Bangladesh’s private sector credit growth has dropped to a 22-month low of 9.75 per cent in August from 9.82 per cent in July this year, according to the central bank data released on Tuesday.
Private sector credit growth was 9.44 per cent in October 2021 and the growth rate was above 10 per cent before July this year. The data indicates a steady decline in investments in the private sector, which is directly affecting industrial production and the country’s economy.
Insiders think that private sector credit growth has continued to drop due to the global economic headwinds and the upcoming election in the country.
Besides, many importers do not import capital machinery and other items due to the falling demand in the country. On the other hand, businessmen are now trying to understand the upcoming challenges in the economy and the rate of US dollar.
Asian Development Bank (ADB) said on Tuesday that inflation, external sector pressure, financial sector vulnerability and uncertainty are the major key challenges for Bangladesh. Investment growth is now slowing ahead of the elections, it added.
Zahid Hussain, former lead economist of the World Bank Dhaka office said, “There are two major reasons for the decrease in private sector credit. Importers cannot import due to the USD crisis. When imports decrease, the bank's credit demand drops automatically.”
“Importers cannot import capital machinery. Another reason is the high inflation rate, which has reduced the people's purchasing power. When the demand is low, supply decreases automatically.”
This in turn may push up the prices of essential commodities as importers cannot bring in capital machinery due to a lack of investments.
Sometimes importers have the chance to take loans from banks, but sometimes they hold out to purchase essentials, he added.
Insiders say importers are acting conservatively while importing materials due to the rising rate of US dollar and low demand.
Dhaka Chamber of Commerce and Industry President Sameer Sattar said, “Importers have not imported enough due to the global economic headwinds. Additional pressure on the foreign exchange market has had some impact in this regard.”
“Quick and effective action is needed to facilitate private sector credit growth to foster competitiveness in the overall economy. Private investment rate fell to 21.25 per cent in FY21 due to the pandemic, which was the lowest in 14 years.”
The Association of Bankers, Bangladesh (ABB) and Bangladesh Foreign Exchange Dealers Association (BAFEDA) introduced a uniform exchange rate last month, and banks are now offering Tk 109.50 for remittances and export proceeds.
The import bill and the interbank exchange rate are also almost the same.
The central bank sold around $2.25 billion in the July-August period of FY24. It sold around $13.54 billion to banks in FY23 which resulted in a decline in forex reserves to $ 29.9 billion on July 6 this year, compared to $ 48.6 billion in August 2021.
Credit growth also fell due to restrictions on imports of luxury items and increased monitoring on imports imposed by the Bangladesh Bank.
The central bank reduced the private sector credit growth target for FY23 to 14.01 per cent from 14.8 per cent of FY22 in a bid to tackle the inflationary pressure. The target was 10.9 per cent in December 2023.
