Local textile millers expressed concern that they would lose business if letters of credit (LCs) were settled in taka, the local currency, instead of the US dollar. Textile millers shared their views after knitwear exporters urged the Central Bank to allow them to open LCs for local sourcing of raw materials in taka mainly to address the challenges of a dollar crisis in the banking system.
Textile millers said they alongside spinners import cotton and other raw materials spending billions of US dollars. But if the payment is made in taka, the existing exchange rate may cause them to lose Tk 700 cr on every Tk 1 bn-worth of goods.
Sharing the concerns, Bangladesh Textile Mills Association (BTMA) submitted a letter to Bangladesh Bank yesterday urging not to decide on allowing opening LCs in taka.
In the letter, the BTMA also said since the local spinners and millers settle import payments with the US dollars, the local sales of yarn should also be settled with the same currency. And this has been the practice for years, they said.
Some 95 per cent of yarn produced from the imported cotton is sold to the local garment exporters who are the members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
The local millers import the cotton, other raw materials and machineries with money borrowed from the central bank’s Export Development Fund (EDF). So, if the business is lost for any reason, loan repayments may turn into a challenge for them. Moreover, the local spinners may lose money if the back-to-back LCs are settled in the local currency instead of the dollar of because of the gap in the exchange rate.
On the other hand, the BKMEA in another letter to the Central Bank a month ago urged for allowing opening of back-to-back LCs in local currency instead of the dollar mainly to address the challenges of the dollar crisis in the banking system.
“It is a temporary measure. If the dollar crisis is resolved, the central bank will withdraw the decision,” said Mohammad Hatem, Executive President of the BKMEA. Hatem said many exporters are facing challenges while importing raw materials for export purposes because of the dollar crisis. As a result, the central bank can take the measure for a temporary period, he said. It is expected that the dollar crisis will dissipate within the next six months, he said.
