Bangladesh’s private sector credit growth dropped to 9.95 per cent in January this year, compared to 12.14 per cent recorded year-on-year – signifying a decrease of 2.19 percentage points.
It was 10.2 per cent in December last year, according to Bangladesh Bank sources.
On January 17 this year, the central bank cut the private sector credit growth target to 10 per cent from 11 per cent to lower demand in an economy that has been witnessing higher inflation for the past two years.
The private sector credit growth was 10.20 per cent in December 2023.
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Dr Zahid Hussain said, “The Bangladesh Bank reduced the private sector credit target from 11 per cent to 10 per cent until June 2024.
“However, the central bank cannot curb the inflation rate by shrinking private sector credit.”
He said that “The key reason for the decrease in imports since 2022 is the high inflation. The regulator imposed many restrictions on imports due to the USD crisis. As a result, the private sector credit has decreased since last year.
“Low credit in the private sector can be reversed as less supply increases inflation.”
He added, “The USD market’s instability has subsided, the crisis has not ended. The central bank should be managed to stabilise the USD market and increase the USD inflow. The stabilisation of the USD market can resolve the problem of private sector credit.”
On condition of anonymity, a senior central bank official said, “Due to the USD crisis, private sector traders are facing problems in importing raw materials and capital equipment.
“Raw materials and capital equipment are being imported much less than before. Most of the credit going to the private sector now is on consumer goods imports.”
He also said the consumer loan interest rate is increasing every month. Besides, the central bank has increased its policy rate several times in the current fiscal year.
On the issue, Managing Director and CEO of Dhaka Bank Emranul Haque said, “The economic crisis has been going on for the last two years. Importers cannot import due to the USD shortage.
“When imports decrease, the banks’ credit demands decrease automatically.”
He added, “I think that at the end of the year, the banks are trying to lend to the public sector to meet the lending target. If banks lend properly, then the balance sheet would be healthier.
Speaking to Business Post, many traders claimed that they cannot 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 considering the rate of USD.
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 country’s overall inflation was 9.69 per cent in February.
