Although Bangladesh’s long-standing dollar crisis has eased and foreign currency inflows into the banking system have strengthened, banks remain cautious in opening Letters of Credit (LCs) for imports. Experts point to a combination of global uncertainties, high interest rates, political concerns, and risk-averse lending practices as the main reasons why import trade has not accelerated in tandem with the improved dollar flow. Over the past three and a half years, Bangladesh experienced a severe dollar crisis that disrupted import financing, limited trade, and increased costs for businesses dependent on foreign currency. With the new government taking office in August last year, several measures were undertaken to stabilize the situation. Among these, foreign liabilities were repaid, and export earnings began to recover, creating a positive inflow of dollars into the banking system. Despite these improvements, the paces of opening LCs for import trade has remained slow.
According to Bangladesh Bank data, the number of import LCs increased by only 1.18 percent in the 2023-24 fiscal year, while imports themselves rose by 4.18 percent. In the first month of the current fiscal year, a marginal increase in both LCs and imports was observed. However, in the previous fiscal year, imports had declined by 8.29 percent, although LC openings had increased by 7.76 percent, reflecting cautious optimism among some traders. These fluctuations, along with disruptions during the dollar crisis and the COVID-19 pandemic, highlight the hesitant nature of import financing in the country.
Dollar Flow Improves, Yet Imports Lag: Bangladesh Bank reports that after the new government assumed office, the flow of dollars into the banking system began increasing from October 2024. Export earnings, which had been negative during the earlier period, grew by 8.60 percent in the last fiscal year and surged by 25 percent in July of the current fiscal year. Consequently, foreign exchange reserves have strengthened, and foreign debts, including liabilities from the previous Awami League government, have been repaid by approximately $6 billion. Regular import obligations have also been met.
Yet, this improved liquidity has not translated into a significant increase in imports. Industry insiders and economists cite multiple reasons for this lag.
Banks Exercise Caution in Import Financing: Bankers highlight that cautious lending stems from lessons learned during past crises. “The sector has experienced repeated shocks due to sudden fluctuations in global prices and exchange rates,” said Mohammad Tanvir Ahmed, a senior banker in Dhaka. “Defaulted loans in import trade have historically risen sharply during such periods, and banks cannot risk repeating those losses.”
Indeed, historical data shows that defaulted loans in the banking sector have remained high. In 2011, defaulted loans totaled Tk 22,644 crore; by 2012, they had doubled to Tk 42,725 crore. Slight reductions were seen in subsequent years, but by 2014, defaults surpassed Tk 50,000 crore. These figures continue to inform banks’ cautious approach to financing imports.
To mitigate risks, banks now open LCs primarily for established companies with a proven track record. “Banks consider whether the imported goods will arrive as promised and whether the company can repay its obligations,” explained Ahmed. “Commercial LCs now require 100 percent margin in many cases, leaving very little room for speculative or high-risk transactions.”
High Interest Rates and Credit Shortages Discourage Entrepreneurs: Another factor limiting LC openings is the high cost of financing. Until June 2023, banks offered loans for import financing at 9 percent interest. Since then, rates have steadily increased, with most banks now charging between 14 and 18 percent. Additional fees and the rising cost of purchasing dollars on the interbank market further increase import costs.
“Entrepreneurs are naturally hesitant to open LCs at such high rates,” noted Dr. Shamim Reza, an economist specializing in trade finance. 
“The combination of expensive credit, global market volatility, and domestic political uncertainties discourages new import ventures, even when foreign currency is available in the system.”
Low private-sector credit supply also contributes to the slowdown. With limited access to affordable financing, businesses struggle to fund imports or expand trade, stunting overall economic activity.
Global and Political Factors Play a Role: Global market fluctuations have historically impacted import trade in Bangladesh. For example, during the 2012 global recession, the prices of commodities like cotton fell sharply. Importers who had purchased goods at higher rates in Bangladesh were forced to sell at losses, resulting in doubled defaulted loans and heightened risk aversion among banks.
Current entrepreneurs remain wary of repeating such experiences. “The world economy is unpredictable,” said Reza. “Even if the domestic currency situation is stable, global supply chains and price fluctuations can create serious financial risks for importers.”
Political stability is another critical consideration. Although ready-made garment exports increased last fiscal year, many business leaders remain concerned about future policy directions. “Even with good export figures, the uncertainty surrounding government regulations and administrative consistency affects confidence,” explained Tanvir Ahmed. “Banks and importers alike prefer to proceed cautiously rather than expose themselves to potential disruptions.”
Experts Recommend Strategic Measures: Experts suggest several measures to encourage more robust import trade while maintaining financial prudence. “Banks should consider risk-sharing mechanisms and provide targeted credit guarantees for reputable businesses,” said Dr. Reza. “This would help ease the liquidity bottleneck without compromising the banks’ risk management practices.”
Financial analysts also stress the importance of aligning domestic policy with global trade trends. “If entrepreneurs can better anticipate international price movements and policy changes, they are more likely to invest in imports,” said Farhana Akhtar, a trade consultant. “Combined with stable interest rates and improved banking facilitation, this could gradually revive import activity.”
Additionally, some suggest gradual relaxation of margin requirements for seasoned importers, paired with strict monitoring of compliance to prevent misuse. “Selective easing, backed by robust monitoring, can provide a balanced approach,” Ahmed noted.
Implications for Bangladesh’s Economy: The cautious approach to LC financing has broader implications for the country’s economy. Imports play a critical role in industrial production, especially for raw materials and machinery. Slower import growth can affect manufacturing output, reduce employment generation, and limit the competitiveness of export-oriented sectors.
“While the dollar crisis has eased, the real challenge is revitalizing trade confidence,” Reza emphasized. “Unless banks and entrepreneurs find a sustainable approach to risk management, Bangladesh risks missing opportunities for industrial expansion and economic growth.”
The central bank remains vigilant, focusing on money laundering prevention and credit discipline. While these measures enhance the overall stability of the financial system, they also contribute to the conservative stance observed in LC openings.
Despite the end of the dollar crisis and a stronger flow of foreign currency, Bangladesh’s import trade continues to face hurdles due to cautious banking practices, high interest rates, political uncertainty, and global market volatility. Historical lessons of defaulted loans and fluctuating commodity prices have reinforced risk-averse behavior among banks, while entrepreneurs remain hesitant to commit to imports under high financing costs.
Experts recommend a combination of risk-sharing, credit facilitation, and better alignment with global trade trends to encourage imports without compromising financial stability. Until such measures are widely adopted, the country’s import sector is likely to grow cautiously, reflecting a balance between opportunity and risk in an uncertain economic landscape.