Khan Wahab Shafique Rahman & Co.

23. M J Abedin & Co.

24. M M Rahman & Co

25. M Z Islam & Co. 6 

26. MABS & J Partners

27. Mahamud Sabuj & Co.

28. Mahfel Huq & Co.

29. Malek Siddiqui Wali

30. Masih Muhith Haque & Co.

31. MRH Dey & Co.

32. Nurul Faruk Hasan & Co.

33. Pinaki & Company

34. Rahman Rahman Huq (KPMG)

35. S. K. Barua & Co.

36. Shafiq Basak & Co.

37. Snehasish Mahmud & Co.

38. Syful Shamsul Alam & Co.

39. Zoha Zaman Kabir Rashid & Co.

The central bank has allowed imports of edible oil, chickpeas, pulse, peas, onion, spices, sugar, and dates on usance terms for up to 90 days under supplier's or buyer's credits. 

The facility aims to facilitate import transactions and will remain applicable for initiation of imports till March 31 this year, said the Bangladesh Bank in a notice today.

The move is expected to help importers purchase the eight items ahead of Ramadan which their consumption surged.

 In international trade, usance is the allowable time, permitted by custom, between the date of the bill and its payment.

The central bank also extended the same facility for four months to March 31 last year.