Challenges to Business Growth in Bangladesh Amid High Costs and Political Uncertainty

Bangladesh’s economic growth has slowed due to high interest rates, energy costs, and political uncertainty. Experts emphasize the need for reforms in financing and skill development to revitalize the economy. Although the export sector shows resilience, challenges persist for businesses in light of inflation and energy supply issues.

Business growth in Bangladesh has recently experienced a downturn, primarily influenced by elevated interest rates, costly energy, and political instability, as noted by leaders and economists within the trade community. They indicate that despite a considerable workforce, high funding costs and subpar energy supply are major obstacles to business development.

Zakir Hossain Nayan, the Convener of the Anti-Discrimination Business Forum at the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), remarked on how high inflation is constraining consumer spending, leading to substantial impacts on internal trade in mid-2022, although recovery is gradually occurring. The banking sector is currently grappling with liquidity issues due to past policy misuse, rendering some banks unable to make new investments.

Despite these challenges, Nayan noted signs of improvement due to increased money flow in the banking sector and a stabilization of the dollar crisis, with a decrease in inflation. The export sector appears resilient, with export orders projected to rise by 10-15% in the coming years, despite facing turmoil within the garment industry.

Taskeen Ahmed, President of the Dhaka Chamber of Commerce & Industry (DCCI), indicated that GDP growth for the first quarter of the current fiscal year was only 1.8%. He emphasized that as the economy prepares to exit the LDC status by 2026, it must address significant challenges through various initiatives, including skill development in the SME sector and enhanced access to low-cost credit.

Ahmed called for government support to encourage exports beyond the garment sector, highlighting viable industries such as pharmaceuticals, leather goods, and information technology. He stressed the importance of a comprehensive ‘Smooth Transition Strategy’ involving the private sector.

Khandoker Rafiqul Islam, former President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), expressed concern regarding the sustainability of export targets in the garment sector amidst high operational costs and unreliable energy supply. He noted that the domestic textile sector is facing difficulties due to capital shortages and inconsistent energy access.

The Bangladesh Purchasing Managers’ Index (PMI) report illustrated a minor decline of 1.1 points in February, indicating a softer expansion rate. The PMI, designed with support from the UK Government and technical assistance from Singapore, highlighted that while agriculture and manufacturing sectors maintained growth, construction and services experienced a slowdown.

The PMI report detailed that the agriculture sector has expanded for five consecutive months with notable increases in business activities. The manufacturing sector also showed continued growth, although new exports and finished goods displayed slower growth rates. Conversely, the construction sector observed reduced activity amid rising costs, while the services sector noted a deceleration in business growth.

In summary, Bangladesh’s economic growth has been hindered by high costs, energy shortages, and political instability. Although there are indications of gradual improvement, especially in the export sector, the need for strategic reforms in SME development, access to finance, and enhancing diverse export capabilities remains critical. Achieving robust economic growth will require a secure political environment and decisive actions to address systemic challenges.

Original Source: unb.com.bd