Why Our Import Costs Have Gone Up

Bangladesh’s import cost has increased in recent years not only because of global price pressures, but also due to structural weaknesses in the country’s trade-finance ecosystem.

Importers are now paying higher confirmation charges on letters of credit, facing expensive buyer’s credit, accepting supplier-controlled shipping terms, and bearing additional financing spreads.

These factors together raise the landed cost of raw materials, capital machinery, and essential commodities, ultimately affecting industrial competitiveness and domestic inflation.

The solution, however, does not lie solely in negotiating better prices from suppliers.

It lies in restoring credibility, discipline, and transparency in the trade-payment system.

At the heart of the problem is risk perception. Global suppliers and international banks price Bangladesh’s imports not only based on commodity prices but also on perceived payment risk, foreign exchange availability, and regulatory predictability. When payments are delayed or when foreign exchange availability becomes uncertain, foreign confirming banks demand higher fees to cover risk. Suppliers, in turn, insist on confirmed letters of credit or charge a premium on pricing and freight.

This creates a structural cost burden that local importers must absorb. Therefore, reducing import cost requires a systemic response that addresses payment discipline and financing credibility rather than isolated interventions.

Bangladesh operates one of the most LC-dependent import systems in the world. In many countries, a large portion of trade takes place through open-account transactions, supplier’s credit, or documentary collections. In Bangladesh, however, suppliers frequently demand confirmed LCs from international banks. Confirmation charges can add a significant margin to import cost, especially when country risk perception is elevated.

This dependence on confirmed LCs has grown over time due to episodes of payment delays, foreign exchange shortages, and regulatory uncertainty. Restoring confidence in payment discipline is therefore the single most effective way to reduce the cost of confirmation and financing.

A central-bank–led roadmap is essential to achieve this. The first step should be the establishment of a centralized Import Payment Monitoring Cell within the central bank. At present, information on import payment obligations is fragmented across banks, making it difficult to assess national exposure and anticipate settlement pressures.

A central monitoring system would collect daily data from authorized dealer banks on LC openings, maturity schedules, payments due in the near term, and any overdue obligations. It would also track buyer’s credit maturities, supplier credit exposures, and confirmation commitments.

By consolidating this information into a national dashboard, the central bank could identify potential payment bottlenecks in advance and ensure that foreign exchange is allocated in time for genuine trade obligations.

Such monitoring would improve internal coordination, but its benefits extend further. Payment discipline becomes credible when it is measurable and transparent. Publishing periodic summaries of national trade-payment performance-such as the percentage of obligations settled on time and the level of overdue payments-would signal to international banks and suppliers that Bangladesh is committed to timely settlement.

Over time, consistent performance would reduce the risk premium embedded in confirmation charges and financing spreads. Transparency thus becomes a tool for lowering import cost.

To strengthen discipline at the institutional level, the central bank could introduce a Payment Performance Index for authorised dealer banks. Each bank would be evaluated based on indicators such as the proportion of import obligations settled on due date, average delay days, frequency of rescheduling, and adequacy of foreign exchange provisioning. Banks with strong performance would receive regulatory incentives, including greater flexibility in opening unconfirmed LCs or reduced margin requirements. Banks with weaker performance would face closer supervision and possibly restrictions on new trade exposures.

This framework would encourage banks to prioritize timely settlement and maintain sufficient foreign exchange liquidity for trade obligations.

Equally important is the differentiation of importers based on credibility. Not all importers pose the same level of risk. Some maintain strong payment records and financial discipline, while others have histories of delayed settlement or restructuring. Introducing an importer-level credibility score would allow regulators and banks to extend greater flexibility to reliable importers.

High-rated importers could be permitted to open unconfirmed usance LCs or negotiate supplier credit on more favourable terms, reducing financing cost. Lower-rated importers would be subject to stricter conditions until their payment behaviour improves. Such differentiation would reduce system-wide risk perception and reward good discipline.

During the transition period, additional support may be required to rebuild confidence. A temporary payment assurance facility operated by the central bank could provide foreign exchange liquidity support to banks facing genuine settlement pressure on matured LCs. This facility would not function as a blanket guarantee but as a conditional backstop for compliant banks with strong payment records. By ensuring that confirmed LCs are settled on time even during periods of liquidity stress, the facility would reassure foreign confirming banks and gradually reduce the need for expensive confirmation.

Once payment discipline is firmly established, reliance on such a facility could be phased out.

Another major contributor to high import cost is the structure of buyer’s credit. International lenders often pass on the burden of withholding tax on interest income to Bangladeshi importers, raising effective borrowing costs. Policy adjustments in this area could yield immediate relief. Reducing or exempting withholding tax on short-term trade loans for essential imports and industrial inputs would make buyer’s credit more affordable.

Alternatively, allowing such borrowing through offshore banking units with streamlined tax treatment could align Bangladesh’s cost structure with that of regional competitors where trade loans are priced closer to international benchmarks.

Shipping cost dynamics also deserve attention. Many imports are conducted on CFR terms, under which suppliers control freight arrangements and often embed inflated freight charges in invoice values. Encouraging a gradual shift toward FOB imports, where Bangladeshi importers or their agents arrange shipping, would allow competitive freight negotiation. Large importers could pool demand to secure better freight rates.

Banks could support this transition by offering freight financing and hedging products. Over time, greater transparency in freight pricing would reduce hidden cost escalation and improve competitiveness.

Underlying all these measures is the need for a more predictable foreign exchange environment. Uncertainty about foreign exchange availability is one of the main reasons suppliers and banks insist on confirmed LCs. When importers and banks are unsure whether foreign exchange will be available at maturity, they seek confirmation or short-term financing at higher cost.

By ensuring that genuine trade payments receive priority access to foreign exchange and by providing forward cover mechanisms, the central bank can reduce this uncertainty. The introduction of FX swaps and forward windows for banks would allow better liquidity management and lower the risk premium embedded in trade finance.

Implementation should follow a phased approach. In the initial phase, the central bank could establish the monitoring cell, design reporting templates, and begin collecting data from banks. Within six months, the payment performance index and importer credibility scoring system could be operational. Over the following year, transitional facilities such as the payment assurance window and tax adjustments for buyer’s credit could be introduced.

Parallel engagement with international banks and multilateral institutions could help secure guarantee programs that reduce confirmation costs during the transition period.

The expected benefits of such a roadmap are substantial. Improved payment discipline and transparency could reduce confirmation charges by one to two percentage points. Lower financing spreads on buyer’s credit and more competitive freight arrangements would further reduce overall import cost. For an economy heavily dependent on imported inputs, these savings would translate into lower production costs, improved export competitiveness, and reduced inflationary pressure.

More importantly, the reforms would shift Bangladesh’s trade-finance narrative from one of risk to one of reliability.

Import cost is ultimately a function of trust. When global banks and suppliers trust that payments will be made on time and that policies will remain predictable, they offer better terms. Conversely, when uncertainty prevails, they demand confirmation, higher spreads, and tighter conditions. Restoring that trust requires consistent policy action, transparent monitoring, and a commitment to payment discipline.

Bangladesh’s economic trajectory now depends on improving the efficiency and credibility of its trade-finance system. The country’s export sector, industrial base, and consumer market all rely on affordable imports.

By implementing a central-bank–led payment monitoring framework and a broader trade-finance reform agenda, Bangladesh can reduce the credibility premium embedded in its import costs. The result would be a more competitive economy, stronger external sector resilience, and a trade system aligned with global best practices.

Tashzid Reza works in a trade finance company operating as a liaison office in Bangladesh.