Bangladesh Bank has scrapped import letter of credit (L/C) margins on all imports in a move expected to make imported goods 7 to 10 percent cheaper.

This follows a move earlier this year in which the central bank halved import L/C margins on 56 categories of items that had been subject to the margins for around two years. (DC World News 24 October 2003).

IMF conditions

The move to scrap import L/C margins on the imports to Bangladesh marks the end of a dismantling process prompted by the International Monetary Fund (IMF). It said that loan disbursements under Bangladesh's Poverty Reduction Growth Facility (PRGF) were conditional on the country scrapping the margins by the end of 2003.

The goods, which include biscuits, chocolate, imitation jewellery, televisions, refrigerators, vehicles and several foodstuffs will be excused the import L/C margin altogether as a result of the latest measures.

Discretionary margins

The bank imposed a 100 per cent L/C margin on 56 imported items in 2001 when Bangladesh's foreign exchange reserves slid to about $1 billion. In October Bangladesh Bank halved the margins.

From now on, with no officially imposed margins, banks arranging L/Cs will fix margins on a customer-by-customer basis the central bank said in a circular.

Not needed

Even if the decision to scrap the margins was taken in response to the IMF's request to remove them so it could move a step closer to releasing disbursements under the PRGF, Bank Bangladesh now says the country does not need them now anyway.

"We now have no reason to maintain [the] L/C margin that was introduced in the face of a declining foreign exchange reserves," a bank spokesman reportedly said. "We now have good reserves of US$2.43 billion," he added.

Traders' delight

Traders are pleased. "The financial restrictions hike import cost by 7 to 10 per cent," President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Abdul Awal Mintoo said. "This decision is very timely as it will help lower commodity prices," he added.

Bangladesh has now implemented all but one of the conditions set by the IMF for the country to be eligible for the second tranche of a US$70 million PRGF loan. The government still has to introduce of market-pegged interest rate for savings instruments. The Bangladeshi authorities think they may need more time to do this.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.