Import of fuel oil may hit a snag due to merchant banks’ lack of interest to open line of credits (LCs) for the government purchase of fuel oil at present. Since there is a shortage of dollars at the banks and the rate of dollars at the kerb market is higher, the banks are not willing to open government LCs. According to a report in a national daily on Monday, the Bangladesh Petroleum Corporation (BPC), the lone state-owned fuel oil importer, has to open 16 to 17 LCs worth around $560-696 million each month to import refined and crude oil. Bangladesh almost completely depends on external supply of fuel oil.
In view of the current situation, the BPC has urged Bangladesh Bank to provide dollars to commercial banks so that they can open LCs in favour of the government’s fuel oil purchase. To control inflation, the central is indeed releasing dollars from reserves and opening LCs for food, fuel and fertilizer imports.
But there is a problem in opening LCs here. As the LCs are being opened at the bank rate, which was Tk 87.50 per dollar on last Tuesday, banks will incur loss due to opening government LCs at Tk 87.50 rate per dollar. However, at the bank rate dollar is not available at the moment at the kerb market, where the rate of dollar was Tk 99 on Sunday – up from Tk 98 of the past week.
Moreover, even though the greenback exchange rate for interbank transactions remained static at Tk 87.50, banks have been scrambling to procure dollars, paying more than the interbank rate. This is why, banks say, they are losing money on LCs. It is, therefore, unsurprising that they will not be willing to open government LCs, and at the same it will not be possible for them to pay the fuel oil price after buying dollars from the foreign exchange market due to the present dollar crisis.
Against this critical situation, we urge Bangladesh Bank to provide dollars to banks. BPC also needs to pay the additional costs to banks so that fuel import in the coming months remains smooth. Currently, the BPC has a storage of six lakh tonnes of fuel oil at various depots across the country that can meet the demand of one month’s oil consumption. Therefore, sooner the dollar problem of banks is solved the better.
