Bangladesh may import a lower volume of cotton in the current marketing year of 2023-24 owing to a fall in orders from buyers for garments and difficulties in opening letters of credit for declining foreign exchange reserves.
The country, which relies on external markets for more than 98 percent of its cotton, is likely to import 75 lakh bales of raw cotton in 2023-24, said the US Department of Agriculture (USDA) in its report on the country’s cotton consumption yesterday.
The latest projection is 12 percent lower than USDA’s April forecast of cotton imports at 85 lakh bales. The marketing year began in August.
The USDA said work orders from many global brands decreased in the beginning of the current marketing year.
“Spinning mills reported that they are running significantly below their capacity due to a shortage in gas supply. Importantly, cotton importers are encountering difficulties in opening LCs due to the foreign reserve situation,” it said.
Both readymade garment and textile industries heavily depend on the imports of various raw materials, including cotton, yarn, fabric, and garment accessories.
Since the Covid-19 pandemic, Bangladesh has faced economic challenges, marked by declining foreign exchange reserves, high inflation, and the devaluation of the local currency, leading to fuel and gas shortages in the industrial sector.
In response, the central bank implemented measures to prevent the depletion of reserves, including the tightening the rules regarding the opening of LCs.
Currently, banks have to provide information to the central bank related to opening of LCs valued more than $3 million.
“Due to the short supply of US dollars, many banks are struggling to issue LCs, which affects raw material imports for the RMG and textile industry,” said the USDA report.
The US agency, citing the national elections scheduled in January, said the turbulent political situation is hindering production in readymade garment factories.
It added political movements, including blockades and strikes, have reduced the efficiency of many garment factories as the movement of raw materials and finished goods has been hampered.
As such, the domestic use of raw cotton is likely to be 78 million bales, reflecting an 11.4 percent decrease from its previous forecast.
Subsequently, the USDA revised down its forecast for Bangladesh’s yarn production to 16 lakh tonnes, comprising 14 lakh tonnes of cotton yarn and 4 lakh tonnes of mixed yarn.
It also lowered the projection regarding the overall fabric production in 2023-24.
“These adjustments in yarn and fabric production forecast are made in consideration of the expectation of reduced cotton consumption,” the report said.
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