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The popular expectation that the present government would take more effective and determined measures than its predecessors to improve the business climate has largely been belied. The latest Business Climate Index (BBX) for FY2024-25, jointly prepared by the Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange Bangladesh (PEB), testifies to the fact that the country's business environment has shown no worthwhile improvement over the past year. On the contrary, conditions have deteriorated in several key areas.
According to the survey, access to regulatory information, infrastructure facilities, labour regulations, trade facilitation, technology adoption, and environmental compliance have all worsened compared to the previous year. The overall BBX score stands at 59.69, up slightly from 58.75 in FY2023-24, but the marginal increase of less than one point offers little comfort. The report cites political instability, geopolitical tensions, rising production costs, high inflation, and increased bank lending rates as major drags on investment and business confidence.
Even though the government managed to stabilise the economy to a large extent from the mess it inherited, it is evident that prolonged political uncertainty is undermining efforts to regain investors' confidence. What has compounded the crisis is rampant extortion, an alarming slide in law and order, mob lynching, robbery, and other crimes. In an atmosphere of fear and intimidation, no enterprise can thrive, and no one can feel secure. About the investment climate, the less said the better. Domestic and foreign investors will not be willing to sink their money into an economy that cannot provide a safety net and assurance of return on investments.
Amid the bleak investment scenario, the World Bank's forecast of a 4.8 per cent GDP growth for fiscal year 2025-26 is reassuring. But it also underscored the challenges of slowdown in private investment and job creation, risks in the banking sector, and declining revenue collection.
Another major problem for investors is the steep rise in bank lending rates. A persistently tight monetary policy over the past three years, aimed at reining in inflation, has driven up the lending rate from the previous 9 per cent to around 16 per cent. This has significantly increased the cost of doing business.
Investors have complained that it is unimaginable for them to expect a profit margin of 16 per cent from their operations, so paying an equivalent or higher amount as interest on bank loans is simply unfeasible. Moreover, banks impose various hidden charges on loans, which effectively push the real interest rate up to 18-20 per cent. This abrupt hike in lending rates has become a thorn in the side of investors. One of the main reasons behind the closure of 182 garment factories over the past year is the hike in interest rates.
Moreover, the prevailing liquidity crisis in banks is severely affecting the industry sector. Garment exporters often allege that although they have sufficient deposits in their accounts, including export proceeds, they cannot withdraw the money due to the liquidity crunch. As a result, many factories are struggling to pay workers' wages on time, leading to worker grievances and growing unrest.
To restore economic growth momentum, the government must stabilise the banking sector, reduce credit costs and regain investors' confidence. Banking sector reforms need to be expedited so that banks can extend proper support to businesses. By doing so, it will not only revive credit growth but also open new avenues for job creation and offer new hope.