Bangladesh’s economic growth has recently decelerated, which is attributed to elevated interest rates, rising energy costs, and political uncertainty, according to trade body leaders and economists.
They noted that high financing costs and insufficient energy supplies are impeding business growth, despite the country having a substantial workforce.
Zakir Hossain Nayan, Convener of the Anti-Discrimination Business Forum at the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), remarked that the domestic business environment is under pressure due to escalating interest rates and the depreciating value of the Bangladeshi Taka against the US dollar.
“Consumer spending has declined as inflation strains household budgets. Consequently, domestic trade in Bangladesh experienced significant setbacks in July and August last year, although there has been a gradual recovery since,” he explained.
Nayan further stated that banks are grappling with a liquidity shortfall, which he attributed to the previous administration and their allied businesses exploiting banking policies to secure large-scale loans.
This situation has left more than a dozen banks unable to extend new credit facilities, while others remain hesitant to invest fresh capital into businesses. Under these conditions, he predicted that business expansion would remain sluggish throughout the second half of 2024.
Nevertheless, he acknowledged that conditions are improving due to the government’s efforts to increase liquidity in the banking sector, the easing of the dollar crisis, and a gradual decline in inflation.
He also highlighted that the export sector remains resilient despite challenges, including labour unrest in the garment industry, with export orders projected to rise by 10–15 per cent in 2025.
Taskeen Ahmed, President of the Dhaka Chamber of Commerce & Industry (DCCI), reported that GDP growth stood at just 1.8 per cent during the first quarter of the current fiscal year, while the manufacturing sector recorded a modest increase of 1.43 per cent.
He underscored that Bangladesh’s economy faces ongoing challenges as it moves toward graduating from the Least Developed Country (LDC) category by 2026.
To overcome these hurdles, Ahmed advocated for enhancing skills within the small and medium enterprise (SME) sector, ensuring long-term access to affordable credit, establishing free trade agreements to expand export markets in the Middle East and South Asia, and improving infrastructure to attract foreign direct investment (FDI). He also called for reforms in revenue and associated policies.
Additionally, he urged the government to diversify exports beyond the ready-made garment sector, citing the potential in industries such as pharmaceuticals, leather goods, agro-processing, semiconductors, light engineering, and information technology.
Ahmed stressed the importance of a comprehensive ‘Smooth Transition Strategy’ (STS), with significant involvement from the private sector, and emphasised that ensuring access to low-cost funding is vital to restoring business growth.
Khandoker Rafiqul Islam, former President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), informed the media that the garment sector has recently met its export targets by operating at full capacity.
However, he cautioned that sustaining this momentum would be challenging if high costs and inconsistent energy supplies continue to restrict business expansion.
Islam also highlighted the difficulties faced by the domestic textile industry due to limited working capital and energy shortages.
The latest Bangladesh Purchasing Managers’ Index (PMI) report indicated a 1.1-point decline in February, reflecting a slower expansion rate of 64.6.
The report attributed the slowdown to weaker growth in the construction and services sectors, while agriculture and manufacturing maintained a faster pace of expansion.
Developed by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange, with support from the UK Government and technical assistance from the Singapore Institute of Purchasing and Materials Management (SIPMM), the PMI provides timely insights into the country’s economic performance.
According to the report:
The agricultural sector has seen five consecutive months of expansion, driven by increased new business, production activity, input costs, and order backlogs, while employment contraction has slowed.
The manufacturing sector marked its sixth consecutive month of growth, with faster increases in new orders, factory output, input purchases, and supplier deliveries. However, growth in new exports, finished goods, imports, and employment has decelerated, while order backlogs have contracted more rapidly.
The construction sector expanded for the third straight month but at a slower rate. Although employment has returned to growth, new business and construction activity slowed, input costs rose, and the backlog of orders contracted at a reduced pace.
The services sector recorded its fifth month of expansion but with a decelerating growth rate. Business activity, new orders, and employment all grew at a slower pace, while the order backlog index turned negative and input costs increased.
“The PMI readings indicate that Bangladesh’s economy has sustained growth for the fifth consecutive month, supported by robust export performance and a seasonal boost in the agricultural sector. However, the construction and services sectors are expanding at a slower pace,” said M Masrur Reaz, Chairman and CEO of Policy Exchange.
Reaz warned that business confidence remains fragile due to weak consumer demand, energy supply disruptions, and ongoing political unrest.
He concluded that a sustained economic recovery hinges on improved law and order, a political consensus on the election process, and the swift implementation of essential reforms.
Courtesy: UNB
