Private-sector borrowing in the country has flatlined for five consecutive months, as high interest rates, persistent power shortages, a weakened banking sector and mounting political uncertainty leave businesses unwilling – or unable – to invest.
Economists warn the slowdown is now feeding through to production, employment and broader economic growth.
According to Bangladesh Bank data, private-sector credit growth stood at 6.49% in June last year. It rose marginally to 6.52% this July, before slipping to 6.35% in August, 6.29% in September and 6.23% in October. In October 2024, the rate was 8.30%, meaning growth has fallen by more than two percentage points in a year.
Economists describe the investment climate as a “dead zone”: loan demand is flat, factory expansion has stalled, firms are not hiring, and business confidence continues to erode.
Why aren’t businesses borrowing?
Banks raised average lending rates to 11.77% in October, up from 10.28% a year earlier. The steeper cost of credit has brought little relief for households, however, with inflation still high and living costs rising.
Analysts argue the private sector – the main driver of jobs and growth – is being squeezed by a monetary stance aimed at reining in inflation, yet inflation itself remains stubborn. If borrowing remains subdued, they warn, the strain on businesses will deepen.
Business leaders say the current interest-rate environment makes new investment “practically impossible”. Banks, grappling with rising default risks, are cautious to lend.
Shams Mahmud, president of the Bangladesh Thai Chamber of Commerce and Industry, told the media, “We are only trying to keep our existing operations alive. Nobody is thinking of expansion. With borrowing costs and VAT-tax burdens so high, starting a new business is extremely difficult.”
Anwar-ul-Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries, added, “The economy is bleeding. Expectations were high, but law-and-order and energy conditions have not improved, and the needs of the private sector are being ignored. Businesses are under immense pressure from high interest rates, inflation and energy shortages.”
He called for more liberal economic policies to boost employment, improve competitiveness and diversify industry, warning that without decisive action, the labour market and social stability could come under strain.
Election-related uncertainty
Despite the government’s announcement of an election roadmap, investor sentiment has yet to stabilise.
Dr Mustafa K Mujeri, former chief economist at Bangladesh Bank, said, “Bangladesh’s economy is limping. Even major industrial groups have lost interest in expanding investment.”
He attributes the slowdown to a combination of high interest rates, rising non-performing loans, weak bank risk appetite, political and policy uncertainty, and erratic electricity and gas supplies that raise production costs.
“Altogether, business confidence is eroding further,” he said.
He recommended expanding low-interest credit to agriculture, SMEs and healthcare, alongside stronger management of bad loans and reductions in bank spreads.
Former caretaker government adviser AB Mirza Azizul Islam said private-sector investment had been stuck at around 22%-23% of GDP for years. “Because the overall situation remains unsatisfactory, investment isn’t happening – and loan demand isn’t rising. Although the government is aware, no visible initiatives have emerged,” he said.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, noted that while some investors were preparing for new projects, activity remained limited.
“That’s why credit uptake is still very low. But if clients request loans, we are ready to provide them,” he said.
The Bangladesh Bank has signalled it is likely to keep the policy rate unchanged in the upcoming monetary policy announcement.
The central bank had targeted private-sector credit growth of around 9.8% for January-June 2025 but achieved only 6.4%.
The current target for July–December has been lowered to 7.2%, reflecting an ongoing contractionary stance.
Courtesy: The Daily Sun
Bd-Pratidin English/ AM
