The crisis in the economy and trade is becoming increasingly complex. High interest rates have slowed investment, while the private sector is struggling to access loans. Even when loans are available, borrowing costs are driving up business expenses.
Adding to the pressure are rising energy costs, which are increasing industrial production expenses. Production costs in the garment sector alone have risen by at least 20 percent. Many factories and industries are shutting down due to mounting losses and other financial pressures.
At least 400 factories have closed over the past three years. Those still operating are running at only 50 to 70 percent of their capacity. While the private sector is struggling to obtain credit, the government has borrowed nearly Tk100,000 crore to meet its own expenditures. Higher prices of fuel oil and LPG have also increased transport costs for industries and households alike.
As a result, the prices of goods have risen again, pushing inflation upwards once more. Life is becoming increasingly difficult for people with limited incomes. Although the government had promised a new pay scale for public employees, it has been unable to implement it due to a shortage of funds. More than Tk100,000 crore would be required for this sector alone.
Government employees are also suffering in a high-inflation environment after failing to receive the promised pay scale.
Economic analyst and Chairman of Financial Excellence Limited, Mamun Rashid, said that when interest rates are raised solely to control inflation, the impact falls directly on the productive sectors of the economy. He said the rising cost of bank borrowing has pushed the cost of doing business to a level where production costs are no longer competitive. From purchasing raw materials to paying workers’ wages, businesses now face higher financing costs at every stage, naturally squeezing net profits.
According to information gathered from data reviews and discussions with businesspeople and ordinary citizens, both the private sector and the general public are currently facing a multifaceted crisis. High inflation and tight monetary policy have pushed industrial production and everyday life into deep uncertainty.
After the removal of the longstanding cap on lending rates and the introduction of market-based interest rates, bank loan interest rates have now risen to between 14 and 16 percent. As a result, private sector credit growth has fallen to its lowest level in a decade, hovering around 9 percent. Investment flows into the private sector have contracted by nearly 30 percent, with entrepreneurs focusing more on reducing existing debt burdens than launching new projects.
High interest rates have also reduced imports of capital machinery, raising concerns about negative long-term impacts on GDP growth.
An analysis of the industrial sector shows that production and operating costs have risen by more than 40 percent on average over the past year. Production costs in the garment industry have increased by around 20 percent. Rising fuel oil prices and expensive LPG have made transportation and production significantly costlier.
The continued depreciation of the taka against the US dollar has further increased the cost of importing raw materials. As a result, a significant number of industrial establishments have been unable to withstand capital shortages and losses, leading to the closure of at least 400 factories over the past three years. Large factories are operating at only 50 to 70 percent capacity due to gas and electricity shortages, causing stagnation in overall industrial output.
Market analysis suggests that business turnover and transactions have fallen by at least 20 to 25 percent compared to the same period last year.
To cope with rising global fuel prices amid ongoing war-related disruptions, the government adjusted domestic fuel prices on April 18. Under the new rates, diesel prices were increased by Tk15 per litre to Tk115, octane by Tk20 to Tk140, petrol by Tk19 to Tk135, and kerosene by Tk18 to Tk130 per litre.
Business leaders say higher fuel prices have increased transportation costs, which are affecting the market. Following the Tk15 increase in diesel prices, truck fares rose by several thousand taka, pushing up the prices of all goods from wholesale to retail markets.
Over the past three months, the price of a 12kg LPG cylinder used for cooking has risen by as much as 43 percent. The government-fixed price currently stands at Tk1,940, although consumers are reportedly paying an additional Tk200 to Tk300. In February, the same cylinder cost Tk1,356.
The market has not yet fully absorbed the impact of higher fuel prices, while the Power Division has begun preparations to increase electricity prices by 17 to 21 percent. According to BERC sources, the Bangladesh Power Development Board has proposed raising wholesale electricity prices by Tk1.20 to Tk1.50 per unit. The current wholesale rate is Tk7.04 per unit, while the average retail price is Tk8.95. If implemented, the proposal would raise costs across residential, commercial and industrial sectors.
The impact of higher fuel and LPG prices is ultimately borne by consumers, leading to higher prices for everyday goods. Prices of vegetables and almost all essential commodities have already risen. Recent reviews of retail market data in Dhaka and TCB figures show that the price of farm eggs has increased by 21 to 22 percent over the past three months.
In different retail markets across the capital, the price of green papaya has risen by 150 to 167 percent per kilogramme, aubergine prices by 60 to 100 percent depending on the variety, and green bananas by up to 50 percent per bunch. Soybean oil prices have increased by 3 to 6 percent, with bottled oil selling at Tk200 per litre and loose soybean oil at Tk186 to Tk195. Medium-quality rice prices have also risen by 3 percent to between Tk60 and Tk68 per kilogramme.
Meanwhile, incomes have not increased. Official inflation data show that inflation rose to 9.04 percent in April, up from around 8 percent the previous month. This means that goods costing Tk100 a year ago now cost more than Tk109. However, wages and salaries have not increased at the same pace.
Although these are official figures, market realities suggest that food inflation has exceeded 12 to 13 percent. Prices of essential items such as rice, lentils and edible oil have risen by 20 to 50 percent over the past year. As a result, the purchasing power of low-income people has declined sharply, reflected in strong demands from government employees for a new pay scale.
Although the government announced a pay scale revision, it has been unable to implement it due to financial constraints. More than Tk100,000 crore would be required, while the government is already borrowing heavily from banks due to a significant shortfall in revenue collection. Authorities are now considering implementing the pay scale on a limited scale.
Analysts say the government is unable to spend freely because of funding shortages and is increasingly relying on loans from banks and financial institutions to cover routine expenditures. At the same time, sluggish investment and weak business activity in both the public and private sectors have raised concerns about achieving targeted GDP growth.
Employment generation remains inadequate. Factory closures are causing job losses, while new employment opportunities are not being created. Yet household expenses continue to rise uncontrollably, forcing many people to borrow simply to manage family costs. For many, survival itself has become difficult. Both ordinary citizens and entrepreneurs across all sectors are enduring severe hardship.
BTMA President Showkat Aziz Russell said that the absence of people-friendly policies from government institutions responsible for policy support has placed businesses in a difficult position. He said high bank interest rates and declining confidence among local entrepreneurs have created investment stagnation, with small and medium-sized enterprises struggling to keep factories running. Many are on the verge of closure.
He added that the burden of the government’s “luxury projects” has pushed the economy into severe slowdown, making it essential to maintain fiscal balance and reduce unnecessary expenditure. He also stressed the need to promote import-substitute industries and expand domestic trade rather than relying heavily on imports.
Economist Mamun Rashid said that in many cases, businesses are finding that loan interest payments are exceeding their actual earnings, inevitably pushing them into losses. Once a promising business starts losing money, regular loan repayments become nearly impossible. He warned that this is creating a new class of involuntary defaulters in the economy and argued that such struggling entrepreneurs should not be treated the same as deliberate loan defaulters.
Business leaders and economists say the sharp rise in interest rates is also discouraging new investment. When entrepreneurs see that even taking risks in business results in losses while a large portion of earnings goes towards paying bank interest, they abandon expansion plans and focus merely on survival. This, they warn, hampers employment and slows long-term national growth.
They argue that policymakers should reconsider the devastating impact of high interest rates on productive sectors rather than relying solely on tight monetary policy to manage the economy.
Courtesy:Kaler Kantho
Bd-pratidin English/ ANI
