Economic Observation: Bangladesh Cotton Imports Decline

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Bangladesh's cotton import volume is expected to decrease in 2023/24 due to the decrease of orders from the clothing industry and the difficulty in opening letters of credit due to the decline of foreign exchange reserves.

The United States Department of Agriculture (USDA) said in its report on cotton consumption in the country that more than 98% of the country's cotton depends on the external market and may import 7.5 million bales of raw cotton in 2023/24.

The latest forecast is 12% lower than the USDA's forecast of 8.5 million bales of cotton imports in April. The USDA said that orders for many global brands declined at the beginning of the year. "The spinning mill reported that due to the shortage of natural gas supply, the production capacity was significantly lower than the production capacity. Importantly, due to foreign exchange reserves, cotton importers encountered difficulties in opening letters of credit."

The garment and textile industries are heavily dependent on the import of various raw materials, including cotton, yarn, fabric and garment accessories. Since the outbreak of COVID-19, Bangladesh has faced economic challenges. The decline in foreign exchange reserves, high inflation and devaluation of the local currency have led to fuel and natural gas shortages in the industrial sector. Therefore, the Central Bank took measures to prevent the depletion of foreign exchange reserves. At present, banks must provide the Central Bank with information related to the opening of loan companies with a value of more than $3 million.

The USDA report said: "Due to the shortage of US dollars, many banks are difficult to grant loans, which affects the import of raw materials in the textile industry."

Political movements, including blockades and strikes, have reduced the efficiency of many garment factories, which are hampered by the transportation of raw materials and finished products.

The US Department of Agriculture lowered its forecast for Bangladesh's yarn production to 1.6 million tons, including 1.4 million tons of cotton yarn and 400000 tons of blended yarn. It also reduces the forecast of total fabric production in 2023/24.

The report said: "The adjustment of yarn and fabric production forecast is to take into account the expected reduction of cotton consumption."