Economy stabilising amid sluggish investment momentum

Bangladesh's economy shows signs of cautious stabilisation, but investment momentum remains sluggish as the private-sector credit growth weakens and borrowing costs remain high, according to a report of the General Economics Division (GED) under the Planning Commission.

Released on Tuesday, the October issue of the Economic Update and Outlook highlights that despite recent reforms by the government and the Bangladesh Bank, credit to the private sector grew only 6.35 per cent in August - the lowest in the past decade - while bank lending continues to favour government borrowing.

High interest rates, currently averaging 13-15 per cent, have discouraged entrepreneurs from new ventures, technology expansion, and factory setups, contributing to stagnation in both employment and production, the report says.

Without a revival in private-sector lending, industrial production, job creation, and exports could suffer, the GED warns, adding that government borrowing at high interest rates may crowd out the private sector.

Headline inflation edged up slightly to 8.36 per cent in September from 8.29 per cent in August, following marginal increases in both food and non-food prices, it says.

While rice prices have eased somewhat, the costs of fish, meat, and edible oil remain high, keeping pressure on low- and middle-income households, it adds.

Exports remained broadly stable despite a dip in September to $3.63 billion from $3.92 billion in August, with ready-made garment (RMG) contributing to over 80 per cent of the receipts.

Non-RMG sectors, including jute, leather, and light engineering products, maintained steady performance.

Meanwhile, foreign exchange reserves increased to $31.4 billion in September from $25.5 billion in March, reflecting stronger remittance inflows and moderated import payments.

The GED report also reveals that government revenue collection grew 21 per cent during July-August in the current fiscal year, led by VAT (up 34 per cent) and income tax (up 24 per cent).

The customs revenue, however, fell by 4.5 per cent due to reduced import activities.

The report also highlights that the economy is gradually stabilising, but boosting investment and employment will require swift policy action.

Reducing interest rates, strengthening banking sector governance, and ensuring a conducive investment environment with political stability and transparent regulations are critical, it notes.

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